Standard Life

– in the Scottish Parliament at 5:56 pm on 7 June 2000.

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Photo of Lord David Steel Lord David Steel Presiding Officer, Scottish Parliament 5:56, 7 June 2000

We turn now to members' business. I apologise to the Rural Affairs Committee, which will meet immediately after this debate. It will be running about half an hour late. Would members who are leaving do so as quickly and as quietly as possible.

Members' business this evening is a debate on motion S1M-787, in the name of Ms Margo MacDonald, on Standard Life mutuality. This debate will be concluded after 30 minutes without any questions being put.

Motion debated,

That the Parliament expresses its support for Standard Life, the largest Mutual Insurance Company in Europe and one of the most important financial institutions in Scotland; notes that mutuality allows Standard Life to focus its interests solely on the long term financial security of its members, and further expresses its dismay that this mutuality and success could be threatened by the actions of a few individuals or "carpet-baggers" seeking short-term, individual gain.

Photo of Margo MacDonald Margo MacDonald Independent 5:59, 7 June 2000

I would like to thank all members from all sides of the chamber who have offered their support for this motion, both by signing it and by staying for tonight's debate. I will try to be brief. Rather than simply giving my own point of view, I would prefer to show the breadth of support that there is for the continued mutuality of Standard Life.

I should declare an interest. No, I am not a with-profits policyholder. I am not even a without-profits policyholder. However, I do live in Edinburgh, and so have a real interest in ensuring that Standard Life continues to be, in a practical sense, a very important part of the economy of Edinburgh. Europe's biggest mutual life assurance company provides 7,500 secure and satisfying jobs. That is to say nothing of the spending power that comes into this area from the £160 million it pays in wages. We should think of the local companies that are involved with Standard Life because of its local purchasing power.

I support the ethos and humanity that is implicit in Standard Life continuing as a company that puts the best interests of its policyholders first, rather than the demands of shareholders. I am a nationalist who believes that Scotland will achieve its full potential as a distinctive community of people in Europe and the wider world only if we aspire to the quality standards of the world's best in business, inventiveness and administration in public and private enterprises. We should also take the greatest amount of responsibility possible for the effects of our decisions on future generations.

By and large, those sentiments are echoed in the way in which Standard Life goes about its business. Mutuality eschews the quick buck in favour of handing the benefits of the accumulated savings down the generations. It is to the credit of the 6,000 employees of the company who presented the Parliament with a petition that they are determined to resist—on behalf of their company, their community and all Standard Life's policyholders—the quick buck, quick fix and gold that Freddie Woollard has been suggesting. I do not intend to refer to that gentleman any further, because I have a feeling that he is a star that has shone briefly and brightly and, perhaps, is waning even now.

I also salute the management of Standard Life, although it is an open secret that they have not always made common cause with the point of view that I represent. However, as the anthem reminds us, those days are past now and we are all in it together. It is in everyone's interest that Standard Life should continue to exist as it does. I salute the management's fight to keep the company mutual. They could make a lot of fast bucks for themselves if they decided to follow the plc route of Freddie Woollard.

I will turn to the business case. In the endowments and pensions that it guarantees to its policyholders, Standard Life stands comparison with any of its publicly quoted, shareholder-owned competitors. Time is short, so I will resist rhyming off the figures with which I am by now very familiar. However, I will advise policyholders who have to vote on the demutualisation proposal to consult pages 6 and 7 in the booklet "The real facts and figures about your future", which is published by Standard Life.

In explaining why, as a nationalist, I can make common cause with an excellent example of a capitalist Scottish enterprise—as it is seen as part of the Scottish financial establishment—I have referred to the need for inventiveness as well as entrepreneurial ability. We need to be all that we can be and maybe even half as good as we sometimes kid ourselves that we are. I am aware that some people think that Standard Life is not as inventive or adventurous as it might be in its investment policies. Perhaps a dash less considered calculation and a soupçon more flair might have realised an even bigger and better yield for its policyholders. There may be some truth in that assessment—there is always room for debate—but the company has the time, expertise and assets to live a bit more dangerously in today's global economy, if the policyholders urge the board to do so. Part of the whole exercise will be that the board will be acutely aware of the policyholders and their point of view.

Having said that, we should not forget how successful that board has been through the recent years of demutualisations, mergers, alliances and what have you, which have taken place in the shareholding sector of life assurers. Standard Life is not a company that needs an injection of cash, either to expand or to stand still. Thanks to the prudence of the management, its high standing in the estimation of the independent financial advisers and without the need to pay dividends to shareholders, Standard Life is a very viable company. Why should anyone, other than an opportunistic carpetbagger, want to risk upsetting the apple-cart?

Lots of people I have spoken to in and around Edinburgh have said that nobody is going to pass up the chance of a quick buck. I hope that other speakers will have the time to dissect some of the more hopeful calculations as to what policyholders might expect. I will just mention in passing what they might not expect should they vote against Standard Life's continued mutuality. For example, if the company becomes a plc, and is just as well managed as its competitors—as it is just now—everything being equal, there is a strong argument that policyholders will have to invest 10 per cent more in order to reap the same rewards as they do now. If they go for the windfall, if they go for the fast buck, sure, it is attractive if they have the bathroom to do up, but five years down the road, if they have a big roof repair and they have to take out another policy, or if they have to increase their present policy, they will have to pay 10 per cent more for it. That is the other side of demutualisation.

The ethos of mutuality is admirable. Standard Life is the sort of company that bestows an admirable reputation on Scottish business. Therefore, as the representatives of Scotland in this Parliament, we should promote and cherish it. At a time when the future pattern of investment is uncertain because of e-commerce and other new factors, which I will leave others to rehearse, it would be folly to destabilise a company such as Standard Life in pursuit of a one-off windfall. Even the most enthusiastic demutualiser must recognise the risk of diminishing the excellent performance of the company during a time of turbulence in investment patterns throughout the global economy.

Demutualisation is probably a bad idea. I am certain that it is one whose time has not come. I urge members to fall in behind this motion and give support to the notion of Standard Life remaining a mutual company.

Photo of George Reid George Reid Scottish National Party

I am working blind without a computer screen. I think that I have applications to speak from Cathy Jamieson, Bill Aitken, Donald Gorrie, John Swinney, Bristow Muldoon and Fiona Hyslop. If that is wrong, let me know. If anybody else wishes to speak, let me know.

Photo of Cathy Jamieson Cathy Jamieson Labour 6:07, 7 June 2000

I ought to declare an interest. As the chair of the Labour and Co-operative group of MSPs in the Scottish Parliament, I obviously have an ideological commitment to mutuality, and I make no apologies for that. I do not have any policies with Standard Life, so I do not need to declare that as an interest, but I need to say that I believe that what happens to Standard Life will have a knock-on effect on other mutual organisations of which I am a policyholder and a member.

Standard Life is Europe's largest mutual assurance company. We know the number of employees that work for the company and we know the number of people in Scotland who benefit from it. I am concerned about some of the misinformation that seems to be going round at the moment. I noticed that a statement by Standard Life members action group says:

"As shareholders you have rights to vote on how the company is managed and by whom."

One of the things about mutual organisations is that members own the organisation, and therefore they have a say, because they partly own the organisation.

The statement also says:

"A PLC . . . is more accountable to its owners and is a more flexible business structure than a mutual."

As somebody who has been involved in organisations in the mutual sector for many years, including organisations such as the Co-operative Wholesale Society, I beg to differ with the notion that the only way in which a good business case can be delivered is through a plc structure. It is clear that not only has Standard Life been able to fulfil the ideological commitment of working on behalf of its members and policyholders, but it has been a successful business by anybody's standards.

Margo MacDonald referred to some of the concerns that people have about what might happen. I want to spend a couple of minutes talking about what has happened in other instances of demutualisation. I want to put on record the fact that the word demutualisation is bandied around a lot, but in effect when a company demutualises it is privatisation by another name. Let us remember that. What we are doing is giving the control and ownership of an organisation that is currently owned by its members to a small group of individuals.

For example, when Bradford and Bingley Building Society members voted for demutualisation, the average windfall was estimated at £1,000, and is now expected to be somewhere between £350 and £700. I should say that a windfall is actually people being given their own money, not someone being generous. When Sun Life of Canada announced its demutualisation, the average windfall payment was expected to be around $10,000 Canadian; the actual average payment when the company was floated two years later had fallen to $4,725 Canadian. Following demutualisation, endowment policy payouts at Scottish Widows have decreased by about 8.4 per cent, and share prices at the Halifax have fallen by 17 per cent and at Northern Rock by 29 per cent. Furthermore, the share prices at the Australia Mutual Provident Society, Australia's largest life insurer, have fallen by 34 per cent since its flotation in April this year, and job losses have been announced.

From that evidence, it is clear that everything in the garden is not necessarily rosy. I concur with Margo MacDonald's comments that people are wise enough to know that the short-term gain will be detrimental not only to individuals in the long term, but to the stability of the organisation and, ultimately, to the common good.

I urge members to support this motion.

Photo of George Reid George Reid Scottish National Party

We have one additional speaker. If members keep their speeches to under three minutes, everyone will get in.

Photo of Bill Aitken Bill Aitken Conservative 6:11, 7 June 2000

Having first declared an interest as a Standard Life policyholder, I want to congratulate Margo MacDonald on not only temporarily joining the capitalist class, but securing this very important debate.

First, this Parliament has to be careful: any decision about this possible demutualisation is a matter for the policyholders alone. Although they will no doubt consider their options very carefully in the next few weeks, they must take other things into consideration. For example, they must take into account the fact that 7,500 employees are involved and the impact that any change in the Standard Life set-up is likely to have on the Scottish financial services industry. They are also perfectly entitled to consider the personal impact that any decision will have on them.

I worked in the financial services and insurance industry for 33 years—when some might say that I had a real job—the bulk of which was spent with a mutual assurance company. As a result, I know the advantages of demutualisation for the customer and the staff. It is important to understand the meaning of mutuality: policyholders are in fact the shareholders in the company and, as such, are entitled to benefit from the success or suffer from the failure of the business.

I very much hope that the policyholders will think of the long-term, rather than the short-term, benefit. As Margo MacDonald pointed out, although a quick buck is probably always very welcome, the future must be considered. As a result, it is my considered judgment—I may be proved right or wrong—that Standard Life's future remains with the status quo, which is how I voted in the recent ballot.

I did so for several reasons, the most important being that mutuality is the best deal for the 7,500 employees. Secondly, I do not want the control of Standard Life to leave Scotland. It is a well-run company with a proven record of success. When I dealt with it in my previous career, I found it to be extremely professional in all departments.

In my view—and I stress that it is a personal view—the best deal for Scotland and for the policyholders is that the mutuality of Standard Life should be retained. I strongly advise everyone involved in the voting process to vote for the status quo.

Photo of Donald Gorrie Donald Gorrie Liberal Democrat 6:14, 7 June 2000

I am happy to endorse the excellent remarks of the previous three speakers and I urge people to vote to retain Standard Life as a mutual company. However, I want to broaden the subject out a little and perhaps ask the minister to respond to a few points.

The great growth of capitalism arising from the industrial revolution was, as I understand it, funded in two ways: through companies with shares and the stock exchange route; and through the mutual, co-operative route. Over the past couple of hundred years, the stock market-based, share-dominated company has come much more to the fore and the co-operative, mutual tendency has diminished.

I think it unfortunate that that imbalance has occurred. The present capitalist system is short term in its outlook. The City of London is not very creative; it is often destructive, and it is manipulative. It does not create new wealth; it mucks existing activities about to the short-term profit of various people.

The capitalist system—shareholding and so on—has its use, but I think that there should be an alternative route: that of the co-operative, mutual society. That goes right down to credit unions in housing estates.

I know that company regulation is a matter for Westminster, but there must be areas in which our ministers, and perhaps the Enterprise and Lifelong Learning Committee, could consider ways for the Parliament and the Executive to encourage the whole mutual co-operative sector, from small to large. There would then be an alternative—people would have two routes forward in developing companies: either the stock exchange route or the mutual, co-operative route. I hope that we can consider that, as well as the specific point that has been very well dealt with by the other speakers, whose remarks I am happy to endorse.

Photo of John Swinney John Swinney Scottish National Party 6:16, 7 June 2000

I congratulate Margo MacDonald on securing this debate and I thank the parliamentary business managers and the Minister for Enterprise and Lifelong Learning respectively for arranging and being able to respond to this debate.

Before I fell among thieves in being elected to the House of Commons, I worked for Scottish Amicable, which was at the time a mutual society. It demutualised and was taken over by the Prudential. There was a business case for Scottish Amicable having to demutualise, because the company had difficulty in gaining access to capital to fund its future development in a highly competitive market.

That is not the case for Standard Life. There is absolutely no business case to justify the company's demutualisation at this stage. We are faced, as was captured rather well by Bill Aitken, with the choice between long-term and short-term interest. There is a long-term interest for the people of Edinburgh, for the staff involved in the company and for the Scottish financial services sector as a whole to have such an anchor as the strength of company and strength of control offered by Standard Life in the Scottish marketplace.

One of the points in Donald Gorrie's argument related to the existence of the co-operative and mutual spirit; Cathy Jamieson made that point, too. That sounds like a soft argument, in the sense that such a spirit is nicer than the capitalist spirit and the great competitive edge of a plc environment. It has to be put on record, however, that, mutual status or no mutual status, Standard Life has delivered for its policyholders, co-operative spirit or not. It has delivered the goods for the people who had the good sense to invest in it. That is no soft option; it is no uncommercial environment. Standard Life is an intensively successful company and a jewel in the crown of Scotland. It has provided a very effective return for its policyholders.

This debate is not just about the people involved in Standard Life today; it is about the people who will, I hope, be involved in Standard Life tomorrow. The generation of people who are considering ballot papers now and deciding how they should vote should perhaps think of making it possible for future generations to have access to the benefits to which they have access and to the strong financial stability that a company such as Standard Life has been able to provide.

Photo of Bristow Muldoon Bristow Muldoon Labour 6:19, 7 June 2000

I, too, support Margo MacDonald's motion; I congratulate her on bringing about this debate and on her excellent opening speech. I should add that each of the subsequent speeches has also contributed to the debate.

I declare an interest: like Bill Aitken, I am a policyholder of Standard Life and have a vote. I have followed the press coverage and read the literature produced by Standard Life. I support the motion and, thanks to a constituent, I also have the tee-shirt that says no to mutualisation.

I have already cast my vote against demutualisation in the ballot. There are several reasons why I did so, mostly mentioned by other members. I will concentrate on two of them. The first is performance. As John Swinney pointed out, if Standard Life's performance is compared with other companies in the mutual and public limited companies sectors, it has been a success—it has delivered greater dividends on policies than the average plc has. Any change in the status of Standard Life can only be to the detriment, potentially, of the interests of policyholders in the medium term.

The second reason is employment. As many people have pointed out, Standard Life is the major employer in the Edinburgh area and a major part of the Edinburgh financial sector. Many of those employees are my constituents and have spoken to me about their concerns about what demutualisation could do to their individual circumstances, to Standard Life and to the Edinburgh financial sector. Any policyholder—indeed, anyone resident in Scotland—should be concerned about the possible effects on the Edinburgh financial sector.

Standard Life is a Scottish success story that has become an international success story. It forms a vital part of the mutual financial sector, which Cathy Jamieson referred to. As a fellow member of the Co-operative Party, I share her support for that sector. We should not put that success story under threat by allowing carpetbaggers to induce people to vote for demutualisation for a short-term financial gain. I encourage all members of Standard Life in and outwith Scotland to vote against the potential short-term and ill-defined windfall and to give their backing to the continued success of Standard Life as a mutual.

Photo of Robin Harper Robin Harper Green 6:22, 7 June 2000

I have a few very brief points to make. I have no interest in Standard Life at the moment, but I did have a savings plan with the company; it did very well and I cashed it in and spent it.

I visited Standard Life with Fiona Hyslop, and on other occasions I have met people from the company. I am very impressed by their efficiency and commitment to and links with the local community. As a local company, it provides huge opportunities, as several members have said. I have always been in favour of mutual companies and have viewed with concern the gradual process of demutualisation that has been infecting the sector over the past five to 10 years. We are offered phrases such as "exciting and adventurous" or "trim, slim and competitive". Those are short-term things, in contrast with what mutuality offers: solidity and dependability. Mutuality is local and provides local opportunities; it is co-operative and reliable and, above all, it is long term. That is what we need in Scotland and what this Parliament is getting round to. I support the motion.

Photo of George Reid George Reid Scottish National Party

If Fiona Hyslop keeps her speech to under three minutes, that will leave two minutes for Andrew Wilson.

Photo of Fiona Hyslop Fiona Hyslop Scottish National Party 6:24, 7 June 2000

I declare two interests. I was an employee of Standard Life before I was elected to the Parliament and I am a with-profits policyholder.

The issue is crystallising between the long-term and short-term positions. Do people want a quick buck and a long-term loss? As a Parliament, our responsibility is to the long term, not just of this city but of Scotland. Standard Life is a successful company and the fact that its headquarters are in Edinburgh brings great benefit to a range of local interests. A huge number of employees are dependent on that success.

Why do companies demutualise? I will refer to David Forfar, a fellow of the Faculty of Actuaries and senior lecturer in actuarial mathematics at Heriot-Watt University, for an independent view. He argues that demutualisation of companies tends to take place for one of several reasons.

The first is the perceived financial weakness of the company; that is not the case with Standard Life. The second is a wish to increase capital in order to increase investment freedom for the investment funds that back with-profits policies; that is not the case with Standard Life. The third is a wish to have access to a wider market than the new owner can provide; that is not the case with Standard Life. The fourth is a judgment by the board, exercised wholly objectively, that demutualisation is in the best interests of the company; that, again, is not the case with Standard Life. Demutualisations that we have heard about in past have tended to take place on the grounds that I have just outlined. That is not the case with Standard Life and there is no strong business case for demutualisation. It comes down to a short-term raid, and the long-term damage could be substantial.

I will focus on one specific danger. Because of the success of Standard Life, we must recognise that, should it demutualise, there is a strong risk of a takeover—not necessarily by European competitors, but from America and further afield. The final decision will be with the with-profits policyholders, but this Parliament has a responsibility to take an interest in the long-term future of a successful company in Scotland. The risk of takeover, to which the company may not have drawn attention and which may not have been highlighted in coverage so far, is something that we should be acutely aware of.

We should recognise the success of the company and show solidarity with the staff who have presented the petition. They include constituents from across Lothian and beyond. We should send out a message of support for the principle of mutuality. I, for one, will be voting no to demutualisation when I cast my ballot tomorrow.

Photo of Andrew Wilson Andrew Wilson Scottish National Party 6:26, 7 June 2000

I congratulate Margo MacDonald and others on bringing this motion before the Parliament. Anyone who saw the happy demonstration by Standard Life staff members and the reception that was accorded to MSPs of all parties will have been encouraged.

I will make two brief points. First, it is important to disabuse ourselves of the notion that mutuals are soft touches in the marketplace—quite the reverse. They are simply a different form of market engagement. Mutual companies do not have the dividend chase that floated companies have. As a result, they have more money to reinvest. As Fiona Hyslop said, mutual companies run no risk of takeover, because they are not floated on the stock exchange. It is difficult for the minister to enter into a debate that is essentially a matter for the company itself—the Government's policy on that is clear—but, as Margo MacDonald said at the outset, anyone who is interested in the long-term future of the Scottish economy will endorse the need for a flourishing Standard Life, based here in the heart of the Scottish financial community.

My second point—and I am sure that this will not be lost on Standard Life, which, as Margo said, was not known for its support for the creation of a Scottish Parliament—is that this debate would not have taken place at Westminster. That shows the benefits of establishing the Scottish Parliament, because we are able to make a big issue such as this known in Scotland and to give voice to the concerns of many people in the Scottish business community. If ever there was a business case for the Scottish Parliament, we have seen it in this debate.

Photo of Henry McLeish Henry McLeish Labour 6:28, 7 June 2000

I join members in congratulating Margo MacDonald on securing this debate at such an important time. I agree with Andrew Wilson that it is important that Scotland's national institution, its Parliament, should debate issues of concern and interest to the nation. There has been an unusual alliance of mutual interests in this debate. Presiding Officer, you have allowed 10 speeches, including mine, which is good going in half an hour. I thank you for that.

I have no interest to declare today, other than a big interest in one of Scotland's greatest companies. Like many members present, I have followed the debate on the forthcoming vote on whether Standard Life should remain a mutual company, which has attracted much interest and comment—and deservedly so. That has been reflected in today's debate.

Let me begin by emphasising how much the Executive values Standard Life. This year, the company celebrates its 175th anniversary. Established in 1825, it has much to celebrate; that sentiment has been echoed around the chamber this evening. Standard Life is of course Europe's largest mutual life assurance company—indeed, it is one of the largest in the world. It is a major investor in the UK equity market, holding more than 2 per cent of the UK stock market. It currently has assets under management of some £79 billion—a formidable set of assets by any standards.

As members would expect, the Executive has a good working relationship with Standard Life, because the company brings substantial benefits to Scotland's economy. The point has been well made that it is headquartered here and provides jobs for 7,500 employees in Scotland and 10,000 employees globally.

Let me dispel any myth that Standard Life does not have financial muscle, that it is somehow not innovative or that it is sitting back content with its achievements to date. I assure everybody listening to the debate that that is not the case. The company is a heavyweight in the industry and is one of only a handful of life assurance companies in the world that are currently rated triple A for financial strength by the independent rating agencies Standard & Poor's and Moody's Investors Services.

What about innovation? In January 1998, Standard Life was innovative when it opened Standard Life Bank, which has been a major success story, surpassing all expectations and now employing 1,200 people. In January 1999, it entered the mortgage market, when the First Minister opened the new mortgage centre.

Standard Life is looking boldly beyond its traditional UK, European and Canadian markets. It is willing and able and is vigorously pursuing other markets. For example, it recently entered into a joint venture agreement to operate in India and is actively pursuing opportunities in China and Hong Kong. It is a company with global ambitions.

The board of Standard Life has much to be proud of. It is a major Scottish success story in a global economy. As John Swinney said, it is one of the jewels of Scotland's financial sector.

The success and standing of Standard Life is not at issue—there is unanimity in the chamber about that. Members have given the detail of that, and we can unite about it. However, members have also acknowledged that it is a democratically owned organisation and that any change in its mutual status can be brought about only by a legal vote within the company's rules.

Therefore, it follows that the future status of the company is a matter for the members and board of Standard Life. Many colleagues have expressed that view. The Parliament will understand that it would not be proper for the Executive to express a view on the vote. However, given that the future of Standard Life will be determined by its members, I think that we all recognise that considerable responsibility rests with the policyholders.

I expect that today's debate will be widely reported in the media and I am sure that the policyholders will pay full attention to the views that have been expressed here. If this debate helps to stimulate the members of Standard Life to think through the issues or to cast their vote when they otherwise might not have done so, it will have helped to serve the democratic process, which will govern the outcome of that vote and which governs the deliberations of the new Parliament in Scotland.

I hope that policyholders will take their responsibility on this matter seriously, will carefully weigh up all the arguments and, most important, will take the trouble to vote. I am sure that, in weighing up the arguments, policyholders will give proper consideration to the longer-term issues and the ethical arguments that have been set out. The Parliament and the board of Standard Life are making considerable efforts to impress upon Standard Life's members the benefits of mutuality. However, ultimately, it is the members who must decide.

Whatever is decided, I have faith that Standard Life will remain an important, highly visible and highly successful Scottish company in a global market. It is much valued by us all and I am fully confident that it will continue to go from strength to strength in Scotland.

In conclusion, it reflects great credit on the Parliament that we have provided a reasoned and responsible contribution to the future of a great company. I hope that people are listening. I welcome the fact that we have a broad alliance of agreement and can tell the wider world that there are important issues to be debated and voted on. Let us hope that that message will go out loud and clear from Scotland's Parliament.

Meeting closed at 18:34.