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§ Mr. Frank Field (Birkenhead) (Lab)I thank Mr. Speaker through you, Mr. Amess, for giving me the opportunity to stage this short debate today. It is a debate that I wish I did not have to initiate or contribute to, because it concerns the firm of Mclvor and Sons Ltd. in Birkenhead, which was established in 1864 and until recently employed 25 people. It has now shut its doors and called in the liquidators, and it is the circumstances of that liquidation that I wish to debate with the Minister today.
In a sense it is appalling that I am having to ask for a debate on this issue, but it is doubly appalling given who I am debating with. I have said before, although I do not say it often now because it may damage her political future, that my hon. Friend the Financial Secretary is clearly our most attractive younger Minister. If one were thinking of putting money on who would go near the top, one would be wise to put money on her. Yet I hope that she will draw two important lessons from today's debate and that the Treasury will not only answer letters more efficiently but will be more receptive to the policy issues raised. I shall now detail the backbone of my complaint.
The person who ran Mclvor contacted me in mid-June and I immediately inquired in the House of Commons Library which civil servant in which Department was in charge of the asbestos claims procedure. I have no complaint to make against the Library, because within days I was told who the person was, and I phoned the Treasury on a number of occasions to ask to speak directly to him. During that week, he was endlessly away from his desk, no doubt quite properly: civil servants, like the rest of us, are entitled to holidays.
The weeks went by and I was still not getting a reply from the Treasury, though people were promising me one, so a month later I wrote to the Chief Secretary to ask him whether I could meet the official to talk about the moral hazard faced by the firm that I represent in Birkenhead and all the other firms in the country with asbestos claims. Even though premiums were paid to a company called Chester Street Insurance Holdings Ltd., that company did some very unpleasant footwork with the premiums, set up a holding company, shunted into it all the main asbestos claims and then took the rest of the business off and let the company sink. My constituents and others, who had paid in even when they did not have to, found that the insurance cover that they had bought was of no value.
To their half credit, the Government said that, if a firm goes bankrupt because it does not have the cover that it has paid for goodness knows how many years, the taxpayer will pick up the cost, but if the firm survives, it must meet the claims itself. Therefore, there is an incentive in the system for firms to go bankrupt and perhaps re-establish themselves later, minus the debts. This was a firm that had managed to survive all sorts of Government policies since 1864, but it was defeated by this one.
As I said, I asked the Chief Secretary whether I could meet the civil servant in charge of policy, because it is the policy that needs changing, so that we can overcome this 61WH moral hazard and firms can receive some help with their claims while still being allowed co continue trading. I wrote to him on 17 July. My office and I then made a number of calls to his office asking whether I would receive a reply. As a result of those phone calls, the Financial Secretary wrote on 4 September to say that she was the Minister responsible and that she would reply.
I phoned the Financial Secretary's office and then wrote again on 16 October asking for a speedy reply. I still received no reply, so finally in. December I tabled a question asking whether I would get a reply to any of the letters that I had written. At that stage she replied to me. However, because McIvor's had told me how difficult the circumstances were—its bankers were beginning to question whether it should continue trading—I asked her Parliamentary Private Secretary, my hon. Friend the Member for Stalybridge and Hyde (James Purnell), whether he would look at the papers and brief her, given that I was not keen to rely on the Treasury's internal post any longer.
Unfortunately, the first batch of letters did not arrive, so I re-copied them to my hon. Friend the Member for Stalybridge and Hyde, who then referred them to the Treasury. By that stage, seven months after I started the correspondence, my constituent told me that the banks had sent in the liquidators. Those liquidators told my constituent that not only did they have to deal with his liquidation, but in the same area they were dealing with a similar liquidation of a company that had paid all its premiums to Chester Street Insurance Holdings and now found itself without cover for its workers who might make claims against it for asbestosis. That firm had similarly gone bankrupt.
Up to the point of bankruptcy and closure, no taxpayers' money would be made available to help those firms meet claims, which they wished to meet, should any of their past or current employees claim that their health was damaged by working for them. Both firms gained no help; both have gone out of business. The work force and previous work force of both firms are now covered by the Government's guarantee on behalf of taxpayers. Therefore, I want to raise only two issues.
An apology does little good to those 25 people who lost their jobs in Birkenhead and who might not have lost their jobs had the Treasury responded from mid-July with even the modest efficiency that the Chancellor accuses the rest of British industry of when it comes to productivity. We might not then ha re needed this debate today. We are not after apologies. First, there is clearly something wrong with the way in which the Treasury deals with correspondence from Members of Parliament, let alone everybody else.
Secondly, and even more important, there is the policy issue that I tried to raise with the Treasury in mid-June: is it acceptable to have a scheme that offers no help to those firms that in the past have paid all their insurance premiums to Chester Street Insurance Holdings, only to find that that company ripped them off, put their liabilities in a company that it allowed to fold and then walked away with all the other business that it could make a profit on? Is it sensible to have a system that helps those decent employers—or rather the work force of those decent employers—only when we have managed to smash the employer on the floor and 62WH that employer has closed the business? Should we not be looking at developing the scheme and eradicating this moral hazard?
Would not a better use of taxpayers' money have been to help meet not all—that was never what was asked for-but part of the cost of the asbestosis claims of past employees? That would have meant that the firm did not have to go out of business. Would that not have been better than the taxpayer meeting all the claims after it had gone out of business? We have destroyed really good, productive jobs in the meantime. We are talking about a firm that began operations in 1864 and has provided people with family wages in Birkenhead since then. It closed for business, needless to say, on Friday the 13th of February.
§ The Financial Secretary to the Treasury (Ruth Kelly)I congratulate my right hon. Friend the Member for Birkenhead (Mr. Field) on securing the debate. I know that he is not looking for apologies, but I apologise profusely for the way in which his correspondence was treated and the fact that the issue was not dealt with immediately in July, or beforehand. That is inexcusable. I hope he will accept those apologies. I am extremely sorry that the firm in his constituency, about which he wrote to me, became insolvent in the intervening period. Clearly, the situation is entirely unsatisfactory.
The Government have enormous sympathy for the victims of industrial diseases, such as asbestos-related diseases, vibration white finger and industrial deafness, which are particularly unpleasant and distressing for both the sufferers and their families. We are sensitive to the anxieties of those who may have come into contact with asbestos in the past and live with the uncertainty of not knowing whether they will be affected in the future.
The underlying principle, which we should not lose sight of, is that employers are responsible for securing the health and safety of their employees while they are at work. When employers are found to have failed in that regard, they are liable to compensate employees who are injured or made ill at work. It is for the employer to meet that liability. Employers' liability insurance enables employers to insure against the costs of compensation payable to those employees who are injured or suffer from a disease as a result of their work. It provides greater security to employers in relation to costs that could otherwise result in financial difficulty, and means that employees know that resources will be available for compensation even when employers have become insolvent or have limited resources of their own available. It supports the right of employees who suffer from injury or disease as a result of their work to be fairly compensated and the responsibility of employers to fund the true costs of their business—the "polluter pays" principle.
Under the Employers' Liability (Compulsory Insurance) Act 1969 it became compulsory from 1972 for employers to insure against liability for bodily injury or disease sustained by employees arising out of, and in the course of, their employment in Great Britain. That point will become relevant when I come to consider the case in my right hon. Friend's constituency.
The Government are committed to encouraging better health and safety in order to reduce costs to firms from injury, illness and absence. In the past months the 63WH Government have worked with business, the insurance industry, lawyers and unions to review and improve the operation of employers' liability insurance.
My right hon. Friend will forgive me if I consider the history of the Chester Street insolvency. Yet again, it is particularly relevant to the case in his constituency. He is aware of the uncertainty that was caused in 2001 as a consequence of the insolvency of one insurer, Chester Street Insurance Holdings Ltd. That was particularly worrying for victims of asbestosis and other industrial diseases and their families, whose employers had insured with Chester Street. It was worrying when the exposure occurred prior to 1972, when employers' liability insurance became compulsory. The Government worked extremely hard, in partnership with the insurance industry, to end the uncertainty. The arrangements were set out in May 2001 by my right hon. Friend the Secretary of State for Work and Pensions, who was then Chief Secretary to the Treasury.
When an employer still exists and is solvent, or its liabilities have been carried forward to another business, that employer or successor business is liable to pay any compensation due for workplace injury or disease. The employer or successor will have a right to full reimbursement from the financial services compensation scheme, applying the rules applicable under the Policyholders Protection Act 1975, if the liability was covered by compulsory insurance. Employers who are sole traders or partnerships will have a right to reimbursement of 90 per cent. if the liability was covered by non-compulsory insurance. Where the employer is insolvent or no longer exists and there is no successor business now liable, under the arrangements announced by my right hon. Friend, the Government are meeting their liabilities to former public sector employees, and the insurance industry is covering claims from former private sector employees.
Broadly speaking, those private sector employees of insolvent companies are receiving compensation in three ways. First, the financial services compensation scheme is making payments in accordance with the Policyholders Protection Act 1975 for awards made against employers, or settlements agreed by employers, prior to Chester Street's insolvency in January 2001. Secondly, the insurance industry, via the Association of British Insurers, has funded equivalent payments for awards or settlements made between Chester Street's insolvency in January 2001 and the commencement of the financial services compensation scheme on 1 December 2001. Thirdly, the scheme is funding payments—under transitional arrangements provided for by the Treasury when the scheme began—for cases where the liability of Chester Street to the employees concerned was not determined until after 1 December 2001.
In all, more than £25 million has been paid in claims against Chester Street by the Policyholders Protection Board and subsequently by the financial services compensation scheme between 2001 and 2004.
§ Mr. FieldThe firm to which I referred voluntarily insured before it had to. As the Minister knows, one evil of this disease is that the symptoms do not become apparent until decades later. Those companies that were 64WH good enough to insure their employees before the introduction of compulsory insurance are not covered by the measures that the Government have since announced. The measures cover the period since compulsory insurance.
§ Ruth KellyMy right hon. Friend is right, and I will come on to his specific point. He raises the particular issue about arrangements for companies that took out employers' liability insurance with an insurer that is now insolvent and unable to meet claims. He is concerned about whether employers should receive compensation if they would otherwise become insolvent as a result of meeting such claims. It is an incredibly complex situation, with different funding streams pre-insolvency, post-insolvency and pre-and post-financial services compensation scheme. It bears telling the full story before dealing with the specific point that he raises.
The financial services compensation scheme acts as a safety net for customers of finance sector companies. It compensates such customers if an authorised company is unable to pay claims. It covers insurance, deposits and investments and is funded by a levy on the financial services industry. I understand from the scheme that where an insurer has become insolvent before 1 December 2001, the scheme will apply the provisions of the Policyholders Protection Act 1975 to determine whether compensation is due to the employer, subject to certain transitional provisions. Under section 6(4) of the 1975 Act, which relates to certain compulsory insurances, the scheme will offer 100 per cent. compensation to policyholders for employers' liability insurance claims incurred from 1 January 1972, when such insurance became compulsory.
Under sections 6(6) and 8(2) of the 1975 Act, which relate to other non-compulsory insurances, the scheme is able to pay 90 per cent. compensation to policyholders who are in partnerships or are individuals. The Act does not permit payment of compensation in respect of non-compulsory insurance to policyholders that are limited companies. Therefore, limited companies are not eligible for compensation in respect of non-compulsory, pre-1972 employers' liability insurance, as my right hon. Friend is aware.
Where the insurer has become insolvent after 1 December 2001, I understand from the scheme that it will apply its own rules in determining whether compensation is payable. For compulsory insurances, the position remains that all policyholders will be able to receive 100 per cent. compensation. Broadly speaking and subject to certain transitional provisions, for non-compulsory insurances, including pre-1972 employers' liability insurance, the scheme will pay compensation of 100 per cent. of the first £2,000 of any claim and 90 per cent. of the balance to individuals and small businesses. In addition to small partnerships and individuals, small companies are eligible for compensation, but large partnerships will be excluded from receiving it. The relevant criteria are set out in the financial services compensation scheme rules.
Those new rules, however, apply only in relation to policies purchased after 1 December 2001, when the FSCS came into force. In respect of policies purchased before that date, my right hon. Friend makes an important and valid point, which is that the FSCS rules that determine eligibility and compensation levels will 65WH more closely reflect the payments that were available under the 1975 Act. That means that, in respect of policies purchased before 1 December 2001, large partnerships will be eligible for compensation in respect of non-compulsory insurance. All companies, other than small companies, will continue to be excluded from compensation in respect of the pre-1 December 2001 non-compulsory insurance policies. That is the gap that my right hon. Friend identified.
I understand the concern that my right hon. Friend raised about the situation of companies where insurances are not compulsory—for example, the distinction between employers' liability insurance before and after 1 January 1972. He set out the consequences for a company in his constituency and he made a compelling argument about moral hazard. I am grateful for the opportunity to listen to views on the subject today. As I explained, companies are generally excluded from compensation under the financial services compensation scheme. except for relevant compulsory insurances. Under the 1975 Act, any policyholder is eligible for compensation for relevant compulsory insurances. Employers' liability insurance policies were compulsory after 1 January 1972.
Before 1972 there was no obligation to take out employers' liability insurance, and those who chose to take out insurance did so aware of the risk that if the insurer collapsed, the liabilities would fall back on them. It is possible to argue that it is right that employers should take primary responsibility for settling claims resulting from their own business activities. It has been put to me that any change to those arrangements would impact on the costs of the compensation scheme and would be reflected in insurance premiums. I have been led to believe that such costs could be significant if solvent, larger businesses were included, where they are not obliged to take out compulsory insurance policies. It is difficult to estimate the impact of that on insurance premiums, but it could be substantial
There is an argument to be made about small companies. My right hon. Friend made his point eloquently and persuasively, and we failed to consider the issue adequately in the first instance. Given that, I promise to ensure that after this debate my officials will liaise with him and with the Financial Services Authority, which determines the rules for the FSCS, to see if the gap can be filled by a change in the rules, or whether allowing retrospection for the group of companies that he mentioned would have unintended consequences in other areas.
§ Mr. FieldI am grateful to the Minister for that undertaking, but before she concludes, will she undertake to impress on those who are to be party to those discussions that we are talking about the most noble group of companies? Those companies did not 66WH have to do what they did. They cut their profits and their directors' take-home pay because they wanted their employees to be covered. They did not expect—none of us did—that Chester Street Insurance Holdings would devise such an evil little scheme to dump its insurance on to a company that was going to fold. We are not talking about the worst parts of British industry, but about people who should be held up as a model. We want employers to go the second mile, not just the first. I hope that this will be given emphasis in the discussions. We are talking about people who went two miles, when most employers went no miles.
§ Ruth KellyI accept my right hon. Friend's point. It is important to look at the individual circumstances of firms when they were prepared to take out non-compulsory insurance pre-1972. It is only right, however, as I am sure he will accept, that we balance that consideration against the potential cost for the financial services compensation scheme of meeting all retrospective claims in the manner in which he suggests. It is impossible for me today to know how those two considerations will weigh against each other. However, I pledge to my right hon. Friend that my officials will liaise with him and with the FSA to consider the issue seriously and keep him fully informed as that discussion progresses.
§ Mr. FieldMuch as I welcome all this, I am slightly worried. Would it be possible for the Minister to specify a date by which she will come back to me?
§ Ruth KellyI can promise my right hon. Friend that within a month officials will liaise with him to keep him informed of any progress, if any has been made. They will at least let him know the situation. Following this debate they will pursue their inquiries with the FSA, which is responsible for the FSCS rules, to determine whether they have been set in the appropriate manner, and whether there is scope for improvement. I am not suggesting that we, in principle, accept my right hon. Friend's case, merely that we will investigate to see whether the rules have been set appropriately and whether the case has been made adequately.
It is certainly the case that the FSCS rules are extremely complex, but it is the FSA, rather than the Treasury, which has primary responsibility for setting them. I would urge my right hon. Friend to take up his case directly with the FSA, as well as with the Treasury, as I am sure that he will want to hear for himself the arguments that they are making. I hope that the debate has been of some value to him and, as promised, I will keep him in touch with developments.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-six minutes past Four o'clock.