Orders of the Day — POLICYHOLDERS PROTECTION BILL [Lords]

Part of the debate – in the House of Commons at 12:00 am on 18 July 1975.

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Photo of Mr Clinton Davis Mr Clinton Davis , Hackney Central 12:00, 18 July 1975

The question of adequate regulations begs the whole point. We hope that they are adequate. We use the expertise that is available within ilk Department to try to ensure that we block up the loopholes. However, I cannot guarantee that.

An important feature that we have introduced into the provisions before the House is that we shall have a board drawn from industry. It will be essentially technical. However, what is more important is that we shall have a body of advisers to help us exercise increasing surveillance and supervision. These advisers will indicate, drawing on their practical knowledge—something that has been deployed throughout the debate—where they think we may be going wrong and where we have inadequate powers to deal with the situation. That produces a wider responsibility in an industry of this kind, and it is right that this should be so. Therefore, the regulations that we have the ability to introduce under the 1974 Act are the first line of defence—the first line of protection—but the Bill is complementary to them. The two are not mutually exclusive. This is the point that my right hon. Friend and I have been seeking to make over the past few months.

I turn to the specific points raised in the debate. The hon. Member for Mid-Sussex (Mr. Renton) said that the Bill had been neutered in the House of Lords. I do not believe that this is the case. The principles underlying the Bill and the major provisions in the Bill have survived what the hon. Gentleman had thought was a process of emasculation. I have already said that consultations will continue, but I cannot accept the proposal that we should not enter the Committee stage until October, because that would be impossible within the time scale.

I believe that the hon. Gentleman sum marised accurately the position in relation to Clause 17. I shall not go into that further, because there are a number of other points which I am anxious to cover.

The hon. Member for Worthing (Mr. Higgins) said that my right hon. Friend the Secretary of State had cast doubts on the integrity of the insurance industry. There was no intention on the part of my right hon. Friend to do that, and I do not believe for one moment that he did so. He was not being defeatist about the regulations; he was being realistic, in the sense that we cannot guarantee complete security, however sophisticated the process of surveillance may be.

The hon. Gentleman asked for an assurance that we had no intention of upsetting the Lords amendments. Except for certain drafting matters on which I cannot give an undertaking, I can give such an assurance in relation to the principle. Clause 17 presents certain difficulties, The hon. Gentleman asked for information on occupational pension schemes, Insurance taken out by pension funds should have the benefit of the protection offered by the Bill. This is a case where surely there will be general agreement that the policy holder should be protected. If this kind of insurance is to be protected, I see no reason why it should not pay the levy. The Life Offices' Association suggested that companies which specialise in managed pensions business—there are less than a dozen subsidiaries of certain major companies in this sphere—might be exempt. The association has, for the time being at least, withdrawn the suggestion, because it believes that the definition is too limited. I can hardly be expected to comment on a proposal which is not before me.

If it is accepted that pensions should be protected the question arises whether this should be as to 90 per cent. or 100 per cent. The Government's aim is to secure the full payment of the guaranteed minimum pension, whether through the Bill or through the machinery of the Social Security Pensions Bill. I am engaged in discussions as to how this can best be achieved with representatives of the industry and with my hon. Friend the Minister of State, Department of Health and Social Security.

My hon. and learned Friend the Member for Warrington said that there was strong continuing hostility to the Bill. He said that almost everyone in industry opposed and continues to oppose the Bill. He is guilty of hyperbole—very pleasant hyperbole, but hyperbole, none the less. This point was emphasised by the hon. Member for Mid-Sussex when he spoke on the reactions of the Life Offices' Association. My hon. and learned Friend was not right in what he told the House about that position. We met representatives of the trade unions last night, as my right hon. Friend said. At no stage at our meeting did they say that they were urging their colleagues in the House to vote against the Second Reading of the Bill. We had very frank and full discussions with them.

Concerning the winding up proposals, my hon. and learned Friend made a number of suggestions about the liquidation processes. I think that one must find an orderly way out of the labyrinthine difficulties which the present law prescribes, but one cannot do this effectively by dealing with certain matters in isolation. What happens then is that one gives rise to further anomalies. I am very conscious of the deficiencies in the law relating to the winding up of insurance companies. We are making a detailed study of the subject in the Department, in full consultation with the industry. We believe that the right course is to await the outcome of these studies before deciding what amendments to the existing law are required, and then to deal with the revisions in a comprehensive manner. We fear that by making piecemeal amendments which have not been fully thought through we may do more harm than good in relation to the law.

I shall deal with the three points made by my hon. and learned Friend. He proposed that outstanding claims of policy holders should be given priority in a winding up. This would represent a major change in the basic rule relating to the priority of creditors in a winding up—that ordinary creditors rank equally. While it would improve the position of policy holders with outstanding claims, it would do so only at the expense of other policy holders and of creditors, whose position would be made correspondingly worse. We are not at present convinced that this would be a desirable amendment to make, and we are sure that it would not in any event be right to embark on such a fundamental change without full consideration of the implications in the context of our review of the whole position.

My hon. and learned Friend's second point was that the board should be given power to enable the liquidator to make payments to policy holders as they fall due. But the board already has this power under Clause 13(2)(b) and paragraph 7(3) of Schedule 1, so my hon. and learned Friend's point is met in that respect. It is hoped that wherever possible the board would make an arrangement of this kind with the liquidator and thereby reduce the need to call on the levy.

My hon. and learned Friend's third point was that the benefits of policy holders should be scaled down appropriately before any assistance is given by the board. But the law already provides procedures for obtaining the sanction of the court to writing down policy holders' benefits. I presume that my hon. and learned Friend has in mind assistance by the board under Clause 16. It will be open to the board to make such assistance conditional on benefits being written down to the level at which the board would be required to protect them under its duties elsewhere in the Bill.

Concerning shareholders—my hon. and learned Friend and I have discussed this matter previously—the real point that we are getting at is that the shareholders who milk funds are already exposed to the rigours of the law when inquiries arise, as they do whenever a failure occurs.

I have been asked by the hon. Member for Somerset, North (Mr. Dean) and others about the status of the board. My right hon. Friend has no intention of dictating to the board. It may be that guidance will be required on tech- nical matters from time to time, but he cannot give such guidance without consulting the board. I fear that I cannot go into that matter in any further detail now.

I turn to the comments of my hon. Friend the Member for Farnworth (Mr. Roper). He rightly said that the industry and the life offices were not united about these matters, that they were not homogenous. There is clearly a difficulty about dealing with the matter along the lines that were bruited by my right hon. Friend at the beginning of the debate as regards industrial life insurance.

We stress that we are prepared to think about these things again to try to meet any further objections that can be raised. I cannot deal with the fundamentalist approach. All that I am saying in making these concluding remarks is that we have tried to show our good will. We have tried to show that we are ready to accommodate my hon. Friends as best we can within the general ambit of the Bill.

We do not believe for one moment-nor are my hon. Friends saying—that it is always rich people or, as my right hon. Friend put it at the beginning of the debate, the unscrupulous who engage in insurance with companies of the type that have failed. That has been conceded. However, we have a duty to protect a large number of people—people who have put in their redundancy payments; people who have obtained damages, perhaps, for injuries sustained in accidents; people who have sunk their life savings—relatively small they are, too—into insurance on the advice of others. We have a duty to try to protect those people, consequent upon the observations my right hon. Friend made on 29th October of last year.

We are concerned about stopping reckless management and control, but we cannot define what limits are safe. We cannot deal with the question of speculation without the full panoply of the regulations we are seeking to acquire. We need, too—this is just in case we go wrong and nobody in this world can be perfect—the back-up power that the Bill provides. I therefore hope that my hon. Friends will give further consideration to the amendment they have proposed.

The hon. Member for Croydon, North-West (Mr. Taylor) regretted Government involvement in the industry. The hon. Gentleman is a fundamentalist in a different way. However, he was instrumental in the Early Day Motion which expressed regret that the proposals we have made are not retrospective. I have never known anybody stand on his head so publicly as the hon. Gentleman has done.