§ House again in Committee on Clause 5.
§ [Amendments Nos. 75 to 83 not moved. ]
§ Lord Williams of Elvel moved Amendment No. 84:
Page 10, leave out line 26.
§ The noble Lord said: This amendment stands in the names of my noble friend Lord Peston and myself. It introduces the question of Schedule 1 which is to do with regulators and their duties. I have two points: one is eliciting explanation from the Government; the other is a point of principle.
§ First, the explanation. I am speaking to Schedule 1 stand part, as well as to Amendment No. 84. In Schedule 1 I do not understand the expression "concurrently" which appears in all the duties or entitlements of the different regulators in different sectors to operate with the Director General of Fair Trading. As I understand "concurrently", trying to give the explanation in plain English, it means that the appropriate directors general of whatever utility it may be are entitled to exercise the powers at the same time, "concurrently", but not necessarily dependent on the decisions of the Director General of Fair Trading. Thus, if the word "concurrently" is as I think it is in plain English, there could be disputes between, for example, under paragraph 1 of Schedule 1, the director general of telecommunications acting concurrently but not necessarily in concordance with the Director General of Fair Trading. The word "concurrently" is pursued through the schedule.599
"The Director shall keep the carrying out of an undertaking".
§ With that phrase, we have to assume that in the case of telecommunications, the director general of telecom-munications can, concurrently but perhaps not independently and perhaps not even in concordance, conduct the same review. My question is: what is "concurrently" about? What does it really mean? I understand that the noble Lord is to respond and I should be grateful if he will explain the matter precisely since proceedings in this House determine the way in which courts interpret expressions in the Bill.
§ The problem of principle is that powers are given under this deregulation Bill to people who will apparently impose further regulation. So I ask the noble Lord how it is that sectoral regulators are given further powers of regulation under a deregulation Bill. How do we control the sectoral regulators?
§ Noble Lords have had debates about the regulation of utilities and we have no idea how the regulators are to be regulated themselves. That is a point of principle. I ask the noble Lord who is to reply—and I understand it is the Minister himself—to explain exactly how the regulators themselves are to be regulated, in addition to defining exactly what powers are to be given under Schedule 1 to the regulators of the various utilities.
§ The Minister may treat this as a matter of frivolity, but it is not. It is a very serious matter. I hope very much that the Government will be able to satisfy us that this is not an increase in regulation and at the same time satisfy us that "concurrently" means something which does not duplicate bureaucracy. I beg to move.
§ Lord Strathclyde
I can certainly confirm to the noble Lord, Lord Williams, that there is no question of frivolity in dealing with this matter. I am glad that he has given us an opportunity to discuss it. However, I suspect that he has made a mistake here—an unintentional mistake, but a mistake all the same. I understand that the word "concurrent" is the word used under the Fair Trading Act and that the sectoral regulators already have concurrent powers with the DGFT under the monopoly provisions of the Fair Trading Act. Therefore, we are not giving the regulators any greater power or any less power under these provisions than they currently possess under the Fair Trading Act and their relevant responsibilities under it.
As I mentioned earlier this afternoon, the clause provides a short cut to the right solution in straightforward cases where the solution is clear and with the opportunity for all those affected to comment.
§ Lord Williams of Elvel
I am sorry to interrupt the noble Lord. If that already happens as a matter of practice and of law, why is there a schedule to the Bill?
§ Lord Strathclyde
I understand that all the schedule does is to provide for the extension of the powers in the clauses to deal with the relevant Acts in which the regulators are themselves regulated. Extending the 600 provisions to the sectoral regulators provides greater opportunity for problems to be resolved quickly where issues are clear cut. That again is to the benefit of everyone involved.
§ Lord Williams of Elvel
With respect to the noble Lord, that simply will not do. "Concurrently" quite clearly means "alongside", in the same time frame; it does not mean "in concordance with". It obviously excludes—it does not even possibly exclude—"in-dependently of. I quite accept that under present arrangements the Director General of Fair Trading will consult the Director General of Telecommunications, to take paragraph 1 of Schedule 1, on any decisions that he may wish to make. But to put a schedule in the Bill to say that the Director General of Telecommunications shall be "entitled to exercise, concurrently" either simply reflects existing practice, in which case there is no point in putting it into the Bill, or it has some merit in terms of the authority of the Director General of Telecommunications that he does not at present have.
§ Lord Strathclyde
I am obviously not explaining the situation fully. The point, as the noble Lord is no doubt aware, is that sectoral regulators have their own Acts: the Telecommunications Act, the Gas Act, and so on. All that the schedule does is deal with those different Acts in a schedule as opposed to putting them in the main part of the Act. There are provisions in the sectoral Acts dealing with consultation between the DGFT and the sectoral regulator concerned. The clause itself gives some flexibility to the regulators, who have concurrent powers already. For instance, they can make a reference or accept undertakings instead.
I am sorry that the noble Lord, Lord Williams, is demonstrating such great concern. I did not think that there was a problem here. I thought that the noble Lord would raise more general issues. However, I hope that that explains the situation as to why the word "concurrent" exists and what it means vis-à-vis this particular piece of legislation.
Lord Monks well
I really do not think that what the Minister has said to the Committee so far is quite adequate. We have to realise that in what appears on the face of this Bill the Government are creating a problem that effectively was not there before, in the sense that the Director General of Fair Trading holds his powers under the Fair Trading Act 1973 and the regulators have their powers under the relevant privatisation legislation provisions.
At the time of privatisation the very reason that the regulators came into existence was that it was obviously felt that the powers of the Director General of Fair Trading were not adequate to deal with the particular problems associated with the utilities. So the powers of the regulators are different in a significant way from the powers of the Director General of Fair Trading. But the Government are now bringing the two together. By using the word "concurrently" in terms of the exercise of the powers they are creating a problem.
Perhaps I may remind the Committee that this is the problem that I raised last week in terms of the orders that Parliament will have to consider with regard to all this 601 business, in that the orders will be determined in parallel by the two Houses of Parliament, and therefore we could end up with two distinct and different decisions being arrived at. It was pointed out by the Minister that the Government envisage some mechanism—and we are entitled to wonder whether that mechanism will be adequate—to resolve any conflicts.
The noble Earl, Lord Russell, also identified a parliamentary mechanism to deal with the problem. The fact that that mechanism goes back several hundred years and may not be relevant to today's situation is again a point that we may have to consider. But the problem that we are considering now under this amendment is the one that the Government have presented to us by giving powers "concurrently" to two sets of people: to the Director General of Fair Trading and to the individual regulators. We have to recognise that each of those individuals could arrive at different decisions. What the Government have not explained is what mechanism will be used to resolve that clash. By writing in the word "concurrently" in terms of exercising powers, they have presented us all with a problem and have provided no explanation as to how that problem might be resolved. The Minister really must do better in terms of trying to explain the situation and must give us some idea as to how those possible difficulties could be resolved.
§ Lord Strathclyde
I think I must be more stupid than I originally thought. I did not think that there was any problem with this proposal. The reason why I thought there was no problem is that the matter is of course dealt with in existing legislation (not the bit that we are dealing with just at the moment) and is all well laid out in the different sectoral acts and in the Fair Trading Act—
§ Lord Williams of Elvel
Whether or not this matter is dealt with in existing legislation, there is still an answer to be made to this Committee as to how, if there is a conflict between the Director General of Telecommunications and the Director General of Fair Trading under new Section 56E, which is the new section to be inserted into the Fair Trading Act, concurrent investigations can be reconciled. What is the procedure? Now whether that is a matter of administrative procedure the Minister must tell us. But he cannot put "concurrently" into legislation in front of this House without explaining in words of a few syllables exactly how these difficulties (if there are difficulties) are to be resolved.
§ 8.15 p.m.
§ Lord Strathclyde
I do not think that there are any difficulties. There have not been any difficulties in the past, and there is no reason why there should be in the future. However, the noble Lord has asked for an explanation as to how these powers operate. All that "concurrently" means is that the utility regulators have exactly the same powers in respect of their own sector as does the DGFT, and no more. The regulator and the DGFT agree on a division of responsibilities in relation to that sector. The point of this legislation is that this will apply for accepting undertakings, as it does with all 602 the rest. So if there is a problem in this, then presumably there is a problem in everything else. I am saying that there is not.
§ Lord Strathclyde
Will the noble Lord please sit down? I am trying to explain. If the noble Lord keeps bouncing up and down we shall not be able to get any further.
The provisions in the existing sectoral Acts covering consultation would apply. That is the point. In each individual Act it is clearly laid out how the consultation procedures between the DGFT and the regulator fit in with each other. If, of course, two different proposals were made to the Secretary of State, he would then have to decide which to accept. I cannot foresee that situation arising. However, if it did, then quite naturally the Secretary of State would be in a position to make up his own mind. I hope that that deals with the issue—
§ Lord Williams of Elvel
In that case, why do the Government not produce a Bill which says that the Director General of Telecommunications shall be: entitled to exercise "together with" the Director General of Fair Trading? That would make sense.
§ Lord Strathclyde
I suspect that we are bound by words that have been used in previous legislation, and that to change the wording at this stage would create even more confusion. As we are a responsible legislative body we should look carefully at the precedents that have been set in the past.
§ Lord Monkswell
There are two points that I would make. The noble Lord says that the powers of the Director General of Fair Trading and the powers of the regulators are the same. Palpably, they are not. So far as I understand it, the Director General of Fair Trading does not have the power to determine the price of gas, electricity or water which the regulators effectively do have. There is a distinction in fact.
This section of the Bill says that the powers with regard to monopoly are effectively to be discharged separately but concurrently by the two directors—the Director General of Fair Trading and the regulators of the utilities. The Government still have not explained how a decision by the Director General of Fair Trading which may be at variance with a decision of the regulator of the utility may be reconciled. The directors general have powers in their own right and do not refer everything to the Secretary of State.
§ Lord Strathclyde
I think we are making much heavier weather of this matter than is necessary. The regulators do have different powers from the DGFT— that is why we have regulators—for their particular sectors. But there are many areas in which they have exactly the same powers. As I explained, the director general and the regulator will decide on sharing out their duties. If at some point they happen to disagree., then presumably the Secretary of State will make a decision. I cannot make the position much clearer than that. I hope that the noble Lord, Lord Monkswell, will agree with the proposition that I put.
§ Lord Williams of Elvel
Would the Minister care to move on to my second question: who controls the regulators?
§ Lord Williams of Elvel
That is all very well, but so are the Secretary of State and the Minister. They also are controlled by an Act of Parliament. So are we all.
This is a serious question, which has been raised on a number of occasions. With privatisation a number of bodies are set up which are designed to regulate private monopolies. The question arises, as it always does: to whom are the regulators responsible? Quis custodiet ipsos custodes—if I may use that Latin expression. There is no guarantee under any Act on privatisation that I have ever seen—the Minister must accept that I have dealt with a number of Acts on privatisation—in which the regulator is in any sense democratically controlled. I should be grateful if the Minister would reply to the question.
§ Lord Strathclyde
That is a fundamental difference of philosophy between ourselves and the noble Lord and his party. The fact is that regulators are accountable. The Select Committees of another place may and do call the regulators before them. Regulators' decisions can be subject to judicial review. If the regulator cannot agree to proposed new licence conditions, the issue is referred to the MMC for its view on the public interest. There are countless safeguards on this whole issue. We have strayed beyond the original amendment and indeed the purpose of these clauses. I cannot agree that the regulators themselves are a machine out of control, beyond accountability to Parliament.
§ Lord Desai
I am sorry to come in so late to the debate but perhaps I could clarify the issue. The problem is that the Government have not made up their mind whether they like monopolies or whether they like competition. They like "private" rather than "public" but it is not clear whether they like competition or monopolies. Therefore they have created many private monopolies. And because they love the word "private" they have put on a rather uncoordinated system of regulators which prevents us from having overall control of any kind over the monopolies. Moreover, it is not clear that those monopolies will be forced properly to compete.
We know what the noble Lord, Lord Lawson, in his memoirs said about privatisation of the gas industry. I am sure that the Minister has read that tome and knows that the situation was scandalous. It is well known that in the United States the government enforce competition. The regulators have to enforce com-petition. I am not at all clear whether this Government want to enforce competition or merely to privatise. When they want to privatise they appoint regulators who do not have any clear regulator above them and therefore the whole system is a shambles.
My noble friend Lord Williams is entirely right when he persists in questioning whether the whole schedule is indeed correctly drafted.
§ Lord Strathclyde
I can assure the noble Lord that it is not incorrectly drafted. It uses as a precedent various pieces of legislation. In these clauses a similar power which will be available to the DGFT is given to the different sectoral regulators.
I shall not follow the noble Lord into a critique of the book of my noble friend Lord Lawson. Suffice it to say that transferring state businesses to the private sector has increased business efficiency, whether through competition or in other ways, has allowed many employees to take a direct stake in the companies for which they work and has led to a major change in attitudes. I know that it is not everybody's wish that we should privatise but I believe that the record speaks for itself.
§ On Question, amendment negatived.
§ Clause 5 agreed to.
§ Schedule 1 agreed to.
§ Clauses 6 to 8 agreed to.
§ Schedule 2 agreed to.
§ Clause 9 [Restrictive trade practices: registration of commercially sensitive information]:
§ On Question, Whether Clause 9 shall stand part of the Bill?
§ Lord Williams of Elvel
Clause 9 leads us into restrictive trade practices, as indeed did Clause 8, with which we have no problem. The reason that I and my noble friend Lord Peston gave notice to oppose the clause is simply that we are concerned that it does not go far enough.
There was a consultative document—I have it in my hand—which was presented to Parliament by the Secretary of State for Trade and Industry and the Chancellor of the Duchy of Lancaster by Command of Her Majesty in March 1988. The paper reviewed restrictive trade practices policy. It was reviewed by a distinguished committee which came to the conclusion:In sum, our present system is inflexible and slow, too often concerned with cases which are obviously harmless and not directed sufficiently at anti-competitive agreements. The scope for avoidance and evasion considerably weakens any deterrent effect the system has and enforcement powers are inadequate. The requirement to furnish insignificant agreements is not only wasteful of official resources but imposes an excessive burden on firms".I fully understand that in the context of the Bill the last sentence is the one taken up by the Government. Nevertheless the consultative document produced in March 1988 put forward very firm recommendations. As I understand it—if I remember correctly, we debated the document at the time—it was widely welcomed and agreed by the Government. Why have the Government not used the opportunity of this Bill to put the recommendations of this document into law? We have now been waiting for almost six years. The restrictive trade practices policy badly needs revision. When will the Government do something about it? Why have they not done something about it in the Bill?
§ 8.30 p.m.
§ Lord Strathclyde
Perhaps it would be helpful to explain that with this clause we want to bring the protection available for confidential information in 605 restrictive agreements into line with the protection already available for confidential information in published MMC reports. This is because the existing rules on confidential treatment for restrictive agree-ments are extremely narrow. Any information on the public register is of course available to any competitors. Where information is commercially sensitive, that can be extremely damaging to companies. Yet many agreements containing such information in fact raise no competition concerns.
The clause therefore widens the criteria which empower the Secretary of State to decide that certain details can be placed in the special section of the register that is not open to public inspection. That will enable companies to protect a wider range of commercially sensitive information, but only of the same kind as can already be protected from publication in MMC reports and also only provided that publication would not in fact be in the public interest; for example, in order to understand the restrictions in the agreement.
This clause is simply an attempt to offer equal protection to information in restrictive agreements as already exists for information in MMC reports, subject to the same conditions. If publication is in the public interest, the information will still go on the public register, even if harmful. But the point is to avoid damaging companies where there is no public interest to be served by doing so.
The Government are still committed to introducing an RTP prohibition, as soon as legislative time permits, prohibiting agreements which have an adverse effect on competition subject to an exemption system as opposed to the RTP Act, which is based on the forms of agreement irrespective of their effect on the public interest. The current proposals are short term measures to ease unnecessary burdens before an RTP prohibition is introduced.
I recognise that it is a long time since we consulted. However, these things sometimes happen and we hope to legislate shortly.
§ Lord Williams of Elvel
The Green Paper covers many issues, such as block exceptions, which would facilitate the cause of business and would be quite in keeping with the deregulation Bill as it is presently drafted. Has the Department of Trade and Industry recently looked at the Green Paper? Has the Minister read it? If so, why are its recommendations, in so far as they contribute to deregulation, not included in the Bill?
§ Lord Strathclyde
Officials in the department review outstanding legislation from time to time. But I must confess that this is not an area that falls under my specific responsibility in the department. Neither the noble Lord nor anybody else would expect me to read every single consultation paper issued by the department over the course of the past six or seven years. However, I take full responsibility for all the consultation papers that I issued in the name of the Secretary of State for the areas for which I am responsible.
The Bill provides an opportunity to ease the burdens on business caused by existing law. I am advised that it would not be possible to include restrictive trade 606 practices prohibition within its scope. That is why we have not sought to include other provisions and there is no time for a Bill in the busy programme for the current Session.
§ Lord Desai
Do I sense that in proposing the deregulation Bill the Government have been less than bold? They have left many matters lying which should have been reformed, especially the RTP. When one looks at the clause, as it is and as amended, it appears that the Government are saying, "We do not want to be too competitive; we want to leave things lying as they are". Surely it is time that they thought about this problem. Either they want competition or they do not want it. We do not want a half-way house in which the Government pretend to be for competition and are only for privatisation, which is not competition.
§ Lord Strathclyde
Bold! Of course we have been bold. It was the noble Lords, Lord Williams of Elvel and Lord Peston, who last week called the Bill a "constitutional outrage". If it was not the noble Lord, Lord Williams, it was certainly his noble friend. Of course we have been bold and are keen on competition. But we do not believe that to include RTP prohibition provisions in this Bill is within its scope.
§ Lord Williams of Elvel
I understand that the Minister has not read the Green Paper and cannot read every document that his department produces historic-ally. I understand that the Minister wishes to disavow the document because it was issued by some other Minister at some other time and the fact that the matter was laid before Parliament is neither here nor there.
But the Government drafted the Bill and, in drafting the Long Title of the Bill, they could easily have arranged for the recommendations of this document to be included. The Long Title is long enough as it is, but it could have been extended by one or two sentences. If the Minister says that the matter is postponed for the Greek Calends, then that is what he says. I accept that it is not the Minister's responsibility, but I wish that from time to time he would consult with his officials and read the document that his Government put before us in 1988. I wish also that we could have a more satisfactory reply when the Government come to draft legislation. It is no good saying that there will be a Bill when time permits; we have heard that so many times. The document is dated 1988 and we are now in 1994. Here was a vehicle to do it. Why did not the Government do it?
§ Lord Strathclyde
I shall not allow the noble Lord, Lord. Williams, to get away with that comment. He entirely misrepresented what I said. I was happy to admit that I do not read every single consultation paper issued by the department and I also reaffirmed the Government's commitment to legislate on this important issue when time comes available.
§ Clause 9 agreed to.
§ Clause 10 [Anti-competitive practices: competition-references]:
§ [Amendments Nos. 85 and 86 not moved.]
§ Lord Peston moved Amendment No. 87:607
Page 14, line 38, at end insert:
("(j) explains why these undertakings are appropriate, and
(k) states what other undertakings have been considered and why they have been judged to be inappropriate.").
§ The noble Lord said: I congratulate Members of the Committee for keeping going as well as they have without me. Amendment No. 87 concerns page 14, line 38, and is another of my amendments to clarify the whole question of undertakings, consultation and so forth. I believe it is the end of the whole series, which will no doubt please the Minister no end.
§ Essentially, the subjects that we are discussing are to do with undertakings. What is not very clear is what will be the nature of the final decision that is come to. The point of the amendment is again to ask that a statement be made about the appropriate nature of the undertakings and, more interestingly, to clarify what else was considered and how the decision was arrived at. The case is overwhelmingly again one of rational decision-making in public. The case against it is not wishing to discuss these things in public; or, alternatively, the one that has been paraded ad nauseam; namely, that it all takes too long. I would rather enunciate the rule that it is better to take a bit longer if it means that the right decision is taken, rather than for it to be speeded up on the ground, "Let us get a move on". That is not to say that I am not keen to speed up all processes of this kind, but I should like to feel that at the end I have come to the right decision.
§ Although perhaps some distance from the kind of practical case that the noble Lord has in mind, one of the things that intrigues me more and more about his responses to criticism of the Bill is that we bring out increasingly clearly what the Government have in mind in terms of using these procedures. I admit—and I have made it clear to the noble Lord—that I had assumed that the whole point of the Bill was that major issues would be dealt with in this way, but increasingly the noble Lord seems to be saying that only minor matters will be dealt with in this way. That is, in a sense, helpful. I am not saying that I approve, but it is certainly helpful.
§ To give an example that I think is relevant, the noble Lord will remember—although he was not then the Minister in the department—the saga of the investiga-tion into beer by the Monopolies and Mergers Commission and all the undertakings that were given, and so on. I think my noble friends will agree on the total catastrophe that resulted. Practically nothing good has come out of it. What has always intrigued me about that is the one thing I never knew —what all the discussions were between the Minister, the Secretary of State and the brewers, and what the alternatives were. One aspect that has always been on my mind—and this is an appropriate occasion in which to bring it before the Committee—is that your Lordships will always be interested when decisions are made to know what else was considered, and why whatever else was considered was rejected.
§ This is probably the last of my amendments of this kind this evening. This is my last open government rational decision-making amendment, and I should like to hear once more what the answer is. I beg to move.608
§ Lord Strathclyde
What gives me great happiness is that this is the last of the series of amendments that we have had to discuss or endure since last Thursday on this subject. Of course, the noble Lord, Lord Peston, recognises that my reply will be very similar to ones that he has already received and I am therefore not impressed by the amendment that he has moved. The published notice referred to is the means of consultation. The notice requires the director to publish a host of information, including the course of conduct that he is concerned about, the identity of the person pursuing it, the goods and services involved and the adverse effects he has identified. The intention is that those interested, whether as competitors or consumers, will be able to comment on the suitability of the undertakings.
While the clause as it stands requires him to state the terms of the proposed undertakings, he is not therefore required to justify them or to rule out others. Interestingly enough, the amendment which the noble Lord has tabled would seem to defeat the point of consultation by requiring the director already to have made up his mind. I know that that is not the intention of the noble Lord—how could it be, given what he has said in the past? The notice will contain all the information necessary to allow those interested to comment.
It is important for this process to be conducted in an even-handed and open-minded way. I hope that the noble Lord, Lord Peston, agrees with that. Perhaps his views on this are not so different from ours; what is different is the requirement to make that statutory.
§ 8.45 p.m.
§ Lord Peston
I am surprised at the noble Lord's interpretation of my amendment. Essentially what will happen under this procedure is that the director will state some undertakings, and then all of this will be gone through. An alternative procedure, which I freely admit is slightly more complicated —perhaps quite a bit more complicated—and which will take a bit longer, is for him to say "I am considering this or that set of undertakings". I should have thought, in terms of the way that the director's office would work, that that would be probably going on anyway, with the director asking "What sort of undertakings should we be looking at here?"
What I am trying to bring out and to place in the public domain is some of the possibilities without the director making up his mind but saying "This is my preferred option. I did consider this other thing, but the reason I do not want to have representations on this other possible undertaking is", and he then sets out his argument. I agree that that complicates matters. It is not to suggest that he has totally made up his mind, but to suggest that he is an open-minded person considering a range of possibilities.
I agree that I am being pedantic. What could happen instead is that the director says "I am considering these undertakings" and then some outside body gets in touch with him and says "I think you ought to consider a different type of undertaking", and we get to the same end via a different route. My reason for doing it this way I think is fairly obvious. The director is, in some sense, 609 an expert, and if this procedure works—and I am always willing, doubtful as I am, at least to see whether it works —he will therefore know more about what undertakings are worth considering.
I hope that the Minister does not misunderstand; these are the only amendments of this kind for this evening's meeting of the Committee. There will be plenty of time to pursue my consultation, representation and democratic objectives, which seem to be fundamental to what we ought to be about on all of this. It is simply that there are other matters that the Committee is anxious to debate and that is why I am showing a modicum of restraint, which I know the Minister will approve of. Having said that, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 10 agreed to.
§ Schedule 3 agreed to.
§ Clause 11 agreed to.
§ Schedule 4 [Striking off of Non-trading Private Companies: Great Britain]:
§ Lord Williams of Elvel moved Amendment No. 88:
Page 69, line 14, at end insert:
("( be made with the consent of the members of the company.").
§ The noble Lord said: I warn the Committee that these are slightly technical amendments and not designed to change the schedule in any particular way. They are therefore probing. I am fractionally concerned that the majority of directors, as in paragraph 2 of Schedule 4, can apply to the registrar to strike private companies off the register without consulting the members of the company; that is, the owners of the company. I have therefore tabled this amendment in order to find out why the Government are prepared to ignore the shareholders of a company—even if it is non-trading —whose directors decide that they wish to remove it from the register. I beg to move.
§ Lord Strathclyde
I recognise that the noble Lord, Lord Williams, is fractionally concerned about these matters—that is the phrase he used—and I can tell him that I agree that a company should not be struck off the register if its shareholders do not want it to be struck off. Perhaps I may explain how we mean to reach that objective, which is slightly different from that proposed by the noble Lord.
The procedure provides that copies of the completed application for striking off must be sent to all shareholders, any one of whom can object to the striking off. It is therefore in the interests of directors to ensure that all shareholders are content before they send in the application. But it would be too much of a burden to require all the shareholders to consent before application. They would all have to be traced. They would all have to fill in forms or have to attend a meeting. It would cost both the company and the shareholders time and money.
What of companies where shareholders cannot be traced for their consent to be sought; companies, for example, where a shareholder has moved to another country and does not reply to correspondence or where 610 a shareholder is a recluse and does not answer the door? Should companies with one shareholder like that be denied the right to take advantage of the new procedure?
The requirement for the directors to notify all the shareholders and the right for any one of them to object to the striking off is, I believe, sufficient to preserve the rights of the members of the company. It is a technical point. It was absolutely right for the noble Lord to raise the issue but I hope that my answer gives him satisfaction.
§ Lords Williams of Elvel
I am grateful to the Minister. Perhaps he can point me, because this is a difficult and rather technical schedule to read, to the measures proposed in the schedule which are what he expounded to us in his reply. It is a very complicated and technical schedule and I am prepared to admit that my amendment is covered by what is already in the schedule. However, perhaps the Minister can point me to those measures.
§ Lord Monkswell
While the Minister is trying to find the point in the schedule to which the noble Lord, Lord Williams, referred, perhaps I may ask another question. From what he said it sounded as though if there were a proposal to strike off a company and that was objected to by a member of the company, it would not take place. I may have misheard the Minister or he may not have explained himself adequately, but if it is the case that a member of the company can object and effectively stop the process, why should not members of the company be consulted beforehand and therefore save the whole procedure being gone through?
§ Lord Strathclyde
I had hoped that I had explained that in my first answer. We believe that it is an unnecessary burden both on the shareholders and on the company to do it in that manner. It is far easier to do it in the way we have described.
Perhaps I may point the noble Lord, Lord Williams, to new Sections 652B(6) (a) and 652C(2) (a) where he will see the words,a member of the company".That is where the provisions apply.
§ Lord Williams of Elvel
I am grateful to the Minister. However, does that allow a member of the company to protest? If that is the case, how many members of the company are needed? Is it a majority of members of the company or can any member of the company prevent it—any single shareholder holding even one share out of 1 million? Is that the correct interpretation?.
§ Lord Strathclyde
It is correct that any one shareholder can object to the procedure. There are other procedures for striking off. This is a deregulatory procedure. This is a short cut. This is light touch. If the company does not get the agreement of one shareholder there are other ways of achieving the same ends.
§ Lord Williams of Elvel
I am most grateful to the noble Lord. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Williams of Elvel moved Amendment No. 89:611
Page 70, leave out lines 5 and 6.
§ The noble Lord said: With the permission of the Committee I should like to speak also to Amendment No. 90. This is perhaps a somewhat technical matter. The Secretary of State can, by order, for the purposes of this sub-paragraph change a variety of things. That is not only in new Section 652B of the Companies Act but also in the subsequent section. I wonder whether it is right to give the Secretary of State those powers.
§ I look forward to the Minister explaining why the Secretary of State has these powers. It is very easy if one is not satisfied with the legislation that one produces simply to say at the end, in the final paragraph, "The Secretary of State shall have powers to change anything he wants". I should like to know that all the possibilities have been considered by the Government before we let this through. I beg to move.
§ Lord Strathclyde
I would expect at a Committee stage to be quizzed on the kinds of powers that we are allowing the Secretary of State to use. However, I do not think there is anything strange in this particular one. The Government do not want this new procedure to be used by companies which are trading, or which give their creditors and others the impression that they are trading, either before or after the application. Schedule 4 therefore sets out activities in new Section 652B(1) that the company cannot undertake in a period before application for striking off. Thus the company cannot change its name in the period before application. It must be non-trading and so on.
However, we cannot be sure that, when we have experience of the new procedure, we shall not find that a clever person has thought up some other way of pretending that nothing has changed. The delegated legislative power would enable us to close any such loophole. Furthermore, I can confirm that the Delegated Powers Scrutiny Committee has considered all the provisions for delegated legislation in the Bill and made no comments on either of these two provisions. I hope that that explains why we have asked Parliament for these powers and explains how they are going to be used.
§ Lord Williams of Elvel
I am most grateful to the Minister for his explanation. As he rightly pointed out, the Delegated Powers Scrutiny Committee has not taken exception to the powers. Nevertheless, we can hope—I express no more than a hope —that the department has found out every conceivable possibility that might be used by ingenious people to get round this and that the power will not be called upon. I am grateful to the Minister for his response. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 90 not moved.]
§ Lord Williams of Elvel moved Amendment No. 91:
Page 73, leave out lines 47 to 49.
§ The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendments Nos. 92 and 93. These are small but slightly intricate points and it is quite right that your Lordships should deal with them in Committee. Anyone who fails to perform a duty 612 imposed by the provision—it must be remembered that these clauses are to be inserted into the Companies Act —is liable if found guilty of an offence to be fined and in certain circumstances to go to prison. Are the Government really satisfied that criminalising such offences in such a manner is the right way to set about it? I beg to move.
§ Lord Strathclyde
What we are concerned with here is that the new procedure is not misused. We have therefore built in a number of safeguards to protect those involved in or dealing with the company. The key element in this is the creation of offences. The safeguards are there with the sole object of protecting the interests of ordinary people and businesses dealing with companies which may wish to be struck off. If they are to be effective they must be properly enforced. What would be the point of having them if people knew that they could be broken with impunity. In the last amendment I spoke about clever people who might try to find ways around the law. Likewise, if we had no protection we would be providing a rogue's charter which crooks could use to disappear from the face of the earth leaving strings of unpaid creditors and swindled shareholders behind them.
The question should be asked: why should the overwhelming majority of honest business people be penalised by having to keep a company going when it is no longer required? We are giving them a simple way to bring their business to a close. At the same time we must also make sure that those dishonest enough to use it know that there are appropriate penalties which will be brought against them. The protection is right and proper. I hope that I have explained at least the necessity for having them and that the noble Lord can withdraw his amendment.
§ 9 p.m.
§ Lord Monkswell
I come in at this point because I am concerned at the precedent which is being set. The Government are saying that here we have a deregulation Bill and they are going to change, simplify and reduce the regulatory effect of the regime, but in the process introduce a new crime and penalties associated with it.
That may be all right in this part of the Bill because we are effectively talking about primary legislation. We go through the whole procedure of primary legislative consideration by both Houses of Parliament. My anxiety is that, having set the scene in this particular area of the Bill as a measure of deregulation, with new liabilities for fines and imprisonment, we are setting a precedent for the use of Part 1 provisions of the Bill for the future. Will the Government give an undertaking that they will not use them to introduce new criminal offences with the powers to fine and give imprisonment? We have to bear in mind that at that stage we shall have very curtailed parliamentary consideration of the legislative changes. Will the Government give that undertaking?
§ Lord Strathclyde
No, I will not give any such commitment. It is not necessary. We are providing for a new procedure in these clauses. I have explained why we need the offences. However, the offences in themselves are well precedented in the Companies Act 613 and they are available under Section 652E. All these offences were well precedented under the Insolvency Act 1986 and reflect the anxiety to ensure that the procedure is not deliberately abused to avoid the penalties of that Act. That is entirely appropriate and there is nothing untoward in these provisions.
§ Lord Williams of Elvel
I understand what the Minister is saying and I am not unsympathetic. I have the general view that, wherever possible, Parliament should try to avoid criminalising offences. We are here discussing the "fast track", if I may put it like that, for the registrar to strike private companies from the register on application. I accept that there may be clever people who do clever things. Nevertheless, there is enough in the schedule to stop the clever people from doing clever things without criminalising it.
I very much hope that the Minister will look at this matter again before Report stage. I hope that he will discuss with the department the general problem of criminalising offences which do not need to be criminalised. Is the Minister going to give me an assurance that he will look at this matter again?
§ Lord Strathclyde
Naturally, without a commitment to make any changes, I am delighted to look again at this provision. The noble Lord is right when he says that we should be careful when setting up this kind of criminalisation. I spent a great deal of time this weekend looking at the proposals. The fact which convinced me that they were right was that they were well precedented in previous legislation.
§ Lord Williams of Elvel
I am grateful to the Minister, as far as his explanation goes. Because something is precedented in previous legislation does not mean that the Committee should pass the legislation before us. Nevertheless, I am grateful to him. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 92 and 93 not moved.]
§ Schedule 4 agreed to.
§ Schedule 5 agreed to.
§ On Question, whether Clause 12 shall stand part of the Bill?
§ Lord Williams of Elvel
The Minister will recognise that this clause raises some difficult questions which were discussed at length in another place. I do not wish to go over all the arguments which were put forward there. From this Dispatch Box I have had the privilege of talking about beer on many occasions with, not least, the noble Lord, Lord Young of Graffham, when he was Secretary of State introducing certain regulations dealing with beer.
Originally Mr. Edward Leigh, who was the then Consumer Affairs Minister—and I only quote him because he was a Minister at the time—announced on 20th December 1991 that he was intending to implement Section 43 bringing the clause into effect. He said on that occasion:I have fought hard in Europe to retain the traditional British pint, … my view on consumer protection is that people should get what they think they are getting and what they pay for".— [Official Report, Commons, 20/12/91]614 I do not believe that any Member of the Committee would dispute that particular statement.
But the scrapping of Section 43, as proposed in Clause 12, will effectively legalise the concept of the 95 per cent. pint. That is where we have objections. Indeed, as I understand it, the Brewers' Society is issuing guidance to its members to that effect. Of course, the brewers have said that compliance with Section 43 of the Weights & Measures Act 1985 would add to the cost of serving a pint, but the evidence has varied over time as to what the cost might be. What the brewers and the compliance cost assessment analysis which was carried out at the time fail to acknowledge is that 25 per cent. of all outlets already use beer meters and lined glasses. There is no evidence that those establishments charge more for beer. Indeed, there is an argument that says that that method of pouring beer is more efficient and less wasteful. At present customers paying for a pint are effectively—I use the word "effectively" advisedly— donating an average of 7 per cent. of its cost back to the industry.
It is clear that many beer drinkers—in fact, they number millions—already receive short measure. They are legally entitled to ask for a top-up at no extra cost, but how many will do that? In this clause the Government are asking Parliament to legitimise the serving of short measures and to endorse in law the notion of the 95 per cent. pint. We oppose that. That is why we have tabled this Motion.
§ Lord Tordoff
This is no laughing matter, as my late lamented noble friend Lord Winstanley would have told the Committee had he been here, when he would have said what I am going to say but much more cogently. I agree with everything that the noble Lord, Lord Williams, said. I mentioned these matters on Second Reading when I received a stern rebuke from the brewers, who set out an awful lot of information for me about how well they did for the drinking public. But I am not impressed.
The simple answer is that people are getting short measure. The suggestion that you can ask for a top-up takes me back to the old story of the person who said, "Do you think you can get a whisky into that glass?" When the barman said that he could, the customer said, "Well, why not fill it up with beer?" One is also reminded of the slogan that occasionally appears on bars which reads, "Do not ask for credit because a poke in the mouth often gives offence". I suspect that there are a number of pubs from which you would be ejected rather rapidly if you went to ask for a top-up. Of course, that would not do their trade any good next time round, but not everybody has a choice of pubs these days.
The truth is that the Government are reneging on a commitment that was made by Mr. Leigh in another place. It is perfectly simple to give people a pint of beer when they ask and pay for a pint of beer. However, for year after year (because of the size of the glasses or because of the lack of metered pumps) the British public have been defrauded by the brewing industry. I know that the industry is a friend of the Government and has been so down the centuries. I am not speaking now from the old Methodist Liberal tradition of temperance, but 615 that was a great argument at the turn of the century. It was one of two great issues that divided my party from the government party. The Government were always the brewers' friends—and they are showing that again today.
It is about time that we recognised that somebody who orders a pint of beer ought to get a pint of beer. After all, it is in the Magna Charta that there should be proper measure for both beer and wine. Why are the Government trying to back out of their commitment, if not to fulfil some promises that they may have made to their friends in the brewing industry?
In my view, this almost undermines the whole basis of the Bill. It may appear trivial, but I think that it is symptomatic of the attitude that the Government have taken to deregulation on a matter with which they should not mess about. The law is as it is on the statute book, but the Government are now using this deregulation mechanism to get out of the commitment that was made to Parliament at an earlier stage. I agree entirely with the noble Lord, Lord Williams of Elvel.
§ Baroness Seear
I would not dream of disagreeing with my noble friend and the noble Lord, Lord Williams, but I should like one thing clarified. Is froth beer or not?
§ Lord Strathclyde
The noble Baroness, Lady Seear, has asked the most pertinent question of this Committee stage. The noble Lord, Lord Williams, argued his case on the basis of fair play. The noble Lord, Lord Tordoff, said that this is clearly a party political matter; that the issue had been decided in Magna Charta; and that we should go back to that. I am not sure that Magna Charta had anything to do with it. Then the noble Baroness, Lady Seear, asked the central question. Beer is not like other products since froth is a natural part of the product. Whether or not it is part of the liquid pint is another matter altogether. However, it is misleading to compare a pint of beer, which contains at least 95 per cent. of liquid, with a pint of pre-packed milk.
A further problem is that it depends on where one does one's beer drinking. People in some parts of the country like a frothy, creamy head through which they like to drink the beer. People in other parts of the country have a kind of scum on the top. Those elsewhere have no head on the pint at all and it is all liquid. Therefore, there are strong regional preferences. It is open to customers to make it clear that they want something different; for example, a full liquid pint in an area where beer is usually served with a tight, creamy head. Of course, they are already able to ask for and should receive a top-up if they are unhappy with the amount of liquid beer that they have received.
I agree with all Members of the Committee who have spoken that it is important to safeguard the interests of the consumer and the vast majority of honest licensees who want to provide good service to the public. There have been successful prosecutions where short measures have occurred. The Brewers and Licensed Retailers Association has issued a revised guidance, which should 616 be helpful in combating deficiencies in future. It sets out the association's view, not as pub owners but as producers of the product, on what constitutes a reasonable head when serving beer in a brim measure. It makes it clear that after the collapse of the head there should be a minimum of 95 per cent. liquid. The effect of the repeal of the section is to allow the continuation of the existing case law that a pint of beer may consist of liquid and a reasonable head.
Perhaps I may answer the noble Lord, Lord Williams, about statements that have been made by Ministers and why we are looking again at Section 43. Against the background of the deregulation initiative we took another look at Section 43. We consulted with many interested parties and concluded that the costs of implementing Section 43 were disproportionate to the consumer benefit. We can foresee no circumstances in which this will change, which is why I recommend the repeal of Section 43 and agreement to this clause.
§ Lord Tordoff
The Minister gave the game away by saying that when the head has collapsed there should be 95 per cent. liquid. That provides the answer to my noble friend's question: is froth beer? Of course it is beer, but there is a lot of gas too. After the froth has collapsed one is still 5 per cent. short of what one has paid for.
Secondly, the Minister talked about consultation. What was the result of his consultation with the Consumers' Association and the Campaign for Real Ale? I suspect that they were not widely consulted on the matter and that the Minister consulted only with his friends, the brewers.
§ Lord Strathclyde
I shall not open up a further argument with the noble Lord, Lord Tordoff, about the head, the froth and the 95 per cent. We have given clear guidance to trading standards officers, who will be able to refer to it as regards what constitutes a pint.
Of course, the consultation was varied. We came down on the basis that the increased cost would not in the end be in anyone's interest. Of course, consumers when asked whether they want a full pint will say, "Yes, we would like a full pint". However, we must take into account the general disruption of the increased cost. That is what we did and that is why we came to our conclusion.
§ Lord Williams of Elvel
It is clear from the Minister's reply that he did not consult the Consumers' Association or the Campaign for Real Ale. Probably he consulted only his friends. However, the most important principle in this case is that in 1991 a Minister gave a perfectly clear undertaking and the Government are now trying to renege on that perfectly clear undertaking. Under the circumstances, I must protest and in protesting I must take the opinion of the Committee.
§ 9.19 p.m.
§ On Question, Whether Clause 12 shall stand part of the Bill?
§ Their Lordships divided: Contents, 61; Not-Contents, 17.617
|Addison, V.||Howe, E.|
|Aldington, L.||Kenyon, L.|
|Annaly, L.||Kimball, L.|
|Arran, E.||Leigh, L.|
|Astor, V.||Lindsay, E.|
|Balfour, E.||Long, V.|
|Biddulph, L.||Lyell, L.|
|Blatch, B.||Mackay of Ardbrecknish, L.|
|Blyth, L.||Marlesford, L.|
|Boardman, L.||Moyne, L.|
|Borthwick, L.||Pearson of Rannoch, L.|
|Carnock, L.||Renton, L.|
|Chalker of Wallasey, B.||Rodger of Earlsferry, L.|
|Chelmsford, V.||Seccombe, B.|
|Clanwilliam, E.||Sharpies, B.|
|Clark of Kempston, L.||Shrewsbury, E.|
|Cochrane of Cults, L.||Simon of Glaisdale, L.|
|Cox, B.||Skelmersdale, L.|
|Cumberlege, B.||St. Davids, V.|
|Dean of Harptree, L.||Strathclyde, L.|
|Denham, L.||Strathmore and Kinghorne, E.|
|Demon of Wakefield, B.||[Teller.]|
|Dixon-Smith, L.||Sudeley, L.|
|Elliott of Morpeth, L.||Thomas of Gwydir, L.|
|Elphinstone, L.||Trumpington, B.|
|Elton, L.||Ullswater, V. [Teller.]|
|Ferrers, E.||Vinson, L.|
|Fraser of Carmyllie, L.||Wakeham, L. [Lord Privy Seal.]|
|Gainsborough, E.||Wise, L.|
|Goschen, V.||Wynford, L.|
|Henley, L.||Young, B.|
|Airedale, L.||Lawrence, L.|
|Bruce of Donington, L.||Macaulay of Bragar, L.|
|Darcy (de Knayth), B.||McNair, L.|
|David, B.||Monkswell, L.|
|Dean of Harptree, L.||Peston, L.|
|Desai, L.||Rea, L.|
|Geraint, L.||Seear, B.|
|Graham of Edmonton, L.||Tordoff, L. [Teller.]|
|[Teller]||Williams of Elvel, L.|
§ Resolved in the affirmative, and clause agreed to accordingly.
§ 9.26 p.m.
§ Lord Williams of Elvel moved Amendment No. 94:
After Clause 12, insert the following new clause:
§ The noble Lord said: This is the first occasion which the Committee has had since, I believe I am right in saying, the Companies Bill, or possibly since the Financial Services Bill, as it then was, to debate Lloyd's legislation. It is certainly the first occasion that I can recall since what is known as "meltdown". It is not my purpose this evening to talk about those who have lost money because of their membership of Lloyd's. I have no intention of talking about bailing out Names, or compensation, or whatever. My purpose is to ensure, in so far as I can, that the insurance activities and reinsurance activities that are at present conducted by 618 Lloyd's, or under the Lloyd's umbrella—I choose my words with some care—are put on a sure footing for the future.
§ If I can just draw the attention of the Committee to the importance of Lloyd's—I use the Key Facts document, which is produced by Lloyd's themselves —the Lloyd's community has contributed £15 billion to United Kingdom invisible earnings since 1983, averaging 31 per cent. of the total UK invisibles contribution. Lloyd's leads two-thirds of the insurance underwritten in the London insurance market. Lloyd's generates employment directly or indirectly for an estimated 60,000 people. It is therefore my purpose to ensure that those very important facts, and the very important position that Lloyd's has—at least businesses that are conducted, as I say, under the umbrella of Lloyd's —should be maintained in the future. Nevertheless, there is a question mark over the future of Lloyd's.
§ The credibility of the organisation has suffered because of losses that have been incurred. Results which have been published have suffered from a series of events—some scandals, some examples of incompe-tence—all, I believe, resulting from a failure of regulation. I would instance only one example; namely, the conduct of certain members' agencies in recruiting members for Lloyd's without telling them the full facts about what membership implied.
§ The response of Lloyd's has been to institute a new regulatory board of 16, of whom four are working members. A business plan was published in 1993, which is broadly similar to other business plans produced by major enterprises. It is indeed a reasonable catalogue of aspirations. In addition, there has been the creation of a company, provisionally entitled "NewCo", to come into being at the end of 1995, which would be the mechanism by which pre-1986 liabilities will be reinsured to a limited liability company.
§ That may or may not work. The business plan, which is a series of aspirations, may or may not be achieved. But there is one important feature of NewCo. When it is set up —and we must assume that it will be set up—it will be a United Kingdom reinsurance company required, as Lloyd's itself has admitted, to meet DTI standards on conduct, particularly on solvency. Therefore, in part Lloyd's itself has accepted the need for government regulation.
§ That leads me to my amendments. Section 42 of the Financial Services Act (referred to in subsection (1) of Amendment No. 94) exempts Lloyd's, and permitted underwriting agencies at Lloyd's, from regulation of their investment business carried on in connection with or for the purpose of insurance business at Lloyd's. The amendment seeks to remove that exemption.
§ What is "investment business"? In my view—and I have made this perfectly plain on previous occasions on which I have spoken—it is not merely management of premium trust funds or cash balances. Investment also means investment made by members of syndicates. I accept that investment in that sense is in the nature of a contingent liability and not a direct cash payment; but there is a risk, and there is a reward. If there is any doubt about whether that should be considered an investment, 619 that can easily be rectified by an amendment to Schedule 1 of the Financial Services Act which, as the Committee will be aware, can be amended by an order from the Secretary of State. The Secretary of State can, by order, make an investment as a member of a syndicate in Lloyd's, an investment under Schedule 1 of the Financial Services Act.
§ If that is done, and if my amendment is accepted, membership of Lloyd's becomes in law an investment and therefore regulated under the Financial Services Act. It follows from that that the insurance and reinsurance activities—solvency ratios, and so on— would also in the end come to be regulated by the Department of Trade and Industry, because no investor in his or her senses would invest in either a company or a syndicate which was not properly regulated under DTI regulatory procedures.
§ I now turn to subsections (2), (3) and (4) of my amendment. I recognise that the amendment would lead to substantial changes both in the Financial Services Act and the Lloyd's Act 1982. I accept that those changes will take time to work out. I am advised that were my amendment to be passed without subsections (2) to (4), Lloyd's might have to cease trading. Some noble Lords might consider that that was not a bad idea. I have heard that expressed. Others might think that it was not a terribly good idea and that it was useful to seek to work out some way of making Lloyd's—I refer to all the activities which come under the Lloyd's umbrella, whether or not Lloyd's stays as a corporation—a proper organisation which will serve the United Kingdom and the financial service industry in the future.
§ I conclude where I started. My purpose is to provide a framework for the future for this very important industry. There is in the provision a substantial measure of deregulation. By adopting what I say, the regulatory framework of Lloyd's, which goes under the name of self-regulation, would have to be removed. So one removes one tier of regulation.
§ I very much hope that the Committee will look sympathetically at the amendment. I believe that it will be conducive to a proper and sensible way of running the insurance and reinsurance industry, which has been the scene of so much controversy in the past few years. I beg to move.
§ Lord Marlesford
In supporting the amendment of the noble Lord, I declare an interest as a victim of Lloyd's—an interest which I believe I share with over 200 Members of your Lordships' House.
I base my support for the noble Lord on a rather general principle which in a sense is my own personal Tory philosophy. I hope that the noble Lord will allow me to put it at least in its simplest form. I consider that the best economic results come from a dynamic market economy, but I believe strongly that it is a prime duty for any Government so to regulate that market that employees, consumers, investors and the environment are properly protected from exploitation.
As we know, a crucial ingredient of Lloyd's system of gearing up capacity in insurance through outside names is that those names pledge their entire resources 620 in an unlimited liability based on the success or failure of underwriting. Yet for many years, I suspect, many of those names have understood little, perhaps in most cases nothing, of the detail of what is being done in their name. The system has therefore always been conducted on the basis of urberrime fidei—the greatest good faith that Lloyd's names have in Lloyd's itself. Lloyd's insists on that standard for the policy holders whose risks it underwrites. It would therefore be hard to think of a financial system in which proper regulation is more crucial for the protection of both policy holders and of names.
Yet, deplorably in my view, 14 years ago, at a time when the need for the regulation of the financial community had become all too apparent, Parliament in an Act that I can only describe as myopic, decided to exempt Lloyd's from external regulation and to grant immunity to the Council of Lloyd's and its officers. It is true that there were, I believe, voices raised against the legislation. I have an idea that the noble Lord, Lord Williams, has always been against it, and I salute him for it. I believe that my noble friend Lord Pearson also had doubts about that legislation. However, the Lloyd's Act will go down in Westminster as one of the abdications of parliamentary responsibility. I am sad that it should have been passed under a Tory Government, although I believe that it was a Private Bill.
We now know two things that were then only suspected by some. First, there were some in Lloyd's for whom self-regulation was the licence to continue their incompetent, greedy and dishonest practices. Members of the Committee may remember that I gave a number of examples of each of those when we had a debate on Lloyd's in this House a year ago in July. It has been a combination which is now proving fatal for the financial survival of many families in this country and a number of families overseas also.
Secondly, we know that there were at that time already those in Lloyd's who were well aware of the potential financial disaster which stemmed from the unlimited and vast liabilities of asbestosis and pollution. Indeed, it is generally believed that there were a number of underwriters who were anxious to leave their syndicates open in 1979, as they felt that there was no way of establishing the ultimate liabilities. They were, however, persuaded by the Lloyd's establishment that it would not be in the interests of Lloyd's to do so, particularly with the Lloyd's Bill going through Parliament.
The courts will, I trust, in due course insist on the release of the minutes of the council meetings of Lloyd's held at that time which will reveal in full the failure to protect names. At present, all we know for certain is that the then Lloyd's deputy chairman, Mr. Murray Lawrence, wrote to all members' agents on 18th March 1982 that they should:inform their names of their involvements with asbestosis claims and the manner their syndicates' current and potential liabilities have been covered".621 As Mr. Adam Raphael said in his excellent book Ultimate Risk, which I recommend to those who are not members of Lloyd's as well as to those who may have been:The failure to [give this warning] led many thousands of unwitting names to join long tail syndicates throughout the 1980s. Many professionals at Lloyd's realised the dangers. Very few outsiders did".Mr. Raphael actually quotes one estimate that during the next two decades asbestosis claims could total £30 billion or six times the present estimate of about £170,000 per name.
There is, however, one crucial area in which the Government retain the role and duty of a regulator. The noble Lord, Lord Williams of Elvel, has referred to it in his speech, and that, of course, is the monitoring of the solvency of Lloyd's. It is only if Lloyd's remains solvent that it can be allowed to continue trading. The responsibility for determining the solvency of an insurance business is ultimately that of a Secretary of State for Trade and Industry. It is an absolute duty on the DTI, I believe, to judge solvency objectively and therefore to determine whether or not Lloyd's is solvent. It is not, in this context, to take into account whether or not it is opportune or embarrassing or in any way undesirable for Lloyd's to be declared solvent.
I am rather concerned that in practice the DTI seems to rely heavily on advice from Lloyd's itself on the question of Lloyd's solvency. Ironically, I believe, several of the Lloyd's officials involved in this process were themselves formerly civil servants in the DTI.
In this context, do not let us forget the example of the Bank of Credit and Commerce International which was not shut down until 1991, a date which was the product of regulatory failure. I obviously do not claim to be in any position to judge solvency. In any case, that is not an issue of relevance to the amendment. But what is relevant are the methods which Lloyd's seems to be adopting to get through the solvency test. First, there is the extraordinary practice introduced last year of hypothecating future profits to balance current liabilities. I refer, of course, to a decision made during the first half of 1993 to allow underwriters to return to names 5 per cent. of the premium income they had signed up for in respect of 1993, as a cash payment towards the huge losses that were then being declared for 1990 or as a contribution to names' solvency. That was totally contrary to the well-established Lloyd's practice of assessing the result of any underwriting year at the. end of 36 months, which is 24 months after the ending of the year concerned. This year Lloyd's is repeating the practice by hypothecating profits from 1994 towards the massive losses that were just announced for 1991. This time it is only 3 per cent. Perhaps the DTI has been getting cold feet. Well it might. Leading accountants to whom I have spoken say that such a practice would never be acceptable in respect of any limited liability company.
I must also point out that when it comes to solvency Lloyd's seems to speak with two voices—a public voice and a private voice. Here is the public voice:We are confident that the solvency situation is good. Quite frankly we would not be behaving this way if it were not".622 That was Mr. David Rowland, the chairman of Lloyd's in the Daily Telegraph for 13th May. Now here is the private voice:By reason of the heavy losses which have been incurred in the Lloyd's market, in particular in respect of the 1989, 1990 and 1991 years of account, very substantial sums have had to be or are due to be paid to Lloyd's policy holders. Where a Name does not have funds remaining at Lloyd's and fails to put up fresh funds, his obligations are met from the Lloyd's Central Fund and Lloyd's then seeks to recover from the Name the sums paid out. At present in excess of £400 million has had to be withdrawn from the Central Fund held at Lloyd's. Until these funds are recovered, then clearly they are no longer available to pay further unfunded losses as they occur and the greater the delay in recovery proceedings the greater the risk to Lloyd's solvency and its ability to pay policy holders' valid claims…It is apparent that there has been and continues to be a wholesale effort made by certain Names to direct and dissipate funds that would otherwise be available to meet their Lloyd's obligations or to repay monies due to the Central Fund".That is a quotation from a letter dated 23rd May—only 10 days later than Mr. Rowland's statement—from Mr. R.B.L. Prior, the deputy solicitor for the Corporation of Lloyd's to the Registrar of Civil Appeals at the Royal Courts of Justice.
I may say that Lloyd's advises me that the current value of the central fund is £904 million, of which at the end of 1993, £661 million was earmarked for solvency purposes. To put these figures in balance, Lloyd's further advises me that the total losses declared but not called for 1990 and 1991 are £2.6 billion.
We must all realise that there is some fundamental potential conflict between the interests of the Lloyd's insiders who work there and the outside names. Many of the insiders depend on the solvency of Lloyd's for their livelihood. If Lloyd's were to be declared insolvent, the best underwriters would of course simply set themselves up as limited liability companies. Indeed I understand that a number already have contingency plans to do so. But there might be many others for whom there would be little opportunity of employment elsewhere.
I hope therefore that what I have said will persuade the Government to look kindly at a specific proposal that I have for this year's solvency test by the DTI. I believe that they should recruit a panel of outside financial advisers, unconnected with Lloyd's but aware of the wiles of the world, to help them to make the solvency decision. I believe that a short report from the DTI on the solvency issue should be published to Parliament each year.
Perhaps I may now say a few words on the current outlook for Lloyd's, which is central to the crucial question of regulation and who should regulate. Sadly, the consequences of the Lloyd's Act is that never before in its 300-year history has its reputation for probity and confidence been as low as it is today. Outsiders have been wheeled in and out to try to patch it up. They identify what they feel needs doing and either find resistance to doing it or that it cannot be done. A few years ago we saw the arrival and departure of the excellent Mr. Ian Hay Davison. He was followed by Mr. Alan Lord, a former Treasury civil servant. Now we have the arrival of the energetic Mr. Peter Middleton, accompanied by the determined Miss Heidi Hutter.
Mr. Middleton has helped put forward the concept known as NewCo—to which the noble Lord, Lord 623 Williams, referred—into which it is proposed eventu-ally to reinsure the liabilities of the 478 syndicates from earlier years which now remain open and which between them have a premium income capacity of over £12 billion, which currently appears to be deteriorating at the rate of some 20 per cent. a year.
I understand that Miss Hutter is finding that the record keeping and analysis of many of those syndicates which it is intended to close into NewCo are so inadequate that so far it has proved impossible to establish an actuarial basis for NewCo to be set up. That may change.
However, I fear that NewCo may be raising false hopes. Its success as a reinsurer will depend on three factors. The first is the possibility of the members of the open syndicates being able to find the funds to finance NewCo so that it can finance valid claims. I fear that a number of names, maybe many, will not have sufficient resources to do so.
Secondly, it will depend on its ability to act as a tough negotiator, forcing many claimants to agree to commute their unreasonable claims to fair levels, particularly in the United States, rather than go through a process of litigation which in the United States has so far resulted in no less than 80 per cent. of all insurance payments for pollution and asbestosis ending up in the pockets of the lawyers rather than those of the claimants. If Lloyd's does get wound up, it could perhaps protect names from direct action in the American courts. Otherwise, it could well be, in the striking words of my noble friend Lord Vinson: "Let the last millionaire turn out the lights".
Thirdly—this is crucial—unless some way can be found to transfer the unlimited liability of the original members of syndicates into limited liability for NewCo which has taken them on, then if NewCo runs out of money the claimants will go straight back to the original syndicates and thus to their names. I am afraid that is why some wag has apparently re-christened NewCo "NewCon".
Lloyd's has been busy promoting the idea that the turn-round in its fortunes will come at least partly from higher insurance premium rates which should follow from the past disasters and that that is an additional reason for names to continue their membership and "trade through" the problems. Quite apart from the fact that "jam tomorrow" has been an inducement offered almost every year since 1982, it is simply economic nonsense. Lloyd's is in no position to make monopoly profits. Already there are many new entrants into the insurance market and already rates are starting to soften again.
I have spoken probably for too long but I believe that the case included in the amendment is one which makes it desirable that the Government should at least undertake to give very careful thought to the future regulation of Lloyd's and perhaps tell us more at Report stage.
§ Lord Pearson of Rannoch
In opposing the amendment I should declare an interest in that I am chairman of a firm of Lloyd's brokers. As such, I believe 624 that I form part of the Society of Lloyd's which the amendment seeks to bring under the influence of the Financial Services Act by removing its present exemption under Section 42.
When I first thought to speak to the amendment, it looked innocent enough on the Marshalled List. In fact I had not realised that the amendment would pave the way for a suggestion from the noble Lord, Lord Williams of Elvel, that self-regulation should be removed from Lloyd's altogether and a suggestion from my noble friend Lord Marlesford that it should be encouraged to go into liquidation.
Having declared my interest, I must say that I would suffer no personal damage if the amendment as it stands, without the various attributes added to it by the two previous speakers, were to be accepted, except as someone who works in the London insurance market —of which Lloyd's is a vital part—and wishes to see it prosper. Until I heard the two earlier speeches I thought that that was a sentiment which would be shared by all noble Lords, including the noble Lord, Lord Williams of Elvel. The noble Lord quoted some statistics from Lloyd's and the value of Lloyd's to the national economy. Those statistics are indeed accurate. But they probably amount to only half the benefit which the London market as a whole gives to the national economy.
Having said that, I do not think that I can be accused of being likely to support Lloyd's blindly. Over the five years from 1978 to 1982 I was a constant, and at times vociferous, critic of self-regulation at Lloyd's as then practised. My noble friend Lord Marlesford was good enough to refer to my part in the Lloyd's Act. In fact I opposed the Lloyd's Bill through both Houses of Parliament and I objected particularly to the clause whereby Parliament eventually saw fit to grant Lloyd's a unique immunity for negligence. My view of that immunity is that it has not worked in the interests of Lloyd's or its members.
In fact this is the first time that I have spoken publicly about a matter concerning Lloyd's since 1983. I do so now only because the amendment seems to me, especially in view of what was said earlier, to be so unfortunately conceived and potentially damaging to Lloyd's and therefore to the whole London market, that I feel I must speak against it. First, there is a point of principle. Such a repeal of Section 42 of the FSA would cancel unilaterally the agreement made between Lloyd's and the Government whereby Lloyd's was permitted to retain its status as an independent SRO (unregulated by the Financial Services Act) in return for measures implementing the report of Sir Patrick Neill's independent committee of inquiry. That committee made recommendations designed to ensure that the regulation arrangements at Lloyd's provided protection for names comparable to that proposed for investors protected by the FSA. As I understand it, those recommendations were implemented in full by Lloyd's.
Secondly, the removal of the statutory exemption would have a number of practical consequences, none of which appears to be necessary or helpful; they have been given to me by Lloyd's as being particularly destructive at this time. First, managing agents, when 625 managing names' funds, would have to join an SRO, probably IMRO—I must ask the Committee to forgive the jargon but it will be in the interests of speed if I carry on—in order to continue to be authorised to carry out those functions. Secondly and similarly, members' agents when placing names on syndicates would be able to continue to provide that service (because it would constitute investment advice) only if they were authorised, probably by joining FIMBRA. Thirdly, Lloyd's itself would cease to be able to operate its own financial distribution system for syndicate funds or to continue to act as trustee of the Lloyd's deposit or special reserve funds, and vital day-to-day management of names' and syndicate funds would thus cease to be possible.
Those are just some of the practical difficulties the amendment might pose. I am aware that the noble Lord, Lord Williams, may not regard them as difficulties and I shall return to that. On the other hand, Sir Patrick accepted that it would be impracticable for the Lloyd's community to comply with the proposed conduct of business rules and the financial requirements of the other SROs. Instead he recommended certain improve-ments which are now in Lloyd's rules.
So much for some of the technical inconveniences of the amendment. I accept that the noble Lord, Lord Williams of Elvel, may say that he considers them to be desirable developments which he would be happy to see forced upon Lloyd's, whatever the consequences may turn out to be. I was going to suggest to him that he had not really thought his amendment through until he went on to confess that in actual fact his amendment does pave the way for the withdrawal of self-regulation from Lloyd's altogether.
It pains me to have to speak against my noble friend Lord Marlesford on this occasion, but it does seem to me mat his speech was inspired more by the losses that he has incurred at Lloyd's—and I know that many other noble Lords have suffered grievous losses—than by this amendment in itself. It does seem to me that Lloyd's problems are caused by enormous losses which are underwriting matters—they have been matters of underwriting judgment—and most of the losses, I have to say, were on policies written well before the Neill Committee sat in 1986–87. Be that as it may, I must say that the noble Lord, Lord Williams of Elvel, seems to me to have a touching faith in the benefits which regulation by the Financial Services Act might bring to Lloyd's and her policyholders, as opposed to the regulation which is at present in store for them.
I cannot help feeling that the Maxwell Group pensioners might not share the noble Lord's enthusiasm, although I imagine that the noble Lord might claim that FIMBRA had not been going long enough to detect and expose or avoid the fraud in question. I do not know whether the noble Lord would care to comment on that point. But certainly it seems to me that Lloyd's, as presently organised, has at least as good a chance of protecting the interests that we are all concerned to protect as any that are likely to be set up by the Financial Services Act, especially in view of its record.
If the noble Lord had claimed that, I would have to put it to him that so it is with Lloyd's. The steps taken 626 by Lloyd's are fully satisfactory as far as implementing the Neill recommendations are concerned, and in protecting names and policyholders' moneys. I accept that underwriting losses are a cause of great concern to many—including my noble friend Lord Marlesford and other noble Lords, who may have lost substantial sums at Lloyd's—but this amendment as it stands, and that is what we are considering, does not and could not address underwriting policy. It certainly could not correct the results of past underwriting which are now causing so much misery.
Finally, I have to urge your Lordships that this is not: the moment to mess around with self-regulation at Lloyd's. As perhaps one of Lloyd's leading rebels over many years—if I may claim that distinction—I have to tell your Lordships" Committee that I do now have confidence in the team of people who are running Lloyd's. I disagree with my noble friend Lord Marlesford when he says that the reputation of Lloyd's is lower than ever; it actually is not. It is beginning to climb and is on the way up again. Mr. David Rowland, Mr. Robert Hiscox and Mr. Peter Middleton are doing all that is humanly possible to see that a great institution, which has certainly faced a considerable crisis, survives. I very much hope that this amendment will not be allowed to stand in their way.
§ 10 p.m.
I wish briefly to speak on this matter. I have an interest to declare. For 40 years I was a Lloyd's insurance broker, and for most of that time a name. I am now a resigned name with one very small line on an open syndicate. So I am not in any way hurt. It is two years since I was at Lloyd's, since I retired.
Most of the technical points have already been made. There is one other point worth mentioning, which is that neither the FSA nor the SRO rules are at all apt for securing the protection of policyholders. I would remind the Committee that Lloyd's 300 years of successful trading is founded very much on the security of its policy.
As to the practical comments, I would merely say one or two things very quickly. First, I disagree very strongly with my noble friend Lord Marlesford concerning the position of past losses. I was an insider, and I remember only too well how often I thought that the attorneys for the assureds were over-reserving; in fact it has turned out that they were heavily under-reserving from the past. No one seems to think about this point: the best legal brains that underwriters could employ in the USA got it every bit as wrong as the underwriters of 20 years ago. That point is well worth; making.
For the rest, I would merely support my noble friend who has just spoken and say that we should not knock: the team at the moment. The whole thing is in balance. It is very important to the country's balance of payments. Lloyd's brokers alone have now reached 1 billion dollars a year of invisible earnings and they need their underwriters. Let us not knock the team while the thing is in the balance and while we have the chance of success. I ask the Committee to reject the amendment.
§ Lord Vinson
I had not anticipated speaking in the debate but as my name was mentioned I hope the Committee will forgive me for doing so. I have probably both benefited and lost as much as anyone from Lloyd's over the years but I am not certain that a deregulation Bill is the right place to consider the re-regulation of Lloyd's. I think that the Clerks of the House have stretched things a little far by letting this amendment get as far as it has. Be that as it may, Lloyd's has been compared to a suspension bridge between the undoubted errors of the past and the golden future of tomorrow. I happen to believe that Lloyd's can do more for this country, for its members and for its members who have made losses by being encouraged and helped in every way to cross that suspension bridge without rocking it.
It is very much a question of judgment as to what the solvency basis of Lloyd's is. I defy anyone to read the minds of the warped judges in American courts making settlements against Lloyd's which in English courts no judge in his right mind would have made and then to extrapolate that in terms of the reserves for Lloyd's in the future. Indeed, Lloyd's is suffering from its own honesty as much as anything, because by declaring that it is a society that offers unlimited liability, it sets itself up as a fat cat or fat duck ready for plucking by the litigious American attitudes. In fact it just sits there ready to be got at. There will come a time—and I hope it will come shortly and no doubt may come through NewCo—when Lloyd's will have to say, "Enough is enough. We do not intend to go on meeting bogus claims any more".
That brings me back to the questions of solvency. Any good men or women true trying to assess the solvency of Lloyd's would have the greatest difficulty. One would have to pick parameters—at the extreme allowing for death by asbestosis of a child who had slept in the arms of its parents who had worked in the asbestos mine 50 years before; to the other more rational aspect that those who genuinely suffered from asbestosis have now virtually all died out and we must be getting near the end of legitimate claims. Somewhere in between is the solvency level.
I hope that in so far as the Department of Trade has a part in assessing the solvency levels it will look at the matter, in so far as it has to take a view at all, in terms of what is fair and what is reasonable, what is best and would have been concluded under English law, and set the solvency levels from that base. I believe that if it does so the call on existing members to finance NewCo, which might perhaps be better called OldCo, will enable it to be set up with solvency levels far in excess of any American insurance company, and Lloyd's can hold its head high, trade into the future and by so trading create profits that will enable it to treat more kindly, more reasonably and more generously those who are unable to meet their obligations in terms of their personal solvency and what they owe Lloyd's.
I believe that the amendment is ill-timed. We have currently heading up Lloyd's people of the greatest distinction and capability who should be given every chance. There may come a time to re-examine the regulatory basis on which Lloyd's operates but I do not think that that time is tonight.
§ The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley)
It might be useful if I respond briefly on behalf of the Government at this stage. I agree with my noble friend Lord Vinson when I say that I do not believe that this new clause is appropriate for inclusion in this deregulation Bill. In fact, I do not accept the argument of the noble Lord, Lord Williams, that it decreases regulation, but rather I think that it would lead to an increase.
§ Lord Williams of Elvel
Before the noble Lord continues will he accept that it is not in the tradition of this House to criticise the Table? If the Table decides that an amendment is relevant to the Bill, then it is perfectly proper as an amendment.
§ Lord Henley
Will the noble Lord give way? At no point did I criticise the Table or the Table Office in any way whatever. In the end, it is for this House to decide what is relevant to the Bill and not for the Table Office.
I was giving my considered view that I did not believe that this measure was a deregulatory one, but would increase regulation. But be that as it may. I believe that the noble Lord will accept that this is ultimately a matter for the Committee to decide. I was giving my considered view on it. It is for the Committee to decide whether the matter is deregulatory and whether it should be in the scope of Bill in due course.
Let us get back to the amendment. I appreciate the anxiety felt by many members of Lloyd's over the losses which they have suffered in recent years. I do not underestimate the effect that may have had on them. I believe, however, that names have to recognise that in part the losses that have been incurred result from events which have affected the whole of the insurance industry both in this country and throughout the world.
There may also have been poor underwriting at Lloyd's in the 1980s, when capacity was high and underwriting standards just may have slipped. These matters have already been investigated, and while it is evident that mistakes were made, no evidence has been found which shows there has been systematic fraud or malpractice. But there are cases currently before the Commercial Court. I do not believe that it would be right or proper for me to say anything further on those matters which must quite rightly be for the courts in due course.
I understand the intention of the noble Lord's amendment is that the new clause extends to names at Lloyd's the protection afforded by the Financial Services Act. As was made clear by my noble friend Lord Pearson, that question was fully investigated in 1986 when the Government established the committee chaired by Sir Patrick Neill. Their specific brief was to consider what should be done to give names at Lloyd's the same protection as that envisaged by that proposed by the Financial Services Bill, now the Financial Services Act. The committee made about 70 recommendations aimed at providing the appropriate protection for names—I stress that—as envisaged under the proposed Financial Services Bill. All except one of those recommendations—I believe that my noble friend said that it was all of them—have been implemented. 629 The exception is very much an incidental issue relating to the Rehabilitation of Offenders Act, which I believe is not of any great significance.
Some Members of the Committee may think that the passage of time and particularly the level of losses referred to quite rightly by the noble Lord, Lord Williams, and the changes since the Financial Services Act 1986, have shown that names still do not have adequate protection. As I believe the noble Lord is aware, the main reason that Lloyd's was excluded from the Financial Services Act 1986 was that the essence of Lloyd's was—and remains—insurance and not invest-ment business which is the main concern of the Financial Services Act.
The insurance business carried out by Lloyd's is not long-term insurance business for the purpose of the Act. The. amendment before us would only affect any investment business carried on by underwriters which is incidental to the main business of insurance underwrit-ing. To the extent that such business is being carried on, no one has suggested that there is anything wrong in the conduct of that business. It certainly has not been suggested by most of my noble friends who have spoken. I certainly see no reason for any change to the existing regime. I do not believe that a case has been made for bringing any element of Lloyd's business within the FSA. As I said at the beginning, I do not believe this to be an appropriate Bill for such a measure even if the noble Lord should feel that it is. I hope, therefore, that he will think of withdrawing his amendment.
§ 10.15 p.m.
§ Lord Williams of Elvel
I take issue with the noble Lord, Lord Henley, on the point of relevance. It is a custom of this House—the noble Lord, Lord Strathclyde, may shake his head, but he had better get it into his head that it is a custom of this House—that we accept advice from the Table. If, in spite of everything and all advice we wish to table an amendment, the Table will advise the Leader of the House if the amendment is not relevant to the Bill. It is then up to the House to decide. That is the procedure of the House—and that is the procedure that should have been followed in this case if the Leader of the House had been advised by the Table that the amendment was not relevant to the Bill.
§ Lord Henley
I did not deny that it was the custom of the House that we should accept the advice from the Table. What I was saying was that in the end these things are matters for decision of the House or Committee or whatever. My considered advice was that it was not an amendment that decreased regulation. We are dealing with a regulatory Bill. I believe that it is an amendment that would increase regulation. However, I do not believe that this is an important point and I went on to argue thereafter the points as to why I thought that the noble Lord's amendment was unnecessary. I hope that he will not say that I was suggesting any alteration to the traditions of this House.
§ Lord Williams of Elvel
I am glad. The noble Lord, Lord Henley, is not yet the Leader of the House and if he were the Leader of the House, he would no doubt be 630 advised as to how he should advise the Committee about whether an amendment is relevant. Until that time comes, this amendment is relevant to the Bill and will be debated as such by this Committee.
The noble Lord, Lord Henley, said, as I pointed out in my introduction, that Section 42 of the Financial Services Act exempted persons such as underwriting agents and Lloyd's as respects investment business. The noble Lord took a very narrow definition of "investment business". In my introduction I pointed out that it was up to the Secretary of State. I refer the noble Lord to Section 2 of the Financial Services Act 1986, which states:'The Secretary of State may by order amend Schedule 1"—which defines what an investment is—so as to extend or restrict the meaning of investment for the purposes of all or any provisions of this Act".It goes on to state that that order shall be subject to the negative procedure. It is quite clear. It was passed by Parliament in spite, if I may say so, of my opposition. The provisions were passed by your Lordships—and there they are. Membership of Lloyd's can be considered by the Secretary of State, should he so wish, as an "investment" in the meaning of Part I of the Financial Services Act.
That is the first important point. I hope that the noble Lord will agree with me on that. If he wants to disagree with me, perhaps he would like to stand up and say so. All right, he agrees. Therefore, under Part I of the Financial Services Act, membership of Lloyd's can be an "investment business". That leads to all the various things that I described in my introduction. I hope that the Committee will agree that we have sufficiently discussed whether the amendment is relevant to the Bill. I do not want to go over the points that I have already made to the noble Lords, Lord Henley and Lord Vinson.
The noble Lord, Lord Pearson, said that there was an agreement between the Government and Lloyd's in 1986. Presumably the noble Lord was speaking from a Lloyd's brief. There certainly was an agreement, but it was in 1986 and a lot has happened since then. Just because there is an agreement between the. Government and Lloyd's it does not mean that your Lordships have to accept everything that the Government did in 1986. I cannot for the life of me see the relevance of that.
The noble Lord, Lord Pearson, went on to describe some of what he called the "practical consequences" of what I am proposing. Oh dear, Lloyd's agents might have to join FIMBRA. Oh dear, Lloyd's might have to become an SRO. Oh dear, what a pity. Oh dear, it might be regulated further by the Department of Trade and Industry. If the noble Lord is simply putting up the usual flag for self-regulation without any further argument, I accept that, as on previous occasions, there is a serious divide between the noble Lord and myself, I am bound to say to the noble Lord that I can think of other things that I might say about him personally, if he wants to go into that kind of game, but I do not. I do not believe that the question of whether Lloyd's or underwriting agencies joining SROs, FIMBRA, IMRO or whatever should deter the Committee from discussing the amendment in a serious manner.
631 Perhaps I may say without impertinence that I was most impressed by what was said by the noble Lord, Lord Marlesford. He recited many things that I had not previously heard and I am grateful to him for bringing to the Committee the benefit of his knowledge of the subject. I say again to Members of the Committee opposite and to the noble Lord, Lord Marlesford, that my intention is not to worry about the names who may have suffered losses. My intention is simply to ensure that Lloyd's or the activities under its umbrella, if it is to be broken up, should be properly regulated and that it should have a future which takes the insurance and reinsurance business that is represented by Lloyd's through to the next century.
There was an interesting debate which was conducted entirely by Members of the Committee opposite. Apart from myself, no Member on this side of the Committee spoke. I understand that Members opposite feel rather sensitive about this whole question. They do so for two reasons: first, that as a result of self-regulation some Members opposite have suffered badly and, secondly, that other Members opposite have an interest in preserving self-regulation. I can easily understand that because as Members opposite have declared an interest they have their own interest—
§ Lord Pearson of Rannoch
Perhaps the noble Lord will give way. I thought that I had made it absolutely clear that I did not have any interest in self-regulation as such surviving. In actual fact, I thought that I had made it clear that I had been rather a rebel against self-regulation over the years. Will the noble Lord confirm that he said in his opening remarks that all Lloyd's troubles stem from lack of regulation? That seems to me to imply that in his view Lloyd's needs more regulation and not less. Therefore, one must put it to the noble Lord: is this an appropriate place for this amendment in this Bill?
§ Lord Williams of Elvel
We have dealt with the question of whether this is an appropriate place. The point that I am making is not that Lloyd's needs more regulation but that it needs different regulation. In my view, self-regulation has not exactly worked since 1986. All I am saying is that perhaps we should try a different system—
§ Lord Pearson of Rannoch
I apologise for interrupting the noble Lord for the last time but he should also answer a point that I put to him. Would the Maxwell pensioners agree with his view on this matter? What comfort would the kind of regulation that he proposes for Lloyd's give to the Maxwell pensioners? Was it the fault of FIMBRA, was it the fault of regulation under the Financial Services Act, or was it the fault of the board? What was responsible, in the noble Lord's view, for the Maxwell debacle?
§ Lord Williams of Elvel
I do not know because I have no idea what in fact went on. If the noble Lord is suggesting—and I say this in all seriousness—that I in any way had any idea of what was going on I think that 632 he ought to say so outside the Chamber. He might find it rather expensive—but I am sure that he did not mean that.
The amendment that I put forward provoked a good debate, which was, on the whole, conducted by Members opposite. I do not propose to take it to a Division. I propose to read what was said by the noble Lord, Lord Henley, to look at what other Members of the Committee have said and, if necessary, to return to the matter on Report. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Bruce of Donington moved Amendment No. 94A:
After Clause 12, insert the following new clause:
§ ("Amendment to Insolvency Rules 1986
. For Rule 1.17(3) and Rule 5.17(3) of the Insolvency Rules 1986 there shall in each case be substituted—
A creditor shall not vote in respect of a debt for an unliquidated amount, or any debt whose value is not ascertained, except to the extent that the Chairman puts upon the debt a minimum estimated value for the purpose of entitlement to vote." ").
§ The noble Lord said: This amendment deals with two identical regulations which are part of 700 pages, weighing 4 pounds, issued under one head which passed through the other place without debate. Nevertheless, they are of some importance at this time.
§ Members of the Committee may recall that I raised this question last week when I received an extremely courteous reply from the noble Lord, Lord Strathclyde. He said that his department was considering the matter urgently and needed to discuss it with the profession concerned.
§ The whole point arises from the operation of the Insolvency Act 1986 which introduced some extremely useful measures that have since been of considerable benefit to some businesses and companies in the United Kingdom. They were incorporated in Parts I and VIII of the Insolvency Act 1986. They provided means whereby voluntary arrangements could be arrived at by the creditors of companies and the directors or owners of a business. They allowed measures of reconstruction to be brought before the creditors and, subject to the approval of the court, thereafter they could be put into effect.
§ In general terms they have been very successful indeed. They correspond broadly to the operation of similar measures in the United States—what are called Section 11 arrangements—whereby voluntary agree-ments are reached between creditors and the directors and shareholders of companies. In the event, a considerable number of companies in the United Kingdom have been saved from liquidation and are now in business again. Quite a large number of individuals and partnerships likewise have been able to benefit from the provisions. Generally speaking, the Government's intentions have proved to be extremely beneficial and have achieved the desired objectives, with the support of Her Majesty's Opposition.
§ I have tabled the amendment this evening because the regulations which I seek to amend have become obsolete in view of the fact that they have been interpreted recently by the courts in a way in which it 633 was never intended that they should apply; and is quite different from the way in which they have been applied during the past seven or eight years.
§ I shall now particularise. When the directors of a company seek to come to an arrangement with creditors, believing that the company can be saved and restored to health again, a very critical situation arises between the creditors and directors of a company. It is a matter which rests largely on trust and very often it is extremely difficult to reach agreement.
§ In general, on being presented with a scheme of reconstruction by the company, the creditors agree to accept a lower amount in discharge of their debts than is on the books at the time; but they receive rather more than they would receive if the company was put into compulsory liquidation and not sold as a going concern. In other words, if no arrangement was reached and the liquidation took place, unless the business was sold very quickly as a going concern to some other company, the asset distribution would take place on a non-going concern basis and creditors would get but a fraction of the amount that was owing to them. I repeat that the arrangements arrived at between creditors and the owners of businesses and directors are a matter of the utmost delicacy and it requires a considerable amount of trust for one to be arrived at because all the time individual creditors may wonder whether other creditors are getting a better benefit than they are and so on.
§ In so far as the debts of a company are readily ascertainable—they are the ordinary book debts of a company and they are for an agreed, ascertainable amount—no difficulty normally arises. On the assumption that the insolvency practitioner acting on behalf of the company is able to persuade the creditors that the scheme is as sound a one as can be achieved in the circumstances, and also can satisfy the court likewise, then in the normal way the reconstruction proceeds, provided of course that the debts can be ascertained.
§ The trouble really arises when liabilities arise, or are thought to arise, which cannot be ascertained, upon which there is no agreement and which do not appear to be quantifiable. Such cases that arise are these: cases where an alleged creditor of the company apprehends that he ought to bring action against the company for reasons that are either real or imagined. Provided that there are applications, or that notice is received by the chairman of the creditors' meeting by midday before the day upon which the meeting is held, then they are bound to be taken into account by the chairman of the meeting in determining whether the 75 per cent. majority of the shareholders do in fact agree with the scheme itself—75 per cent. being the crucial figure which, if it is accepted by 75 per cent. of the creditors, then the way lies ahead for the insolvency practitioner to commend the scheme to the court for approval.
§ Up to 13th May, under the provisions of the Act, the position was stated—I quote from Regulation No. 5.17(3) on companies—as follows:
A creditor shall not vote in respect of a debt for an unliquidated amount, or any debt whose value is not ascertained, except where the chairman agrees to put upon the debt an estimated minimum value for the purpose of entitlement to vote".
§ It is the construction which the courts have put upon this; provision that has led to the present position. The court in the case decided by Mr. Justice Ferris on 13th May interpreted that that provision meant that the chairman had to get the agreement of the alleged creditor for the unliquidated amount to the amount that ought to be taken into account for the purposes of determining the voting rights at the meeting itself. That is what has caused the problem. It is quite contrary to the interpretation placed upon the rule over the past seven or eight years. It was not previously interpreted that the chairman had to obtain the agreement of the alleged creditor himself or herself but had only to agree to determine the amount of the debt at whatever he considered the minimum value to be.
§ The minimum value could vary. If, for example, the unascertained or unliquidated debt had been in the knowledge of the directors for months, that would be one consideration on which the chairman at the creditors' meeting might decide that a certain value, although lower than the amount claimed, might be put to the meeting. It would, however, be rather higher than if the debt had come to the knowledge of the chairman of the meeting only 24 hours before the meeting itself and nobody had any other indication of it.
§ All the amendment seeks to do is to restore the interpretation which was previously placed upon subsection (3). It does not seek to do anything new. It merely seeks to re-establish the previous position within the context of subsections (4) and (5) which give certain rights of appeal.
§ In the normal course, the usual way to redress the position would be by bringing in an amending statutory instrument, regulation or rule. I have reason to believe that this is a matter of greater urgency. At any one time there are 20 or 30 companies or firms in such a position. Unless something is done to correct the position to what it is generally agreed that it ought to be and that it has been taken to be in the past, it may well be that those firms or companies will suffer. That is why the amendment has been brought forward tonight. That may even be done on a purely temporary basis if necessary.
§ The noble Lord may say that, so far as he can ascertain, the measure will not be widely applicable and therefore it can probably await the long-term review of the 1986 rules and the Act itself, which I understand is on the cards in any event. My answer to that is that if the matter is not of particular significance there is no reason why amending action cannot be taken now without harm to anybody, on the basis that if it is passed as part of this Bill it will be unnecessary to go through the procedure of having an amending rule or, on a longer-term basis, to await the complete review of the Act.
§ As I indicated in my rejoinder to the answer that the noble Lord gave me last week when I first raised the issue, I made myself available to the officials in his department. It would be grossly improper of me to refer to anything that transpired, save to say that, thanks to the Minister's co-operation, I found them very co-operative. I hope that they will advise the noble Lord accordingly.
§ Therefore, with the object—with which I am sure the noble Lord is familiar—of offering to help the 635 Government in this matter, I hope that the Minister may see fit to accept the amendment in order to speed up matters and to make matters far more convenient for himself. The ultimate review of the 1986 Act could then proceed at a more leisurely pace than would otherwise be possible, and possible injustice, inconvenience and grave concern to many people could be avoided in the immediate future. I beg to move.
§ Lord Peston
The Committee will be indebted to my noble friend for raising the matter today and for offering a solution to our problems. He drew the matter to the Committee's attention about a week ago. I was most concerned about the issue and the need for urgent action. Since then I have taken some advice which suggests that we ought to act more quickly rather than more slowly.
We shall not have another debate on what falls within the Long Title of the Bill. It seems clear that such a provision might help save some viable enterprises. That should be our only concern. I appreciate that there will be an eventual review of all matters to do with insolvency. At a later stage of the Committee during debates on contracting out we may deal with the future of the official receiver's office. I do not wish to go into that now.
I am not an expert. However, what my noble friend says makes perfectly good sense. His amendment makes good sense. I repeat that I am not an expert, but I assume that the department has its experts. Therefore, there are two possibilities. The first is that the amendment is correct, in which case let us accept it. The second is that the problem exists, whether or not the amendment is correct. At some time during the passage of the Bill the department must come up with a provision which does the job. If we have an opportunity to save businesses which would otherwise not be saved we must take no risks in that regard, even if a little extra work for one or two officials is involved. I hope that the noble Lord will respond positively and sympathetically to what my noble friend says.
§ Lord Strathclyde
I am sure that I speak for the whole Committee in welcoming the depth of detail with which the noble Lord, Lord Bruce of Donington, introduced his amendment. As I said on 16th June, there is a need to discuss the matter with the profession. The preliminary view of the Society of Practitioners of Insolvency is that while an amendment to the insolvency rules is desirable, it is not immediately pressing as the effect of the relevant ruling does not appear to be prejudicial to the majority of voluntary arrangements.
It is considered that in many cases the chairman of a meeting will be able to come to some agreement with a creditor with a debt for an unliquidated amount, or any debt whose value is not ascertained, because if the proposal is offering advantages over liquidation or bankruptcy it will be in the interests of that creditor to participate.
As the noble Lord is aware, the insolvency rules which he seeks by this new clause to amend are a 636 statutory instrument and those rules are made by the Lord Chancellor with the concurrence of the Secretary of State after consultation with the rules committee.
The impact on the rules for meetings of creditors in other insolvency procedures will also have to be considered. We would wish to discuss further the issues with the insolvency profession to make sure that we have a satisfactory solution, and, if that involves an amendment to the rules, to use the prescribed and conventional route for such rule changes. I hope that the noble Lord will agree with that. I can assure him that we are taking the matter forward urgently.
Perhaps I may add, without wishing to enter too far into the debate of relevance to the Bill, that if the new clause does not decrease regulation I do not believe that it would be appropriate for inclusion in the Bill. Having said that, and taking note of what I said earlier, I hope that the noble Lord will withdraw the amendment.
Lord Bruce of Donington
I am most grateful to the noble Lord for his reply. As to the propriety of the inclusion of the amendment in this specific Bill, I shall have to leave the matter exactly where my noble friend, Lord Williams of Elvel, left it in connection with the previous amendment.
I invite the noble Lord seriously to consider one other alternative upon which he did not touch. It is quite true that most creditors would find it advantageous to row along with the remainder of the creditors if, under the scheme, they would receive more than they would were the company to go into liquidation.
The noble Lord must, however, agree that there are circumstances which occur quite frequently where a debt is alleged against the company purely out of malice, without there being any real debt. But the allegation itself is sufficient to make the remaining creditors who propose to support the scheme uneasy. Probably making the allegation at the meeting of creditors can itself secure the complete abandonment of the arrangement already arrived at. The noble Lord can readily conceive circumstances where, at a creditors' meeting, a creditor who had no real fundamental claim against the company, but who had 24 hours earlier put in a claim on a completely unascertained basis, could in effect be blackmailing the company to come to some private arrangement with him, sub rosa, in order that the remainder of the scheme could go through. That is a possibility. I am not saying it is a strong possibility, but it exists.
I therefore hope that the noble Lord will take that into account. I know it sounds unconventional, but the effect can be real and I am quite sure that he would not wish to be party, by not expediting the correction of the rule, to adding to the woes of many companies which would otherwise, on a correct interpretation of the law, be able to recover to the benefit of their creditors, their customers and their employees.
I am grateful for the assurance given by the noble Lord. He knows me well and realises that I shall return to the matter again, frequently, as a matter of urgency. In expressing my gratitude to him and his department, I ask leave of the Committee to withdraw the amendment.
§ Amendment, by leave, withdrawn.637
§ Clause 13 agreed to.
§ Clause 14 agreed to.
§ Clause 15 [Building societies: direct participation in syndicated lending]:
§ [Amendments Nos. 95 and 96 not moved.]
§ Lord Sudeley moved Amendment No. 97:
After Clause 15, insert the following new clause:
§ ("Freedom of banks to disclose information after 75 years
§ The noble Lord said: This amendment to Section 19(1) of the Banking Act 1979 has been suggested by Professor Charles Goodhart of the London School of Economics. Professor Goodhart says that, as it stands, the clause actually prevents a bank from disclosing information on a customer's affairs in perpetuity while the family or firm remains in being. Professor Goodhart says that the simplest approach would be to add another clause to allow a bank to disclose information on its dealings with a customer when those dealings were 100 years before. I have cut that interval of 100 years to 75.
§ Before discussing the issue generally of disclosure I have to declare an interest: the bankruptcy in 1893 of the fourth Lord Sudeley outlined by Dr. Chapman of Nottingham University in The Sudeleys—Lords of Toddington, of which there is a copy available in the Library. Dr. Chapman's paper has drawn the interest of parliamentarians in a way which crosses party lines. The noble Baroness, Lady White, suggested from it a debate in this House on the keeping and disclosure of banks' records. In another place a Conservative Member is to introduce an adjournment debate with a view not just to considering the fourth Lord Sudeley's case on its own but to pull similar cases out of the woodwork.
§ The view of this Committee, therefore, is prayed for to assist in the dialogue which will continue both in another place and in a public conference during the Easter of 1996 at the fourth Lord Sudeley's second home, Gregynog, in Powys, which is now part of the University of Wales.
§ The fourth Lord Sudeley held political office under the Liberal Government. He contributed to this House on naval affairs; he was a pioneer in the fruit industry; and he was largely instrumental in getting guide lecturers in museums. Apart from Gregynog, most of his land lay at Toddington, in Gloucestershire, which has been held by the family for nearly 1,000 years. The new Toddington was personally designed by the first Lord Sudeley, who was chairman of the commission for the rebuilding of the Houses of Parliament.
§ As a landowner, the fourth Lord Sudeley was a victim of government policy and of its failure to introduce protection during the agricultural depression at the end of the last century. Far too late, in 1903, Joseph Chamberlain advocated domestic protection for industry and agriculture and imperial preference and 30 years later, during the depression of the 1930s the policies which Chamberlain advocated were accepted. This story is very well told by the noble Lord, Lord Amery, in his biography of Joseph Chamberlain.
§ To protect himself during the agricultural depression, the fourth Lord Sudeley diversified. He planted 700 638 acres at Toddington with fruit. In 1893 he should have been able to reach an accommodation with his creditors to carry out his intention of selling the Gregynog estate and selling Toddington with its orchards. Instead of that, the blow fell whereby he lost the entire family inheritance when Lloyds Bank filed a petition for bankruptcy. Dr. Chapman says in his paper that the formal reason for the bankruptcy was liquidity, but adds that to find the real reason we need to probe below the: surface, where there is no answer. Lloyds Bank is adamant that it does not know.
§ The law of libel constricts debate outside Parliament on whether, in point of fact, Lloyds Bank has this information but it does not suit the bank to let it out On this question, I have found opinion to be divided; but if Lloyds Bank indeed has the information it brings us to the problem of how the bank is in total control of its own information and, if it stonewalls, what is anybody going to do? We are left with an area of speculation which falls into three parts: first, that the fourth Lord Sudeley was the scapegoat when, after the Baring crisis which shook credit to its foundations, scapegoats had to be found; secondly, foul practice on the pan of the bank in collusion with outside parties which could acquire our assets on the cheap; and thirdly, that the petition for bankruptcy was the work of an enemy. Banks can be sensitive to political pressure, and the Liberal Party at the time was riven by a feud between the old Whig aristocracy like the fourth Lord Sudeley and middle class radicals headed by Joseph Chamberlain. The feud was exacerbated by Gladstone when he changed his mind in favour of home rule for Ireland. I hope that in this area of speculation the worst of it is untrue.
§ To leave the fourth Lord Sudeley's case and to speak of the significance of this amendment generally in regard to the disclosure of bank records, on the credit side banks already give access to records, unaware of the nature of Clause 19(1) of the Banking Act 1979 as Professor Goodhart gives it. This is the view of Mr. Malcolmson of the records held by the Public Record Office of Northern Ireland, which has two large scale holdings deposited there, the Northern Bank and the Ulster Bank, and the law clearly needs to be altered so that such banks do not fall on the wrong side of it. In an important article in the Times Literary Supplement for 18th January 1985 Dr. Chapman says that much progress has been made in opening up the archives of banks, in particular the Bank of England, Barings and Rothchilds.
§ On the debit side, Dr. Chapman complains in his article in the Times Literary Supplement that the Bank of England has declined to publish any list of its holdings. Here it is worth remarking that the Bank of England is a public institution, indeed an instrument of the Government. Barings and Rothchilds, Dr. Chapman says, place severe restrictions on access. Barings refuse access to its information on capital profits and acceptances and Rothchilds refuse to reveal information on capital and profits, so no serious history can be attempted.
§ The disclosure of banks' records cannot be separated from the keeping of them, so it may be appropriate if I conclude with a few remarks on that. The old argument 639 that the banks cannot throw the expense of storage on shareholders is now greatly weakened, owing both to the ease and economy with which information can be stored with modern computer technology and the willingness of public repositories to take banks' records with access controlled by the bank.
§ Apart from the Public Record Office in Northern Ireland, which I have already cited, there is the Guildhall Library, the records of Huth's at University College London, and the records of Brandt's with the London School of Economics and London University. In such repositories records have a chance of being much better understood than by bank archivists. Dr. Chapman complained in the Times Literary Supplement that many bank archivists lack the necessary knowledge of financial history and the skills of the trained archivist.
§ How should banks be encouraged to keep further records? The Secretary of the Royal Commission on Historical Manuscripts wrote to me that his commission disfavours the imposition of further statutory control since it would lead to the concealment and early destruction of the records which it was sought to preserve. However, his commission would welcome the preservation of further historical material.
§ What kind of material should it be? In canvassing the views of economic historians, I found that R.O. Roberts of University College, Swansea—I endorse his view —would like to see preserved full information on all the major decisions which banks take. In a case such as the filing for bankruptcy against the fourth Lord Sudely, that must include internal memoranda, reports to directors, and so on, to disclose the information on which the major decision was taken and the discussion which ensued prior to it. In the case of the fourth Lord Sudely, it is very galling simply to be given the bare entry from the Board Minute Book of Lloyds Bank that the petition for bankruptcy was filed and not to be told why.
§ I hope that this amendment and any debate on it will assist toward the fuller keeping and disclosure of bank records. This is a subject which, in the view of Dr. Chapman, is largely uncharted territory for economic historians. I beg to move.
§ Lord Henley
The new clause would not achieve the effect that my noble friend Lord Sudely intends. The section of the Banking Act 1979 which it seeks to amend was in fact repealed by the Banking Act of 1987 and replaced by the provisions in Part V of the 1987 Act. Therefore this clause, if agreed, would have no legislative effect.
But leaving the drafting to one side, perhaps I may address the points made by my noble friend. Obviously I sympathise with the difficulties that the noble Lord's forebears may have experienced as a result of that decision by Lloyds Bank to file a petition for bankruptcy against the fourth Lord Sudely. But my noble friend will probably understand that I cannot comment directly on a commercial decision taken by a bank, especially one taken 100 years ago.
If the intention of my noble friend is to impose a requirement upon banks to disclose information about 640 their commercial dealings 75 years after the event, it would be a proposition with which I should have a great deal of difficulty. There are no precedents of which I am aware for introducing a statutory requirement for anyone—whether a bank, some other commercial enterprise or an individual—to disclose its reasons for taking a particular commercial course of action after some period has elapsed. I believe that such a provision would appear to imply a requirement to keep records for that period. Despite what my noble friend had to say, I believe that that could entail unnecessary costs and would certainly have no place in a deregulation Bill. Obviously, it it were simply a matter of law, back in the 1890s the parties concerned no doubt could have sought disclosure within the statutory code of limitations through the courts in the usual way. But I suspect that the cause of action of the noble Lord's predecessor, the fourth Lord Sudely, lapsed some time ago.
Perhaps I may also point out that Section 19 of the 1979 Act and Part V of the 1987 Act dealt with the treatment of confidential information obtained by the Bank of England in the course of its supervisory functions and not with the confidentiality of information held by the commercial banks. So even if Section 19 had still been extant, the effect of my noble friend's clause would not have been the one that he appears to seek.
While expressing sympathy with my noble friend for the troubles that his forebears experienced some time in the 1890s, I hope he will agree that this amendment is not the appropriate amendment for tonight. I hope therefore that he will consider withdrawing it.
§ 11 p.m.
§ Lord Sudeley
I thank the Minister for his reply. I shall continue. There is a conviction in some quarters that the bank holds the information. That opinion was expressed to me by the previous chairman of another bank. There are of course many other aspects of the fourth Lord Sudeley's case which will be debated in another place and also at the conference which takes place in 1996 in relation to whether banks should force immediate payment of debts when creditors can reach an accommodation, and so forth.
I thank the Minister for his reply. As the Minister acknowledged, with computer technology it is now so much easier to store information, and possibly at some stage consideration can be given as to whether statutory regulation on that aspect of keeping banks' records might be introduced. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 16 agreed to.
§ Lord Peston moved Amendment No. 97A:
After Clause 16, insert the following new clause:
§ ("International ports
§ "International ports.
86A.—(1) At a port where this section is in operation section 59 of this Act shall not apply to licensed premises which are located at an approved wharf within the meaning of the Customs and Excise Management Act 1979.
(2) The Secretary of State may by order bring this section into operation at any port which appears to him to be one at which there is a substantial amount of international passenger traffic.
(3) Before the Secretary of State makes an order bringing this section into operation at a port, he shall satisfy himself that arrangements have been made for affording reasonable facilities on licensed premises located at the approved wharf concerned for obtaining hot and cold beverages, other than intoxicating liquor, at all times when intoxicating liquor is obtainable on those premises, and if it appears to him that at any port where this section is in operation such arrangements are not being maintained, he shall revoke the order with respect to that port, but without prejudice to his power of making a further order with respect to that port."").
§ The noble Lord said: At Second Reading I told the Minister that this was a matter to which I would return and it concerns something which I believe the Government should be tackling in the Bill. It relates to the anomaly which recently came to light in the way in which different forms of cross-Channel transport are treated by the present liquor licensing regime.
§ At airports the Secretary of State may make an order under Section 87 of the Licensing Act 1964, the effect of which is to enable alcoholic beverages to be served outside the permitted hours as defined in Section 60 of that Act. All major UK airports are the subject of such orders. In the case of those travellers wishing to cross to the Continent by sea they at present have a choice of conventional ferries, hovercraft or sea catamarans. Soon, of course, the Channel Tunnel will provide a quite different possibility. As competition for cross-Channel trade intensifies, so the services which can be offered to travellers on each system of transport become increasingly important. One such service, at least for the time being, is the supply of duty free goods.
§ A conventional ferry operating outside territorial waters may sell duty free beverages on board the vessel. The size of those vessels—they are now quite enormous —means that a wide range and quantity of goods may be carried. On the other hand, hovercraft—being much more akin to aircraft—do not have the space to carry bulk supplies of duty free drinks such as beers and lagers, and bulk purchases are therefore made at duty free shops located at the UK hoverport.
§ As a result of the hovercraft application of enactments order 1972, Section 87 of the Licensing Act 1964 has been extended to cover hovercraft and hoverports. The result is that cross-Channel hoverports such as Dover may sell duty-free drinks to travellers waiting to use any of the hovercraft services, including —and this is an essential point—the early morning and Sunday afternoon crossings which would otherwise fall outside the permitted hours.
§ The anomaly which was recently discovered concerns the treatment of SeaCats. Those passenger and car-carrying catamarans are capable of achieving much higher speeds than ferries but are considerably smaller. Those excellent vessels—I have already pointed out to the Committee that they are my preferred way of crossing the Channel—are not designed to carry substantial quantities of alcoholic drinks for sale duty-free on board. Instead, only a limited supply is carried primarily for immediate consumption, as is the case with aircraft and hovercraft. However, the 642 Folkestone duty-free shop is unable to service the needs of customers using the early morning and Sunday afternoon crossings because Section 87 of the Licensing Act does not cover SeaCats. At Dover, where there is also a SeaCat service, the restrictions do not apply because hovercraft also use the port and the Secretary of State's exemption order covers the duty-free shop at the hoverport. The position at Folkestone is being saved at present by what is known as a justice's occasional licence; but that is seen as a temporary measure.
§ The anomaly I described is heightened by the fact that under Section 11 of the Channel Tunnel Act 1987 the appropriate Minister has power to make an order which excludes or modifies the Licensing Act 1964 in relation to the Channel Tunnel. He is therefore: able to disapply the prohibited hours restriction in the case of duty-free shops at the tunnel terminal at Cheriton, therefore placing Eurotunnel in the same position as airport or hoverport operators. I understand—and perhaps the noble Lord will remark on this —that such an order is indeed likely to be made for Eurotunnel.
§ The point is that it is quite apparent that there is no conceivable policy reason for imposing a more restrictive duty-free regime upon those of us who choose to travel by SeaCat—and I have declared an interest; "those of us" certainly includes me—than upon those who decide to take a hovercraft or a Channel Tunnel shuttle-train.
§ All noble Lords present will agree that the legislative background to this is arcane, but the deleterious consequences of the present state of affairs are all too real. If a form of transport is unfairly discriminated against, both the public and those whose jobs depend on the service may suffer. The Bill represents an ideal opportunity—entirely in the spirt of what the Government are choosing to do more generally—to remove the present anomaly by, in effect, extending the power in Section 87 so as to enable the Secretary of State to make an order in respect of Folkestone and any other international SeaCat terminal such as Holyhead.
§ I freely admit that there are several ways in which one could approach the matter. My amendment has the merit that it is the simplest and most straightforward approach. It inserts into the Licensing Act 1964 a new section conferring upon the Secretary of State the same powers in respect of international ports as he has under Section 87 in respect of international airports. This approach has the advantage that it is not necessary to define what a SeaCat is. This is very important because ferry technology is advancing rapidly, and it is quite possible that other, even faster, forms of carrier will be introduced in the next few years. It is better not to produce legislation that will soon be out of date and which because of its unduly narrow scope will create new anomalies. This is precisely the problem with the Hovercraft Act 1968 and the orders made under it.
§ My new clause would enable the Secretary of State to disapply the ban on sales outside the permitted hours where he considers that circumstances at a port warrant it. The new clause, like Section 87, is in permissive terms. It does not require him to act, but it gives him the 643 power to do so in the case of Folkestone and in any other port which would otherwise be at a competitive disadvantage.
§ The new clause focuses on the Customs concept of an "approved wharf" which, as the Minister is aware, is used in the Hovercraft (Application of Enactments) Order 1972. Otherwise, the clause follows the form of Section 87, omitting material which is irrelevant in the present context.
§ The new clause contains an important requirement, which is also present in Section 87. The Secretary of State cannot lift the permitted hours restrictions at the approved wharf unless he has satisfied himself that arrangements have been made for affording reasonable facilities in the licensed premises for obtaining hot and cold beverages other than intoxicating liquor at all times when intoxicating liquor is obtainable on those premises.
§ My central point is that every operator of a cross-Channel or other ferry service should be afforded an equal opportunity to provide the best service to customers as he or she possibly can. I am certain that that is the Government's view. The amendment that I have moved would enable this to happen. If a particular form of transport such as the SeaCat is penalised purely because of a legislative quirk—and everybody who has looked at this matter agrees that that is what this is— ultimately customers can suffer and jobs be put at risk.
§ The Bill presents an excellent opportunity for eliminating the anomaly that I have described. Those running SeaCat services—and I must say that I am not in the least involved with them; in other words, regretfully, it is not a firm that I own a share of or have been appointed to the board of—should not have to wait for an order to be made under Clause 1 of the Bill. I hope that I have persuaded the Committee that there is a problem and that it can be rectified in the Bill without delay and worries over vires questions and other potential difficulties.
§ I hope very much that the Minister will respond positively and sympathetically to my amendments, and I look forward warmly to what he has to say.
§ The Parliamentary Under-Secretary of State, Department of Transport (Lord Mackay of Ardbrecknish)
The noble Lord, Lord Peston, has proposed a new clause which would give the Secretary of State powers to grant exemptions to licensing laws at international sea ports similar to those powers which he has in respect of airports. The noble Lord explained the background to his new clause, which he foreshadowed at Second Reading. As he mentioned, the issue concerns the high-speed catamarans, dubbed SeaCats by one of the operators, Hoverspeed. It is important to say for the record that Stena Sealink also operates international high-speed catamaran services from UK ports.
I share the noble Lord's interest in catamaran services and have travelled on the one from Stranraer to the centre of Belfast. I was extremely impressed by both parts of the journey. At the risk of boring the Committee further, I share the noble Lord's interest a little further in that I am to open a conference and give an address on 644 the whole question of fast vessels with twin hulls. However, I shall not go into that any further. It is a fascinating subject.
§ Lord Tordoff
Will the noble Lord tell us where this exciting event is taking place and how we can get free tickets?
§ Lord Mackay of Ardbrecknish
The noble Lord will certainly not get free tickets. He will have to pay if he is coming to listen to me making a speech outside this House.
I understand the sentiments behind the new clause. It is a complex issue and it is not quite as simple as it first seems. It goes beyond the SeaCat question at Dover and at Folkestone which was originally raised at Second Reading by the noble Lord, Lord Peston. Operators of high-speed catamarans want to be able to offer to their customers the full benefits of duty-free shopping which are available on conventional ferries. But space limitations and the need to keep weight down, which is another important aspect, together with the speed of the passage, prevent a comprehensive service on board SeaCats. Passengers wishing to make duty-free purchases must therefore use the facilities available at the SeaCat terminals.
There are no current powers for the Secretary of State to grant licence exemptions at sea ports. There are powers that cover airports and, as the noble Lord said, hoverports, under Section 87 of the Licensing Act 1964. As a hoverport, Dover is covered by this provision. Alternative arrangements are currently in place at Folkestone, as he explained, which allow the licensed premises there to remain open outside normal licensing hours. Sea Containers, which is Hoverspeed's parent company, would now like to see these arrangements formalised.
However, the clause before the Committee goes a little wider than that. It would allow exemption powers to be used at any port, not just those used by SeaCats. I should like to look closely at the implication for the whole ferry industry and indeed the Channel Tunnel. The noble Lord asked about the Channel Tunnel. I can tell him that the Secretary of State will want to consider the Eurotunnel case for special treatment regarding licensing hours under Section 11 of the Channel Tunnel Act. He will want to consider that case very carefully in the light of all the relevant competition, licensing and Customs and Excise issues. That he will be doing. But beyond my direct interest as Transport Minister in this issue, there are, as the noble Lord will be well aware, wider issues of licensing and duty-free matters which will also need careful consideration.
It has not yet been possible to consider fully the implications of this clause in the limited time available. However, for that reason I hope that the noble Lord will agree to withdraw the new clause tonight and give me and my colleagues an opportunity to go into this issue in greater detail. I am fully aware of the issue raised by the noble Lord. It is a perfectly justifiable issue to raise and a justifiable complaint from the operators of the SeaCat. We should like to study the issue carefully before coming to a final decision. I shall certainly keep 645 the noble Lord informed of where our various deliberations are. On that basis, I hope he will be able to withdraw the amendment.
§ Lord Peston
I thank the noble Lord. As he knows, I have been sitting on this Front Bench for a great many hours being rebuffed on amendment after amendment. But it has been worth waiting until 11.15 to hear a positive and constructive response to my anxieties.
I thank him for what he has said. I hope that he will be able to return to your Lordships with a proposal sooner rather than later because, as he rightly said, it is a matter which concerns the operators. It is a question of fairness in competition. I appreciate that there may be other technical difficulties. I shall be delighted if at any 646 point when he is making progress the Minister invites me to talk about it. But there will be time between now and Report stage. I say with total sincerity, and the biggest thanks that I can give the noble Lord, how much I appreciate his response. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.
§ House adjourned at sixteen minutes past eleven o'clock.