§ Order for Second Reading read
§ Mr. John Wells (Maidstone)
On a point of order, Mr. Speaker. You ruled earlier today that members of Lloyd's could not vote on the Bill's Second Reading. Will members of Lloyd's be able to vote on a closure motion if there is one?
§ Mr. Speaker
I advised hon. Members who are Members of Lloyd's. I did not give a ruling. I cannot stop any hon. Member from going into the Lobby to support the Bill. I can only warn hon. Members who are members of Lloyd's that there are consequences from so doing. However, it is the right of every hon. Member, whether or not he is a member of Lloyd's, to cast his vote if a closure motion is proposed and is accepted by the Chair. No financial interest can be involved in that procedure. That would be a matter of public business.
§ Sir Graham Page (Crosby)
I beg to move, That the Bill be now read a Second time.
First, Mr. Speaker, may I say to you, how grateful I am for your ruling on voting because it is an issue that has caused some anxiety? Earlier today I altered the advice that I had given to my colleagues. I had told them that it was all right to vote if they were members of Lloyd's. I am happy that they should be told not to vote because of the various doubts that exist.
This is a private Bill promoted by the Society of Lloyd's, which was incorporated by statute as long ago as 1871. The members of the society individually underwrite contracts of insurance, and when they do the liability of each is a several liability that is limited to its own parts but is otherwise an unlimited personal liability. The society is the core of the community of Lloyd's, and in that phrase I include not only the members of the society, the underwriters, but the underwriting agents, Lloyd's associates, annual subscribers, substitutes and Lloyd's brokers. It is a community which, incidentally, earns in overseas earnings the substantial sum of £515 million a year. The society provides employment for no fewer than 72,000 persons, yet it has to look back to the 1871 statute for its constitution.
In three important respects, and in many other fairly substantial respects, that constitution has proved in modern times to be an obstruction to the effective control and advancement of the society's proper functions in the insurance market. The Act of 110 years ago, the Lloyd's Act 1871, set out in section 24 a long list of subjects upon which rules and regulations of the society can be laid down by byelaws. The byelaws have to be made by a resolution of two general meetings. They cover the most minor matters of government of the society. For example, it needs two general meetings to make a byelaw or to regulate the appointment, employment and remuneration of a secretary and other officers and servants. That is an indication of the present cumbersome procedure.
It is true that under another section of the 1871 Act the committee, which consists of 16 members, has the management and superintendence of the society's affairs. However, when the committee cannot make rules and regulations, and cannot introduce byelaws, its powers of management are necessarily ineffective.
The system may have worked 110 years ago in 1871 when the membership of the society was less than 1,000.
860 It may have worked 20 years ago when the membership did not exceed 6,000. However, we now have a membership of 19,109 and it is impracticable to try to run an important organisation such as Lloyd's on the present basis.
Under clause 3, a new council of Lloyd's will be constituted to take over the functions of the existing committee. Clause 6 gives the council not only the management and superintendence of the society's affairs but the power to regulate and direct the business of insurance at Lloyd's, to exercise all the powers of the society and to make byelaws upon the wide area of government that is set out in schedule 2. That is the way in which the Bill overcomes the first obstacle of the present statute.
The second stumbling block of the 1871 Act is the disciplinary procedure. One wonders how any discipline has ever been kept in Lloyd's up to the present. The procedure provides that to discipline a member of Lloyd's one must have two arbitrators, and possibly an umpire, who finds the accused person guilty of violating a fundamental rule of the society or of any act or default discreditable to him as an underwriter, and so on. When he has been found guilty by this strange form of arbitration, the matter then goes before a general meeting.
The person cannot be suspended unless two general meetings, one after the other, confirm the arbitrators' ruling. It is an extremely cumbersome procedure. Under a later Act of 1911, the committee was given power temporarily to suspend a person, but that procedure was almost as cumbersome. If the committee suspended a member, he could appeal to a general meeting. If the committee's decision to suspend was to be confirmed, 100 members had to be present and a three-quarters majority had to vote for the suspension. Otherwise, the committee's decision just fell by the wayside.
The cumbersome and indeed rather ludicrous position of disciplinary actions under the Acts of 1871 and 1911 is shown by a case at present proceeding. I shall refer only to the procedure, not to the merits of the case. In May 1979, Lloyd's set up a working committee to investigate certain accounting discrepancies by a firm of Lloyd's brokers, the Christopher Moran Group of Companies, from which syndicate 566 might have suffered loss.
The committee reported in June 1979, and disciplinary arbitration proceedings of the kind that I have described were started in October 1979. Since then, preliminaries to the arbitration, applications to the court and even an action for injunction have kept the parties occupied for 18 months, and the arbitration seems to be no closer to a hearing. That is a typical example of how cumbersome the procedure is. Incidentally, in the meantime—in August 1980—Mr. Moran was charged by the police with conspiring to defraud two other syndicates. The procedure is therefore very cumbersome indeed.
The promoters of the Bill are asking Parliament for power to set up proper disciplinary bodies. Clause 7 provides for an efficient disciplinary procedure by means of a disciplinary committee and an appeal tribunal with proper procedures to deal promptly with potentially dangerous situations arising out of suspected malpractices, while giving the accused all the proper protection.
As important as those disciplinary proceedings is the power to make byelaws for committees of inquiry. The power to do that is included in schedule 2, which provides for these inquiries to be set up, for persons to be examined 861 and for documents to be produced. Had good byelaws of that kind been in existence five or six years ago, the "Savonita" case, which I think is familiar to some hon. Members, would have been tackled far more satisfactorily.
In the "Savonita" case, several hundred Fiat cars caught fire on board the vessel of that name. They were returned to port and disposed of very much under value. They had been re-insured at Lloyd's, but the brokers resisted the claim. Other brokers were then appointed and settled the claim. The first brokers alleged that Lloyd's had failed to protect them properly. That may be so, under the present procedure that Lloyd's has had to adopt. At that rather late stage, Lloyd's set up a board of inquiry which sat for six months, took a mass of evidence and decided that the allegations were unfounded. I am convinced that if the byelaws contemplated in the Bill had existed then, that inquiry would have started more promptly and would have obtained better evidence more quickly.
The third stumbling block of the present constitution under the 1871 Act is that the statutes deal only with the Society of Lloyd's, that is to say, the underwriting members of Lloyd's. A good example is the fact that, having looked all through the statutes to see whether Lloyd's brokers were mentioned anywhere, I have found that the phrase is never used. Yet they are very important people in the community of Lloyd's.
Under its present statute, Lloyd's cannot control the insurance market unless it has regulatory powers over the community of Lloyd's. It has that partially by agreements, but it is now asking Parliament—very reasonably, I think—to allow it to govern all those who operate within the market. In addition to the 19,109 members of the society, there are 1,023 annual subscribers, 142 associates, 5,508 subsititutes and about 175 brokers groups.
For the good name, reputation and status of Lloyd's, it is essential that its regulatory powers should comprehend the whole community and should be such that suspected malpractices can be dealt with competently and promptly.
Again, I take an example. Had powers of the kind for which Lloyd's is now asking Parliament existed over the community of Lloyd's in 1977—the byelaw-making powers, suspension of underwriting agents, which is not possible now, the disciplinary and inquiry powers and so on—the Sasse case might not have dragged on through protracted litigation as it has.
Again, I imagine that a number of hon. Members know of the Sasse case, but I shall briefly put it on record. Syndicate 762 suffered heavy losses because it had been allowed to rely upon overseas agents to whom it had given a binder, that is, an authority to commit it to underwriting contracts. Because there was a loss on those, Lloyd's intervened, settled the losses of some members, but left others dissatisfied. The point is worth making that only at a late stage in the trouble were disciplinary proceedings commenced against some of those involved.
If such procedures, and those for starting and conducting a proper inquiry, had been more clear-cut and streamlined, as we wish to make them through byelaws under the Bill, might not matters have been disclosed that would have avoided the litigious issues that followed? I think that those blameless in the Sasse affair should welcome the Bill wholeheartedly. Things go wrong because Lloyd's hasan antiquated constitution and restricted powers of regulation over its community".862 Those are not my words. They are the words of the Fisher committee which, under Sir Henry Fisher, began its work in February 1979 and made a comprehensive report 15 months later, in May 1980. It was appointed to inquire into self-regulation at Lloyd's, to review Lloyd's constitution, and to review the powers of Lloyd's committee and relevant matters.
I can sum up the recommendations of the Fisher report—a 200 page document—by saying that it considered a properly conducted system of self-regulation essential, that Lloyd's committee did not provide an efficient system of regulation, that substantial changes in the constitution were necessary, and that the changes could not be made without amending the statutes.
Between June and October last year Lloyd's held extensive consultation upon the contents of that report, and the Bill is the result. It was put in draft before a general meeting of Lloyd's at the Albert Hall in November 1980, and was approved by an overwhelming majority of 13,219 to 57.
I apologise for that long introduction. I now turn to the Bill itself. I have already dealt with clause 3, which sets up the new council. However, I should like to mention the constitution of that council. The existing committee of 16 has never been representative of the categories of members of the Society of Lloyd's. The council will now consist of 16 working members, who are defined on page 4 asa member of the Society who occupies himself principally with the conduct of business at Lloyd's by a Lloyd's broker or underwriting agent.Those 16 working members will be elected by a working member electoral roll, which is provided for later in the Bill. The council will also consist of six external members, who are any members of the society who are not full working members. Since the Bill was printed, a reasonable argument has been put forward that the representation of external members is too low. Out of the 19,109 members that I have mentioned, the number of working members is 3,794, whereas the number of external members is 15,315. Of course, the working members are geographically capable of doing work and are the experts in council or committee work.
On behalf of the promoters I undertake that we shall seek to increase the number of external members to at least eight, which will give a better representation. It is intended that those external members should be elected by postal ballot and that they should have a chance to have an election manifesto delivered with the voting papers. That can be inserted into schedule 4, which is the temporary provisions schedule, and it will be a precedent for a permanent byelaw. I also undertake on behalf of the promoters to seek to include the election manifesto provision as an amendment to schedule 4.
In addition to the 16 working members and the eight external members, there are to bethree nominated members of the Council appointed by the Council,…and…confirmed by the Governor for the time. being of the Bank of England".They are intended to be independent members of the council outside the community of Lloyd's. It is the intention that the nomination of those members should be by special resolution. Here again, I undertake to ensure that an amendment is moved to insert that provision in the Bill.
The council is to have power to make byelaws by special resolution. I call attention to what is meant by a special resolution of the council. Such a resolution must 863 have the "separate majorities" of the 16 working members and a majority of the external members plus the nominated members. That is a vital piece of the constitution, which will make the council truly representative of the categories of membership.
I turn to clause 6, which sets out the powers of the council. I have already explained those when talking about the special resolution to make byelaws. That clause contains a long-stop provision for those who object to a byelaw that the council seeks to make. Under an old byelaw, which will be kept alive by the Bill, anyone can call a general meeting if he can get another 15 members of the society to join him in requisitioning such a meeting. However, if he wishes to attack a byelaw made by the council, that meeting will have to be requisitioned by 500 members.
The council will have power to delegate part of its directions to the committee. Under clause 5 the committee comprises the 16 working members. The council can also delegate to the chairman and other officials, but there is always a veto on that delegation. Anyone who objects can carry out a procedure under clause 6(8) and (9). I shall not go into great detail. It ensures that the council will be representative of the categories of members of the society. Therefore, the general meeting, as is the case under the present constitution, will cease to be the byelaw-making body, and in future the byelaw-making body will be the council.
I have already mentioned the disciplinary procedure contained in clause 7. Clause 8 is declaratory of the practice of Lloyd's business.
I now turn to clause 10 and 11. If the new representative council is to be given stronger and prompt powers to prevent malpractices and to control the insurance business at Lloyd's, it should not hesitate to take those powers. Indeed, self-regulation is the fundamental purpose of the Bill. Therefore, there is some argument for saying that it should have some immunity from actions for damages.
§ Mr. Nick Budgen (Wolverhampton, South-West)
Will my right hon. Friend expand on that argument? It will not help some of us if he just leaves it like that.
§ Sir Graham Page
My hon. Friend interrupted me in the middle of my remarks. I was about to explain that the Bill seeks to give the normal immunity—given under section 448 of the Companies Act 1948—to the servants, employees and directors of a company. If the servants of a company act genuinely and honestly, and if the court thinks that they should be excused for the damaging results of any of their acts, it can so excuse them. That is a normal provision. The ordinary company servant is given pretty wide immunity.
Lloyd's seeks to go further, because it wishes to protect not only its servants and "directors"—members of the council—but the society. Under clause 11, immunity goes further than the normal immunity found under the Companies Act. Careful consideration must be given to this. There must be consultation with those who do not have the opportunity on a Private Members's Bill to make their voices heard during all the Bill's stages. Therefore, I wish to delay any decision so that consultation can take place.
On behalf of the promoters of the Bill I give an undertaking that they will seek to insert an amendment in 864 Committee whereby schedule 2 will provide power for byelaws to be made about immunity. In other words, clause 11 and similar provisions in schedule 2 will be removed from the text of the Bill. If any byelaw of that type is made, it will not be operative until it has been embodied in an Order of Council, which will require the affirmative approval of both Houses of Parliament.
§ Mr. Clinton Davis (Hackney, Central)
I am sure that the right hon. Gentleman will agree that this represents a substantial departure from what was originally envisaged. Rightly or wrongly, it was contemplated that this issue would be dealt with in primary legislation. Is it not extremely unsatisfactory that so basic a matter should be dealt with in subordinate legislation that cannot be amended? Would it not be far more courageous if Lloyd's—which has had plenty of time to think about this—were to involve itself in further amendment of clause 11 instead of dealing with this issue in an unsatisfactory way?
§ Sir Graham Page
I am obliged to the hon. Gentleman for that intervention. If he can assist in producing an amendment, his efforts will be carefully considered.
On behalf of the promoters of the Bill I wish to give time for consultation on the proposition. Lloyd's feels that it is basic to the Bill, to the self-regulation of Lloyd's and to the powers of the new council. Apart from the point about consultations, I do not think that it makes much difference whether the issue is dealt with in primary legislation, or subordinate legislation, which has to receive the affirmative approval of the House. I present the Bill to the House with that amendment to clause 11 and with an undertaking that Lloyd's will table an amendment to that effect in Committee. If any right hon. or hon. Member has a satisfactory solution that leaves the society with some form of immunity, it will receive the greatest consideration.
Clause 12 and schedule 3 repeal some of the dead wood of the old statutes. Schedule 4 set out the transitional provisions. The important schedule is schedule 2, which sets out the byelaws or the subjects on which byelaws can be made. The present committee of Lloyd's is determined that there should be a separation of broking and underwriting and that they should be independent of each other. We can assume that if the committee is determined the new council will be of the same mind and will carry the society's members with it. It is a difficult issue to work out on the Floor of the House or in Committee. Lloyd's wants the new council to consider carefully how independence of operation can be brought about by divestment or some other effective process.
§ Mr. Clinton Davis
When we dealt with the Insurance Brokers (Registration) Bill, time limits were applied to a number of important matters relating to the introduction of proposals by brokers. Should not time limits be applied in this respect, and in one or two other respects, if we are to deal with the matter along the lines suggested by the right hon. Gentleman? Otherwise, the matter may never be dealt with.
§ Sir Graham Page
I wish to express my personal feelings, without giving any undertaking on behalf of the promoters. I see no reason why a time limit of five years should not be imposed. However, that is a personal 865 opinion. If the hon. Gentleman has another formula, that will be considered. Lloyd's is determined to establish the independence of broking and underwriting.
§ Mr. Clinton Davis
I am grateful to the right hon. Gentleman for giving way again. He is always courteous about such matters. I am not considering a time limit for the introduction of divestment. I seek an acceptance of the principle of divestment. There could then be a further extension of time—perhaps five years, as Fisher envisaged—for implementation. There are two different phases.
§ Sir Graham Page
The promoters of the Bill and I will certainly give that point consideration. One must bear in mind that a new council is about to come into being. I do not wish to cut the ground from under its feet by deciding what form of divestment or separation process is right.
§ Mr. Roger Moate (Faversham)
Does my right hon. Friend accept that there is a fundamental difference of principle between independence of operation and total divestment? Is it not unsatisfactory to leave such a vague power in legislative form? Will my right hon. Friend give some indication of the path that the present council wishes to pursue? Does it wish to pursue total divestment and complete legal separation, or the lesser form of divestment that the minority report recommended?
§ Sir Graham Page
I cannot go further than my previous remarks. The present committee is determined that there should be independence of operation. It wishes to leave the method to the new council. One must bear in mind that it is not only members of the society who are concerned. We are dealing with brokers. I have been informed that the brokers are in favour of the separation of broking and underwriting. However, the form of separation is a matter for consultation between them and the new council.
The second important aspect of schedule 2 relates to ensuring that malpractices and fraudulent activities are reported to the council at the earliest possible stage. Paragraphs 21 and 22 give the council considerable powers if the byelaws are made in that form.
I am obliged to some of my hon. Friends for their suggestions. We did not think that it went far enough, and I give an undertaking that further paragraphs will be added on the following lines: for empowering further byelaws for investigating frauds and crimes, for prosecuting persons responsible and for handing information and documents to the police. There will be another paragraph for regulating the giving of information and the production of documents, and a third paragraph for the preservation of due confidentiality of information documents thus given to Lloyd's.
These are formidable weapons that Lloyd's will be able to use to attack the malpractices and fraud in the insurance market. Indeed, I feel that the whole Bill gives Lloyd's the right weapons and tools to run the insurance market properly in future. I hope that I shall have support for the Bill.
§ Mr. K. J. Woolmer (Batley and Morley)
I congratulate the House on ensuring a substantial attendance for what is clearly a most important industry. On many occasions when we have been debating the problems of industries we have hoped for such a good 866 turnout. Perhaps that reflects the fact that the City is where money is made and that industries such as textiles in my area are the industries with problems. I am delighted to see the full ranks on the Conservative Benches and hope that hon. Members show the same interest and concern for other industries.
As the right hon. Member for Crosby (Sir G. Page) said, this is the first major piece of legislation of this type for a considerable time. He will agree that it is important to get it right. I was struck by the number of occasions on which the right hon. Gentleman felt it necessary to make what I regard as potentially major concessions. It is unfortunate that the Bill has had to come before the House on Second Reading with potential concessions which may not be as significant as the right hon. Gentleman suggested. I am not happy with the proposals for dealing with it in view of the right hon. Member's own recognition that they are major matters.
First, I do not wish to get involved with the problems of the committee, the council and the members. That is a private matter. Nevertheless, it is interesting to see that the risk takers are struggling to get on a par with the workers. Perhaps some of the lessons in the rest of industry are interesting.
My first reservation relates to clause 11. We cannot shirk the fact that this is a major matter of principle. With my hon. Friend the Member Hackney, Central (Mr. Davis), I am not happy that it is proposed that this matter should be relegated to byelaws and secondary legislation. That is not a satisfactory method of dealing with it. I am looking for a commitment that the principle will be abandoned and that any further discussions will start from the presumption that no blanket immunity can be granted. If we seek to start from there and find such immunities that are desirable in the circumstances to grant, we should start from a fundamentally different position.
The Bill does not appear to deal with a fundamental matter of principle on the problems of brokers and underwriters. There is a difference between the proposal to break the link by having, in effect, separate companies under the same ownership, and divestment. I hope, together with Conservative Members, that we shall have a clear commitment that the path of divestment will be followed. It is not satisfactory to be given an assurance that in Committee different ways of doing that will be considered. It is not satisfactory for the House to send the Bill to Committee without a clear view about which of those is favoured.
§ Mr. Woolmer
I do not draw conclusions of that nature. Many hon. Members would not be happy with a simple assurance that one of two ways will be found to overcome an agreed problem. The outcome would be fundamentally different, according to the view that one took on the principle. I do not believe that the people outside the House would expect us to allow the Bill to go to Committee without that principle being properly aired. That is what I seek.
I did not feel that this matter, together with that of indemnity, was properly and adequately aired in the right hon. Gentleman's introductory remarks. They were 867 recognised as problems without strong arguments being made about why what appeared to be basic principles of objection should not be fully answered.
Those are two substantial reasons for the Bill not to go forward this evening. Lloyd's should be asked to reconsider its proposals. This is the first time in 100 years that a major piece of legislation has been proposed for Lloyd's. We should ensure that in modern circumstances it is based firmly on principles which will endure for a substantial time. I hope that the House will vote against giving the Bill a Second Reading, not because we do not wish most of the Bill to go forward but because at least two major matters of principle must be put right.
§ The Under-Secretary of State for Trade (Mr. Reginald Eyre)
It may be for the convenience of the House if I say at this relatively early stage how the Government regard the Bill. I first congratulate my right hon. Friend the Member for Crosby (Sir G. Page) on the excellent way in which he presented his case and on the patient and skilful way in which he has conducted negotiations with the interested parties. As he said, Lloyd's makes an important contribution to the economy of the country.
I begin by paying tribute to all who contribute to the success of this unique institution. I am sure that the tribute will give pleasure to my hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) who, by a happy coincidence, is on duty on the Government Front Bench.
In 1979, Lloyd's premium income was £2,247 million, or over £8 million per working day, of which about three-quarters comes from overseas. In the 10-year period from 1970 to 1979 Lloyd's accounted for an average of 42 per cent. of the total income from overseas of the insurance industry. In 1979, out of the £957 million contribution made by the insurance industry to the invisible trade balance, Lloyd's accounted for £383 million. Lloyd's has pioneered many new forms of insurance, such as jumbo jets, super tankers, oil rigs and communications satellites. Lloyd's influences the terms and conditions, including rates of premium, on which business is written throughout the world.
The very success of Lloyd's has pointed to the problems that the Bill seeks to solve. Its long history means that procedures that have worked perfectly well in the past may be in danger of losing some of their effectiveness in a changing society. Many of Lloyd's procedures are founded firmly in custom and practice. They are none the worse for that. The Government have no enthusiasm for excessively detailed legislation and regulation. However, some updating of the law is timely.
Lloyd's owes its character as an institution to the fact that it is self-regulating. Providing a framework for the operation of individual underwriters is probably inseparable from regulating their activities. Government regulation could not be substituted for self-regulation without destroying the character of the institution. Not only do we not want to do that, we do not want to add to the functions of government either.
Lloyd's has proved the value of its commercial services over nearly 300 years, during which it has never defaulted on a legitimate claim. It has demonstrated the institution's 868 own capacity to regulate over the same period. The fact that the Bill is before the House now shows that Lloyd's is alive to the changing needs of our time. There may be a case for changing individual provisions of the Bill. That is a matter for debate. There is clearly no case for destroying the institutional framework.
Much of the internal machinery of Lloyd's stems from an Act of 1871. Lloyd's has troubled the House but little since then. Of the five private Bills that it has promoted since 1871, excluding the one currently under consideration, one was in connection with signal stations and had nothing to do with insurance, and all but one of the remainder involved relatively minor amendments. This Bill continues the pattern of amendments to the 1871 Act. Practices and conventions which were suitable for a society of 675 members in 1871 are no longer adequate for a society of about 19,000 members, most of whom have no regular contact with the underwriting room in Lime Street. It is for Lloyd's to determine, with regard to the needs of its internal organisation, a suitable formula for representing the interests of the external names which will commend itself to Parliament.
The report of Sir Henry Fisher and his working party has clearly outlined where the major changes are needed, and the report set out specific proposals for this purpose. Here I should say that it is not only the members of Lloyd's who have benefited from this excellent report but everyone who has an interest in this institution has gained an insight into its workings as a result of the painstaking study made by Sir Henry and his working party. Although the Bill does not follow Sir Henry's draft, it is based closely on the working party's recommendations. I must congratulate Lloyd's on the speed with which it has brought forward the proposals for legislation to implement the recommendations.
Some misgivings have been felt about certain provisions of the Bill. Parliament is rightly concerned at any question of legal immunity. The proposed amendment will allow the matter to be fully and properly considered.
§ Mr. Budgen
If we approve the Bill tonight and the provisions of clause 11 are put in a schedule, when the byelaws come before the House there will be no opportunity for amendment. We shall either have to agree to them or reject them as they stand.
§ Mr. Eyre
The byelaws will be in the form of secondary legislation. However, I emphasise that my right hon. Friend the Member for Crosby was forthright in saying that he would consider proposals by hon. Members in preparation of the byelaws in question. In addition, the usual affirmative resolution procedure will be required. The order will be laid in draft and its adoption will require consideration by Parliament. That is a reasonable provision for dealing with this matter.
If a byelaw on immunities is adopted by special resolution, my right hon. Friend the Secretary of State will be prepared to consider it and, if satisfied, to bring it before the Privy Council and Parliament for approval. That is the quickest way for the new regulatory machinery to be established. It enables consultation with all interests to start soon and it retains for Parliament itself the right to decide, in the light of these consultations, what degree of immunity is right. We support the view expressed in the Fisher report that a regulatory authority must be sure of its power to carry out its essential regulatory functions and not be inhibited by fear of harassing litigation.
§ Mr. Richard Needham (Chippenham)
Is my hon. Friend saying that if the Government are satisfied with the immunities they will come back with the Government's imprimatur? If that is so, is it not a slightly dangerous precedent, considering the immunities that are now granted to trade unions?
§ Mr. Eyre
I emphasise my right hon. Friend's offer to consider in detail the proposals for immunity. The proposals will be considered by the Secretary of State. He is conscious of the need to take account of views and to gain support in the House. If my right hon. Friend is satisfied, he will seek to obtain the Privy Council's approval and eventually bring the matter before Parliament for approval. Extra responsibility is put upon my right hon. Friend on the form of the byelaw. He will seek to discharge that responsibility. We will want to commend to Parliament only a form of byelaw that he believes merits support. My right hon. Friend will be most sensitive in that process to take account of all the proper arguments. I have emphasised that, in the light of these consultations, it will be for Parliament itself to decide what degree of immunity is right. We support the view, as I have said, that was expressed in the Fisher report, that a regulatory authority must be sure of its power to carry out these essential regulatory functions.
I should like to refer to the question of the divestment of underwriting agents from brokers, which is one of great complexity. An attempt to incorporate such requirements in the Bill could cause delay while the principles outlined by Sir Henry Fisher's working party are examined and converted into effective working rules. The problem needs careful examination. In my view, it cannot be dealt with by way of a short addition to the Bill. It is also essential that Lloyd's should be able to deal with fraud. It is right for the House to satisfy itself that proper powers exist for that purpose. I am advised that the arrangements that are to be proposed will have that effect.
In their examination of the Bill the Government have been concerned to ensure that the provisions are not in conflict with the requirements of the statutes in force or with Government policy. We are satisfied on this score. The details of its provisions are matters for the promoters of the Bill and for the House.
We are convinced that if Lloyd's is to continue to make its contribution to the economy as a whole it must regulate its own affairs and that it can and will do so effectively with the powers that it now seeks. The community of Lloyd's, on the basis of a wide-ranging inquiry, has decided that changes are necessary. Members of Lloyd's have voted overwhelmingly for the promotion of the Bill. It is clear that some strengthening of Lloyd's regulatory powers is necessary, and that is what the Bill seeks to do. We wish it well.
§ Mr. Clinton Davis (Hackney, Central)
Like the Minister, I wish to congratulate the right hon. Member for Crosby (Sir G. Page) on the manner in which he introduced the Bill. I also pay tribute to the chairman of Lloyd's and his committee for the painstaking efforts that they have made to consult hon. Members on both sides of the House about this important measure. That is not to say that we are ad idem with them on all the matters embodied in the Bill. I pay tribute to them in that regard. They have 870 diligently and in good faith sought to arrive at conclusions that are in the best interests of Lloyd's. It is a matter of judgment whether those conclusions are right.
I join my hon. Friend the Member for Batley and Morley (Mr. Woolmer) in his keen observation about the presence of so many hon. Members on the Government Benches. It is a remarkable attendance. In this day of new parties that are emerging, I thought, for a moment, that we might get a party of Lloyd's brokers established. Like my hon. Friend, I look forward to attendance and participation on a similar basis in debates dealing with industry, urban deprivation, overseas aid, unemployment and housing and, if I may say so, other equally important matters.
There has been a remarkable debate about those issues outside Parliament. Over the months that the Bill has been in the course of preparation I have seen some extraordinary headlines. I have seenThe affair of the Lloyd's Billin The Times,Tory dissenters look set to accept Lloyd's Billand alsoTop broker criticises 'rapacious' colleagueswhich might be the sort of language one would expect to be used by some hon. Members about others in this House. Another headline read "Split rivets the sleepers". That was very intriguing. I thought that the best of all which appeared in The Economist some time ago, was "The lady gets shirty". This was not a reference to the Prime Minister's view of the Secretary of State for Employment. It was a reference to the "luckless" Lady Middleton, who has been involved in carrying out opposition to the Bill for some considerable time. "Luckless" is the word attributed by The Economist rather than by myself.
I believe it was vitally important for Lloyd's to introduce a Bill to revise its procedures. The reputation of Lloyd's for integrity, trustworthiness and fair dealing is a prime ingredient for its survival and expansion. It follows that, while these qualities cannot be imposed by rules, rules which enable Lloyd's to act more promptly to deal with abuse, to deter aberrant behaviour and to provide effective redress can most certainly inspire increasing confidence in Lloyd's.
There is no doubt that Lloyd's has gone through a dramatic transformation not simply over the last half century but over the last decade. This is spelt out in the Fisher report. For example, it has a vastly increased membership. In 1970 there were 6,001 members. Today there are more than 18,500 members. This variety and diffusion of interests and this change in the character of Lloyd's membership have to some extent led to an erosion of traditions. Perhaps this wide variety of interests is less amenable to some of the traditional, gentlemanly sanctions which were applied some time ago and, indeed, up to the present time. The inadequacy of these methods and sanctions is highlighted in the Fisher report.
For these reasons and others, it has been concluded that there are substantial grounds for Lloyd's interfering in the free working of the market and such grounds are positively identified in chapter 1, paragraph 19, of the report. It has also been concluded that the changes envisaged by the Fisher report and, to some extent, mirrored in the Bill will represent important steps in safeguarding and enhancing the reputation of Lloyd's, in mitigating the problems that have arisen in recent cases, and in doing justice to policyholders and to others who are concerned in the insurance market.
871 In general terms, I welcome the Fisher report. I believe it to be a work of considerable scholarship. It has put forward quite radical proposals in some respects, while preserving, as it has decided is best for Lloyd's, the self-regulatory processes that Lloyd's also want to see retained.
One of the questions that is properly posed is whether the Bill should preserve the self-regulatory process regarding Lloyd's, or whether the Government, through the Department of Trade, which is responsible for the insurance business, should be assuming a supervisory role in relation to Lloyd's, akin to other parts of the insurance business.
It is an important matter, but I am bound to say that I regard entry on that route with much caution. Lloyd's is still a highly prestigious organisation securing, as we heard from the Minister, considerable benefits for the United Kingdom, particularly in overseas earnings. If proposals were introduced at this stage to abandon self-regulation without giving the new procedures a chance to work, it could be construed as a vote of no confidence in Lloyd's, and that could result in an erosion of confidence and of its continued ability to match the stiff international competition and to trade profitably abroad.
It is premature for us to condemn the changes that are envisaged without giving them an opportunity to work, and I hope to say something about those changes in a moment.
What I have said is entirely without prejudice to the possibility of a more interventionist role for the Department of Trade by a Labour Government to bring Lloyd's more into line with other insurance interests in the way in which they are supervised, should those procedures be found wanting. There is, therefore, a heavy burden on Lloyd's to satisfy the community as a whole that what it is about to do will be effected properly and will meet the public interest.
Recently there have been enormous pressures on Lloyd's. It has been criticised on numerous occasions for the way it has carried out its duties. It is well within its knowledge that it has to demonstrate more forcefully than ever that the way it does its business ensures that the public interest is satisfactorily maintained.
Our debate has centred on a number of important issues that have been highlighted by the Fisher report, and I want to deal with them at this stage. I turn, first, to clause 3, dealing with the establishment of the council. I welcome the amendments to the original proposals which were mentioned by the right hon. Member for Crosby. I believe that they provide a better balance between the working members who are capable of dealing with the technical work at present handled by the committee of Lloyd's. I believe that that formula will avoid the domination of working members by a single section of the market—a possibility that has caused some anxiety. There are also the external members and the independent persons, whose role I hope will be impartial, and whose appointments will be confirmed by the Governor of the Bank of England.
The numerical balance proposed by the right hon. Gentleman is an improvement, and I congratulate him on having reached those conclusions with the Lloyd's team. It is right also that there should be flexibility about the size of the council and the methods of election, which, of course, can be determined by byelaws.
872 I turn to clause 6, relating to the making of byelaws. It is right that there should be a division of responsibility between the committee and the council, the latter dealing with important questions of principles and planning. The safeguards contained in subsection (4) lean over backwards to appease the opposition that has been expressed to these proposals. I do not believe that the right hon. Gentleman could have gone further.
Clause 7 deals with the question of the establishment of the disciplinary committee and appeal tribunal. The right hon. Gentleman was right to assert, as did the Fisher Report, that the present procedures are cumbersome, grossly outdated and wholly inadequate to meet the challenges. The complicated process of arbitration is ludicrous in this day and age. There is no other comparable organisation that has to go through such a procedure to establish its disciplinary processes. It is right, too, that the committee should have a reserve power to compel people to disclose information and give evidence, and that it should be a disciplinary offence to disobey such a request. If that were not provided, the teeth of the disciplinary committees would simply not exist. I welcome, too, the appeal tribunal, which will ensure that a person who is aggrieved should be able to obtain justice.
I turn next to the issue which, with perhaps one other, has dominated the controversy attaching to the Bill, namely, the immunity provisions. I wish, as does my hon. Friend the Member for Batley and Morley, that the matter had been canvassed more fully by the right hon. Gentleman. He should have dealt with the principles that are involved. In fact, he skated over them. That is almost the only criticism that I make of his contribution to our debate tonight. I do not believe that the Fisher report dealt adequately with those issues. There is unquestionably a difficult problem, namely, how do we reconcile the need to take speedy and effective action to detect and stop abuses so as to avoid, or at least to limit, losses to assureds with the undesirability of providing extensive and unprecedented immunity in law to a self-regulatory body? That is the question.
Fisher argued that it would be disastrous if the consequences of decisions such as Hedley Byrne v. Heller and other cases that were cited had the effect of discouraging the council from introducing regulatory measures required for the general good because it feared that there would be civil liability to individuals. There is a real problem here. However, I am not encouraged to believe that, by deferring it and relegating it to a future debate, the answers will emerge.
The right hon Gentleman and Lloyd's appear to have conceded, by removing clause 11, that its terms were too extensive. They feared that those terms would be unacceptable to the House. They have had ample opportunity to put forward proposals to amend that provision. To play for time is no good. The right hon. Gentleman invited me to suggest alternative proposals. I should like to do that. I shall do my best to help, but it is not really my job. Lloyd's has an adequate number of skilled lawyers. It must decide what it wants. It is no good introducing proposals unless the principles can be agreed. Lloyd's has run away from that issue, which I regret.
The right hon. Gentleman said that Lloyd's would go away and think about it. He was supported—not surprisingly—by the Minister in his view that Lloyd's should produce a draft byelaw that would require the positive affirmation of Parliament. That is not acceptable.
873 It was reinforced in that belief by what the right hon. Gentleman said, namely, that the matter was basic to the Bill and to the operation of Lloyd's. If it is so basic, surely it is a matter for primary legislation. It is wholly wrong to introduce it by subordinate legislation, which is not intended to deal with such fundamental principles. I hope that the right hon. Gentleman and Lloyd's will seriously think about the matter.
The road of subordinate legislation is wrong. Lloyd's believes that. If it had believed that it was a matter for subordinate legislation clause 11 would never have appeared. Lloyd's accepted the principle that it was right to deal with the matter in the Bill. That judgment was correct. A different view is now taken for reasons of expediency. Lloyd's realised that, with justification, many hon. Members did not like clause 11 as it stood. It has run away from the issue. I beg the right hon. Gentleman to counsel Lloyd's not to proceed down the route that he has suggested tonight.
Perhaps Lloyd's should be thinking in terms of splitting the immunity. I have discussed that purpose with Lloyd's, although I do not commit myself to it. Perhaps it would not be unreasonable to limit the immunity, for the general benefit of market and members, to a position where the council, in exercising its powers to approve membership or in taking other steps vis-a-vis the membership that are contemplated in the Bill, is acting in good faith, but, nevertheless, loss may ensue through the aberrant behaviour of the member concerned. It might be arguable that failure to exercise its power of supervision, which led to the loss—perhaps because of the way in which it operates the fit and proper person procedure—should not be a ground for civil action.
Perhaps that is one of the ways which could be explored by the right hon. Gentleman. However, if Lloyd's believes that the powers of investigation would be fatally flawed by not having extensive immunity, and if it believes that there is no other way in which that objective can be secured, let it argue that as a matter of principle in primary legislation on the Floor of the House rather than deal with it in the unsatisfactory manner proposed by the right hon. Gentleman.
If the House approves the suggestion made by the right hon. Gentleman, it will be incumbent on the council to produce byelaws within a reasonable period, as I believe was envisaged by Fisher. Just as the registered brokers had the pistol of time levelled at their heads in producing their byelaws, it is right that Lloyd's should operate in the same way. There is no reason why Lloyd's should be dealt with differently.
I was glad to hear about the strengthening of the proposals on fraud, mentioned by the right hon. Member for Crosby. The inadequacy of the capacity of Lloyd's to act swiftly has been a matter of grave anxiety in recent cases. It was not its fault, because it was encumbered by the ludicrous procedures, which are totally outdated. The question of the duty of people to divulge information relating to suspicions is difficult. That is argued in chapter 13, paragraph 33. I commend that chapter, because it poses that question to the House.
Fisher argues that there must be an immediate power to restrain action which, if permitted, could cause grave harm to Lloyd's or to its policyholders. He concludes that there must be apower to give directions in particular cases which are immediately binding and which carry a sanction for disobedience. That is right. The fit and proper person 874 procedure concerning admission and continued membership, which are analogous to those vested in the Department of Trade in its supervision of insurance companies, are important in exercising proper control, and control over underwriting agency companies or firms, or over directors or senior employees of such companies. That is also envisaged.
I now turn to divestment. Fisher strongly recommended by a majority that, over a period of five years, shareholding links between Lloyd's brokers and managing agencies and between non-Lloyd's insurance interests and managing agencies should be severed and prohibited for the future. The links between Lloyd's brokers and member agents would not be so prohibited. Fisher recommended that the decision should be left to the council, which would have the power to make bye laws in that area, It was contemplated that the council would engage in profound consultation with all the relevant interests and would work out how the problems would be resolved.
It is not satisfactory for that issue to be left in that way. The majority of Fisher described that as a basic principle. The principle is essentially that an agent should not expose himself to a conflict of interests. The right thing to have done—not as Fisher recommended—would have been to embrace the issue in the Bill. Unfortunately, that has not been so. I am sorry that that is so, because again, it will be a prescription for doing nothing. The contemplation will take so long that there will be no action. That at least is the risk. It was summed up in the Financial Times on Monday:What will decide the outcome of the debate is how far the individual commercial interests of the brokers are likely to weigh against the long-term interests of protecting Lloyd's identity as a separate institutional entity rather than allowing it to become a broker managed underwriting pool. With broking in recession the pressures against full divestment are considerableTherefore, this is a prescription for further delay, and I believe that to be wrong.
The representations made by hon. Members to Lloyd's and to the right hon. member for Crosby, who has been characteristically courteous in receiving those representations, have been helpful. They have led to important amendments being proposed to the Bill.
I am not happy about some of the results, as I have said. I shall not advise my right hon. and hon. Friends to vote for the closure or for the Bill. Having regard to the unsatisfactory features I have highlighted, I shall he unable to vote for the Bill. I shall not vote against it; I shall abstain.
§ Sir Anthony Royle (Richmond, Surrey)
I think that we all heard the thoughtful and powerful speech of the hon. Member for Hackney, Central (Mr. Davis), realising the interest that he took in the insurance industry when he held ministerial office in a previous Government.
I want to say a few words as probably the senior working member of Lloyd's who is also a Member of Parliament. I was elected as a member of Lloyd's in 1950, so I have spent 31 years as a working member of Lloyd's, and 33 years as an insurance broker at Lloyd's, starting there in 1948. So I am the first speaker tonight who has personal knowledge of Lloyd's and the workings of that institution, which provides a community of interest for so many people.
875 I should also declare a further interest, in that I am also director of a large insurance broking firm at Lloyd's. For those reasons I wish to speak for a few minutes to underline the wholehearted support that the community of Lloyd's gives to the Bill.
As was said by my hon. Friend the Under-Secretary of State and by my right hon. Friend the Member for Crosby (Sir G. Page), Lloyd's, as one of our oldest national institutions, makes a major contribution to the country's balance of payments. More important, during the past 20 or 30 years Lloyd's has seen dramatic changes in Lime Street as an insurance market.
When I joined Lloyd's in 1948 it was a small market. There were many small broking firms and small syndicates, and everyone knew everyone else. The behaviour of individuals in that market was soon known. For that reason, the arrangements for the disciplining and running of Lloyd's functioned well.
I remember in 1957, as a marine broker, placing a risk in the market at Lloyd's on the Kariba dam in Central Africa, which had a value of £21 million. The premium paid on that risk was £150,000. At the end of last year my firm placed a risk in Lloyd's on the Thomson dam in Victoria, Australia—a similar dam. The value was £500 million and the premium £1.5 million. In the marine market of Lloyd's, in 1956 a tanker of 250,000 tons was valued and placed at £10 million. In 1981 a liquefied natural gas carrier would be valued and placed at £100 million.
A drilling platform 10 years ago, in 1971, would have been valued at $75 million, and only last week in Lloyd's a risk was placed on a big Norwegian drilling platform the value of which was $1.5 billion. I think that that underlines the need that has arisen to provide a much larger market in Lloyd's if it is to maintain its role as a world insurance centre.
My right hon. Friend the Member for Crosby, the sponsor of the Bill, mentioned the dramatic increase in the numbers of members of Lloyd's over the past 20 or 30 years. The fact that there were 3,000 members in 1949–50 and there are nearly 20,000 today has been mentioned by several speakers. The point that I do not think has been made is why that increase has become necessary, because it is that increase that has caused many of the problems that have confronted the committee of Lloyd's over the past five or six years. If, over that period, the committee of Lloyd's had not arranged to increase the total membership it would have meant that business would have drifted overseas and we would not have had the capital base to insure these huge new values.
I emphasise at this stage that those values that I mentioned earlier on were the values that were insured on the entire world market—in the United Kingdom, in Europe, in America, world-wide. The element of Lloyd's participation was still very high. On average, 40 per cent. of all those risks were insured in the Lloyd's market. I think that it is important to realise that and to understand why the need arose to expand the membership of Lloyd's.
The market now has large broking firms involved as a result of this expansion. Very large syndicates are involved. There are syndicates in Lloyd's today of 800 or 900 names, which would have been unthinkable 20 years ago. Inevitably, with the expansion of the market, people work in that market who are not known as well as they 876 would have been in the small community that was operating many years ago. As a result, the need arose, through a series of issues that I shall mention in a minute, to tackle the problem by, first, setting up the Fisher inquiry, the report of which produced answers that are incorporated in the Bill, and, secondly, providing the committee with the clout that it needs to deal with the minority which in any community tries to bend or evade the rules.
My hon. Friend the Member for Thanet, East (Mr. Aitken) raised in a debate in March 1978 the "Savonita" claim, and I think that he deserves credit for giving publicity for the first time to an issue that had not before been discussed. I admit that I was one of many involved in the Lloyd's community—and I apologise to him now—who at that time were somewhat doubtful about the fact that he had raised this issue on the Floor of the House. I retract now, because I think that the fact that he raised it drew public attention to the changes in the Lloyd's market and the change that was taking place in the insurance market in the City.
That was followed by the Sasse syndicate disaster, although of course there had been major losses before Sasse. Some of us will remember the Roylance mishap, which took place in the 1950s, but the Sasse syndicate case hit the headlines. Then, of course, we had the Moran case and others which have not received quite the same publicity. All this is indicative and typical of the problems that arise when dealing with many thousands of people, instead of hundreds, in a market that is crucial and full of people with necessarily an entrepreneurial streak, because that is basically Lloyd's.
§ Mr. Clinton Davis
With reference to the "Savonita" case—and perhaps there are others like it—does the hon. Gentleman not think that it would be better, if an hon. Member has a situation of that kind in mind, to give the Minister an opportunity to deal with it before raising it on the Floor of the House?
§ Sir Anthony Royle
The hon. Gentleman raises an aspect of the event in the detail of which it would not be very sensible to get involved this evening. I do not know whether my hon. Friend discussed the matter with the hon. Gentleman, but he had a perfect right to raise it on the Floor of the House.
§ Mr. Jonathan Aitken (Thanet, East)
I appreciate my hon. Friend's gracious and generous reference to me, but as a point of factual record I make it clear that, far from raising the matter as a surprise manoeuvre, I saw the Minister and the officials concerned before raising it and gave the Minister the full text of the speech that I intended to make, for which he thanked me when he spoke. I could not have done much more to play fair.
§ Sir Anthony Royle
I cannot set myself up this evening as an arbitrator between the hon. Member for Hackney, Central and my hon. Friend. If they wish to debate the matter outside the Chamber, I wish them luck.
The incidents that I have mentioned are major and have a fall-out effect on the reputation of Lloyd's. They had a great deal of influence on the work of the Fisher committee, which started meeting before the "Savonita" case came up, although it added importance to the deliberations. These cases and the smaller ones, which may not have had the same publicity, have underlined the 877 fundamental point that the House has a duty to sustain a national institution like Lloyd's and give it the opportunity to put its house in order, as it is requesting us to do this evening.
Concern has been expressed outside about four major issues that have been mentioned by all the speakers so far. My right hon. Friend the promoter of the Bill has satisfied both sides of the House about representation on the council. However, the hon. Member for Hackney, Central still has reservations about clause 11. It is a matter that the committee of Lloyd's through the promoter of the Bill, is prepared to discuss in greater detail at later stages in the passage of the legislation. At an earlier stage the hon. Gentleman underlined the fact that the committee of Lloyd's had taken a great deal of trouble to consult those concerned, including himself, in order to find a solution. If members of the committee of Lloyd's read Hansard tomorrow, they will learn what hon. Members feel and what action they would like to take. My right hon. Friend the promoter of the Bill has made it clear that that is also his intention. The suggestions put forward for alterations to the Bill should meet the point on fraud in full. I welcome the assurances given by my right hon. Friend.
I wish to spend a second or two on the fourth point—divestment. As we all know, brokers own agencies at Lloyd's. I am glad that the sponsors of the Bill have proposed that the council should deal with this as a matter of urgency immediately it is set up. As a director of a major broking firm at Lloyd's, I am in no way opposed to divestment. I do not share the views of the hon. Member for Hackney, Central that the council's suggestions to deal with the poblem is a means of doing nothing at all. Such is the public interest in divestment, and such is the need for the committee of Lloyd's to satisfy it, that the new council will not be allowed to sit on the matter. It will have to deal with it.
Hon. Members should appreciate the real problems involved in divestment which make it important that the new council should decide and that we should not try to do its job for it. What happens if a broker is no longer allowed to own an agency in Lloyd's and decides to own an insurance company instead, and if the broking community then moves out into the wider insurance market by owning insurance companies and starts to place its business in those companies instead of at Lloyd's? That is one question that has to be answered. I shall not answer it tonight.
Secondly, London brokers may decide that if they are not allowed to be involved in owning underwriting agencies in Lime Street they will own overseas underwriting agencies instead. Might not that have a disastrous effect on Lloyd's, with a moving of business out of the London market into overseas markets? So far as I am aware, there is no evidence that the names are actually prejudiced by brokers' agents. Indeed, the Wilson, the Roylance and the Sasse syndicates were all run by non-broker-owned agencies.
There is another point. Who would replace the present brokers as owners of those agencies? Perhaps a big industrial company would buy—Tiny Rowlands, Tesco, some conglomerate—I do not know. The outside pressures would clearly build up. I am not saying that that is necessarily a bad thing, but it is something that one has to consider. Outside pressures would build up if, for instance, overseas interests moved in and bought the agencies.
878 Let us look next at the possibility of the ownership being taken over by names themselves. Could the names afford it? To purchase some of the major and profitable agencies in Lloyd's today would cost a great deal of money. One wonders whether the names, who obviously would be the ideal people to own them, would be able to raise the necessary cash to do so.
§ Mr. Needham
It is a question, is it not. of the divestment of managing agencies? It has not been suggested that membership agencies should be transferred or divested. Surely the brokers would still have their interest, and therefore their entitlement, to continue in the market.
§ Sir Anthony Royle
Yes, they would. If the names could not buy the agencies themselves, the temptation for brokers, rather than to get involved in the complications and difficulties of operating in the market, might be to move overseas.
I think that answers can be found to all these problems. I am not opposed to divestment, but I feel that the committee and the council of Lloyd's should find the answers and that we should not try to find them here in this House.
Independent underwriting teams owning themselves is the ideal solution, and it is one that many people would like to see. I hope that the new council will encourage that. There is a feeling in the market and among the general public that the major brokers have become too powerful. If Lloyd's is to flourish, it needs to encourage the entrepreneurial energy of underwriters, which exists today. They need to build up their agency and to sell it in a market where they can sell for a profit the expertise that has been built up over the years. If that cannot be done Lloyd's will be damaged.
It is right that the new council should tackle and decide this complicated, but important, issue that has been mentioned by all hon. Members who have spoken. I apologise for keeping the House for so long but, as shown by the Warncliffe meeting at the Albert Hall, which I attended, there is an overwhelming majority of both working and external names for the Bill. The community of Lloyd's wants the Bill. It is vital to our future and crucial to the City that Lloyd's is able to function well and is seen to be doing so. It is right that, where possible, our major institutions should police themselves and not involve the Government. The Bill provides for just that, and I hope that it will be accorded its Second Reading this evening.
§ Viscount Cranborne (Dorset, South)
Although I am not a member of Lloyd's I cannot disagree with my right hon. Friend the Member for Crosby (Mr. Page) in drawing attention to the extraordinarily important place that Lloyd's occupies not only in the City of London but in earning a colossal amount of foreign exchange and making an extraordinarily large contribution to Britain's invisible exports. It seems entirely appropriate that this issue should attract enormous interest. The rather snide comments from Labour Members do them no credit. The same comment may be made of the fact that Labour Members are here in such small numbers to consider a vital part of our economy.
§ Mr. Michael English (Nottingham, West)
The Chair did not call my hon. Friend the Member for Keighley (Mr. Cryer).
§ Viscount Cranborne
It is plain that the Bill is needed urgently. Equally, there can be no doubt that an institution with the reputation of Lloyd's for innovation, flexibility and all the remarkable virtues that have given it its preeminence in insurance should adhere to the principle of self-regulation. Many of the disadvantages from which other insurance markets suffer in other parts of the world stem from the fact that they are unquestionably governed by rigid regulations and Government rules that inhibit the powers of innovation and flexibility that Lloyd's enjoys.
My right hon. Friend the Member for Crosby referred to the great changes that have occurred over the past decade in the market at Lloyd's. Bearing in mind the shortage of time, it would be churlish to rehearse those arguments, which I accept entirely. A Bill is needed because of those changes, and it was with considerable relief that those who are interested in Lloyd's heard that a Bill was forthcoming and that the committee and council of Lloyd's regarded the Bill as urgent.
It was with considerable interest that I addressed myself to the document when it was published. My sense of anticipation and relief turned to some extent to disappointment when I read what the Bill contained. We knew that the changes in the market of Lloyd's in the past decade or so have led to an astonishing number of rather doubtful stories, many of which have been referred to by right hon. and hon. Members this evening. I do not wish to rehearse them, but if we are to accept the importance of the principle of self-regulation, surely it is vital that the self-regulating body should not only be above reproach but be seen as such by the country at large. In other words, it must be more Catholic than the Pope.
Bearing in mind the number of stories that have emerged over the past few years about Lloyd's and those who work at Lloyd's, the Bill should have presented Lloyd's with an opportunity to show, if I may continue the religious mataphor, a firm purpose of amendment, as I believe the Catholics call it. That firm purpose of amendment is signally lacking in the expressions in the Bill.
What about fraud? There has been an enormous amount of publicity about fraud in the past few years in matters concerning Lloyd's. It was surely only natural to think that the Bill would contain at least some passing reference to this undesirable activity. The House will be able to imagine my surprise when I found no such references when I read the Bill. I believe that I did so with proper care and attention. I looked as hard as I could, but not once did I find that five-letter word in the entire Bill.
That remarkable fact reminded me of nothing so much as of an impoverished noble family sitting in a large and stately home trying to ignore the nasty smells from the drains that they could not afford to have repaired. That parallel surely cannot apply to Lloyd's, however. Although it is undoubtedly a noble institution, no one in his right mind could describe it as impoverished. The simile that I prefer, therefore, is that it is acting as though it inhabits an ivory tower. That is something that an innovative, flexible market, which Lloyd's has a reputation for being, cannot afford to do. I am delighted that my right hon. Friend was able to assure us about fraud; he did much to allay the questions in my mind.
880 There are other matters, however, such as divestment. My hon. Friend the Member for Richmond, Surrey (Sir A. Royle) has already referred to the undesirable growth of broker power over the past few years. Surely we must all accept that this phenomenon must be attacked by those in authority in Lloyd's. I was delighted to hear from my right hon. Friend that they intend to do so.
As the hon. Member for Hackney, Central (Mr. Davis) said, the question of divestment has been hanging around for a considerable time; I believe that the Cromer report raised the matter over a decade ago. The committee of Lloyd's has been discussing it for over 10 years. We hear that it has reached some conclusions, but we have no clear evidence that it intends to take any action on the matter. Conclusions are a small advance, perhaps, but, for such a flexible and innovative institution, Lloyd's hardly shows any great sense of empressement in taking 11 years to come to a conclusion. Will it take 30 years for us to see some action? One is reminded of a reluctant bather by the Serpentine on Christmas day, trying to make up his mind to take the plunge. To the interested passer by, the longer the hesitation on the brink, the less attractive the body becomes.
My right hon. Friend has done signal service today by trying to ensure that the sponsors at least do something in Committee to improve the original Bill. I sincerely hope that he will be able to prevail upon them and those who consider the Bill in Committee to give a binding and public undertaking that some kind of divestment—even a separation of powers would be an advance—will take place within a set period. My hon. Friend the Member for Richmond was right to say that this raises great difficulties. Nevertheless, the principle is so important that Lloyd's, with its reputation for intelligence and flexibility, must do something to solve the problem.
I shall not continue too long, as many other hon. Members wish to speak, but I cannot close without mentioning immunity, in which Labour Members have expressed great interest. The history of the Labour Party shows clearly that its members are experts on the subject. They have done their best to defend immunities when it seemed in their best interests to do so. It all seems curiously one-sided.
§ Mr. English
The hon. Gentleman will recollect that it was a Liberal Government who created those immunities.
§ Viscount Cranborne
I recollect perhaps rather less well than the hon. Gentleman what happened in 1906, because I was not alive at the time. However, I recollect rather more clearly that further immunities were granted by Labour Governments in 1974 and 1976, which perhaps reinforced the fell work of the Liberal Government of 1906.
We must be careful before we grant anyone new immunities. We Conservatives are reasonable men. We recognise that there may be occasions when some immunity is necessary, but the Bill provides a scale of immunity which I am advised is enjoyed by no one apart from the Privy Council and the Crown. That seems excessive, and I suggest that the promoters address their minds carefully to the question. We should seriously consider the granting of such extraordinarily excessive powers to a body which, in spite of the large number of Conservative Members present, does not have the political clout of the trade unions.
881 I question whether the same object could not be achieved by the council of Lloyd's by other means. We know that clause 10 confers on the council and its members the privileges conferred by section 448 of the Companies Act 1948. If Lloyd's wants more immunities, perhaps the redress lies within its own power. Surely that flexible institution could devise an insurance policy which would protect it as the immunities seek to do.
I shall vote for the Bill as a disinterested outsider, in the clear expectation that the remarkable remedial work of my right hon. Friend the Member for Crosby (Sir G. Page) will continue in Committee. I hope that he will be able to give us the assurances we need. If I vote for the Bill and find that my expectations have been dashed, I shall have learnt a lesson from which I can only profit in future.
§ 9.7 pm
§ Mr. Cryer
Indeed. It is said that Lloyd's is representative of innovation and flexibility. Many years ago, when I wanted to insure a steam-operated railway, Lloyd's proved to be neither innovative nor flexible. In fact, an ordinary commercial insurance company undertook what was a fairly new venture with aplomb and courtesy.
It is said that the community of Lloyd's wants the Bill, but there is more to it than that. There is a public interest in the Bill as well as a public interest in the operation of Lloyd's. Lloyd's does an enormous amount of business. If it is to maintain a reputation of service and credibility among its clients, the degree of scrutiny which will ensure that credibility must be maintained.
It is claimed that the Bill is required in order to update the self-scrutiny of Lloyd's. The Bill, irrespective of clause 11, gives enormous powers to an outside body. Parliament should be careful about handing over such powers to a body, no matter how old, traditional or well-established.
Under clause 7, the council is able to establish a disciplinary committee and an appeal committee. In the normal course of events, a professional body has to ask the Minister to introduce a regulation to obtain such powers. Therefore, the House would give Lloyd's an enormous advantage.
My hon. Friend the Member for Hackney, Central (Mr. Davis) said that the appeal system would ensure that justice was carried out within the internal workings of Lloyd's. Under clause 7(2) the council can, by byelaw, specify the classes ofdecisions, findings, orders, acts or omissionsagainst which appeals can be made to the appeal tribunal. It has the right to decide whether something should be the subject of an appeal. In other words, we are handing over the application of some sort of justice to an outside body. We should examine that right carefully.
I turn to the contentious subject of clause 11. The hon. Member for Dorset, South (Viscount Cranborne) mentioned trade unions. If trade unions saw clause 11, they would would have their breath taken away by the scope and magnitude of the immunities granted. [Hon. Members: "Hear, hear".] Conservative Members may say that members of Lloyd's do not have immunity and are at 882 an unfair advantage. However, from their note of approval for my comment about the reactions of trade unions, I gather that they are critical of clause 11. Such approval for my comments does not often spring from Conservative Members.
Trade unions are in a different position. First, they do not have such breathtaking immunity. Secondly, they are subject to a registrar, established by legislation, who produces an annual report on how trade unions are functioning. The applications of trade union funds for political purposes is the subject of legislation and of close scrutiny. Therefore, the position is different. The House should be careful before handing over such a power to an outside body, regardless of its prestige.
I hope that the right hon. Member for Crosby (Sir. G. Page) will not think unkindly of me if I say that I have great regard for the work that he does in the House. However, he said that byelaws would be introduced under the powers contained in the Bill to remove clause 11 and to introduce some modified form of immunity. That is not a good process. Regardless of whether this is a public or private Bill, we should strive to avoid that. To hand over the creation of primary legislation is to usurp the legislative functions of this House. Therefore, it is to usurp Parliament's very power.
The right hon. Gentleman said that such an alteration would take the form of an affirmative statutory instrument. However, such an instrument is not subject to modification. One must take it or leave it. If anyone has reservations he must vote against it. There is no grey area of debate. Indeed, debate is limited to one and a half hours. In the nature of our operations that hour and a half of debate will take place not in the early part of the evening, but at 11 pm, midnight or at 1 am. Our cerebral processes may not be at their best at that time. That is a relatively trivial reason, but the most important principle is that even on public legislation I am concerned about the powers that Ministers have to produce regulations to alter and shape essentially primary legislation. That is not a satisfactory substitute for getting primary legislation right the first time for debate and vote on the Floor of the House.
I turn to schedule 2. The essence of the Bill is self-regulation. I have great reservations about it. An annual report should be available describing how the self-regulatory body is proceeding. If it is proceeding satisfactorily, it should harm no one. It should be a proud boast that it is proceeding satisfactorily. If it is less than satisfactory, it is a cause for anxiety, but it will ensure that outside pressures put the regulatory procedures in train if, by any chance, those inside the prestigious, long-established body are too comatose or complacent to carry them out with due speed. Long-established prestigious organisations often develop an inertia to remedy faults which need outside pressure to produce a correction.
There is a useful point of comparison with trade unions, and there should be a form of annual report. The right hon. Member for Crosby said that he would propose additions to paragraphs 21 and 22 of schedule 2. They would be the mechanisms for informing the police about malpractice and byelaws for prosecuting offenders. I want to be sure that any self-regulatory body does not have double standards—that is, one standard for internal organisation where malpractices and criminal activities occur and another for the rest of the public.
I should like to see the clauses so framed that an internal investigation under the schedule should be accompanied 883 by external investigations. There would be no possibility of that being brushed to one side because those inside the prestigious institution felt that calling in outside public officers such as the police might be harmful. That is always a possibility within an institution that believes that outside scrutiny and prosecution by the police might harm its reputation. We want to see similar institutions placed on a par, whether it is Lloyd's or an ordinary insurance company. Everybody should be open to prosecution for criminal activities. The Bill is concerned only with internal self-regulatory mechanisms. We all welcome proper and adequate scrutiny and wish to ensure that external public examination is undertaken as well.
I shall vote against the Bill because I do not think that it should proceed without being opposed, because that strengthens its position in the later stages. That may dull people's critical faculties. In view of the breathtaking immunities contained in clause 11, something must be done to the clause now so that hon. Members who complain about the immunities of trade unions can claim that they did not have double standards and voted against immunities for trade unions but voted for breathtaking powers for a tiny, very profitable organisation in which a fair chunk of them have financial interests. A stronger element of public accountability is needed by means of an annual published report made available to hon. Members and the public which can be debated in the House. In the final analysis, public scrutiny is the best form of accountability.
§ Mr. Nick Budgen (Wolverhampton, South-West)
I hope that I shall not dissipate any support that I might have for my views by saying that I thought that the hon. Member for Keighley (Mr. Cryer) made a splendid speech. Because I agree with him so warmly I am deeply concerned about clause 11, to which I shall direct all my observations.
Many of my hon. Friends believe that the immunities at present enjoyed by trade unions are bad not only for the country but for the trade unions. We are sometimes described as union bashers, but we believe that when we attack their immunities we speak on behalf of ordinary working people and of trade unionists who are locked into a structure from which they have no lawful appeal.
When an institution with which we have many links of friendship and interest asks for special and wide privileges, we must examine them carefully. I am in favour of self-regulation. As a member of the Bar I am subject to self-regulation from the Bar Council. After many years of playing with horses, I know something about the activities of the Jockey Club which is also a self-regulatory body and has functions which are partly quasi-judicial and partly administrative.
As the hon. Member for Keighley said, the Jockey Club used to be a sleepy, complacent organisation which often did much injustice to the broad sections of the community that came before it. However, it was not subject to any immunity. A number of useful actions were brought before the courts and the club changed its procedures for the better.
The arguments for clause 11 are remarkably defective. I apologise to my right hon. Friend the Member for Crosby (Sir G. Page) for jumping into his argument rather quickly.
884 I had hoped that he would deal with the issue of principle at some length and with some weight of argument. My right hon. Friend has had many discussions with many of his hon. Friends who are worried about the matter. We looked for some compelling arguments of principle so that we could distinguish the position of Lloyd's from that of trade unions, for instance.
All that my right hon. Friend did was to repeat the passage on page 2 of his briefing document which states:Lloyd's needs powers which can tackle abuses which in recent times have received publicity. There is, therefore, an argument for providing some immunity for the Council.I see no logical connection between the first and second sentences. I interrupted my right hon. Friend in the hope that he would provide that connection. I thought that he might say that if there were disciplinary proceedings there might be some publicity of the allegations against the accused person, that perhaps the disciplinary body would be frightened of actions for libel and that then we would have to examine whether the system of qualified privilege is an adequate defence. However, my right hon. Friend did not say that.
It is important to examine the arguments advanced by Fisher. I found the most desultory discussion of the issue in paragraph 6.05 of chapter 6. The committee simply says that it would be disastrous if no immunity were granted, bearing in mind the extension of the law of negligence following the Hedly Burn case. Hon. Members should be clear that the Fisher committee was saying that if some form of protection is required, there are three available courses. The first course, according to the committee, is to try to cover by insurance any liability towards members. We have heard nothing about that course from my right hon. Friend. The second course, the committee says, is the possibility of requiring members and others—I shall not read out the whole sub-section—to agree not to sue the Corporation of Lloyd's, and/or to agree to indemnify the Corporation of Lloyd's' against civil liability.The report goes on to explain that some consequential change in the law would be necessary to allow that. It points out that the third course is to ask for the indemnity that has been asked for. If my right hon. and hon. Friends are serious in our assertion that we make so often to our constituents and sometimes to my right hon. Friend the Secretary of State for Employment that the immunities granted to the trade unions are vast—although, I concede, much more regulated than what is proposed in clause 11—and should be diminished, we would surely agree to anything approaching clause 11 only if we were satisfied absolutely that the case for immunities was overwhelming and that no other course was open in the circumstances. It is no good saying, as my right hon. Friend has said to me on occasion, that it is difficult to insure against this. It is difficult to insure against claims for negligence, but banisters are now thought, in certain circumstances, to be liable to claims for negligence. We insure. I should have thought that the council of Lloyd's could also insure. Of course, it reduces profitability.
A high issue of principle is involved here. It is no good saying "Send it off and with a bit of fudging and mudging, a few cups of coffee, and a drink for someone else, we will fiddle our way through." This is a great issue of principle that touches the whole of the body politic. There is nothing new about this situation. Every rich, strong and powerful 885 group in our society, at various times, has sought special privileges. This House has, above all, existed to try to diminish and criticise that claim for special privileges.
As I listened to my right hon. Friend, I remembered how I was taught that, after the Norman conquest, the great feudal barons had their manorial courts and how zealously and jealously they guarded their privileges against the encroachment of the King's justice. I feel that my right hon. Friend was like a very wise, very eloquent abbot of, if I may say, advancing years, whom the feudal barons had put up to support their case for special privileges.
I am afraid that, as my right hon. Friend put the case forward, like the careful lawyer he is, he was saying that there is an argument. In my experience, there is an argument in life for almost everything. I am not sure that there is a proper or an honourable argument for those Conservative Members who believe that, in the interests of all the people, and most of all in the interests of ordinary trade unionists, our duty in the future is to seek to diminish areas of special privilege in our society.
§ Mr. Michael English (Nottingham, West)
I must follow the speech of the hon. Member for Wolverhampton, South-West (Mr. Budgen) with one short sentence. I have in my constituency a piece of land which was once the prior of Lenton, and the prior of Lenton—in some books he is called the abbot—was the only person who was hanged at the gates of his own priory on behalf of Henry VIII, because he was the only person who did not take a pension when Henry VIII and this House and the other place changed the religion of this country in 1536. He preferred to be hanged. In that case, I think that the constituent of my predecessor in title, as it were, could claim that he was an honest man. There are not many such men. Most take pensions, and they did in 1536.
I wish to make only one comment on the Bill. It behoves anyone who takes money to inquire where it comes from, and it behoves anyone in business to inquire where his money comes from and where it goes to. I am sure that in the case of Lloyd's, the money comes entirely from legitimate quarters—at least, I hope so. It is not always true that everyone in Lloyd's knows where it goes to.
Lloyd's has a tendency to regard itself as a collection of individual firms, individual people, of whom, as we have heard, there are a large number, some working members and some external members. But it is a matter of concern whether they always know the results of their own actions. The Sasse case is a clear example, and I do not think I need go into the details of that.
I am concerned about another sort of insurance—insurance against kidnapping. Such insurance is not generally known about, because there is a clause in every policy which says that no person insured may declare that he has such a policy. Thus, the matter is kept secret, and there is good reason for that in this context. The matter is also kept outside the area of discussion. There are people in Italy, for example, who say that we in this country are more concerned about making money out of insurance than about where the money goes to. There may be people in Italy who are the recipients of the products of such insurance policies.
886 It must be a matter of some concern to Lloyd's—not a collection of firms, but a singular corporation—that., to quote the preamble to the Bill,By Lloyd's Act 1871 certain persons were united into a society or corporation".In fact, Lloyd's is a singular corporation. Whether it acts as such is not necessarily something that we know about. When it is a question of deciding what their colleagues should insure against, members have a tendency to assume that all their colleagues are gentlemen. Perhaps that was once true. It cannot necessarily be said to be true that it is good for the image of this country in the rest of the world that we are almost the only people who insure against kidnapping.
If somebody is kidnapped the ransom is provided out of his insurance—if he is lucky enough to have such an insurance. We all know how unljucky some people can be. It is deeply unfortunate if your name happens to be Rolf Schild instead of Rothschild. It can be said that every corporation and public company in this land that is a member of the British Insurance Association does not insure people against kidnapping. Such insurance is not provided even by the majority of the members of Lloyd's, but a minority, uncontrolled by the society to which they belong, do offer it.
I am not suggesting that they intend to do evil. Evil is sometimes done by people who do not intend to do it. They are simply concerned for themselves. But it is of importance that anyone should determine—[Interruption.] Is someone suggesting that such insurance is not being offered? A couple of firms, no more, in Lloyd's offer insurance against kidnapping. As a result, in effect and in actuality, they are paying money to those who have kidnapped their clients. It is a great advantage for the kidnappers to have an insured income. I suggest that that practice should cease.
§ Mr. Richard Needham (Chippenham)
I wish to declare an interst, in that I am a mini-member of Lloyd's. I emphasise the word "mini" because the hon. Member for Blackburn (Mr. Straw), on a point of order this afternoon, said that £100,000 was required by a person wishing to become a member of Lloyd's. He was not correct. When I joined Lloyd's I needed £37,500, and I had £37,632—admittedly that excluded my house, or that part of it that my wife does not own. The reason why I am making this important point is that the days when Lloyd's was a great institution, entirely dominated by the very rich, are at an end. Large numbers of people of middle means have joined Lloyd's. Inevitably, that has changed its character. I shall not give away any secrets if I say that the chairman of Lloyd's, on the occasions that he has visited the House, has not painted a happy financial picture for its immediate future.
The problems faced by Lloyd's are great. High interest rates around the world mean that many new people wish to get into the insurance business. Inevitably, that means lower premiums, which makes competition more difficult—as, of course, does the general effect of the world recession. That has led to a serious dimunition of under-writing profits and, in many cases, to underwriting losses. Many agencies have been kept above their financial bankruptcy level only by large amounts of premium income which they have been able to offset against losses on their underwriting. The loss of earnings in the outflow 887 of premiums has meant that many emerging countries wish to start their own home insurance business. The outlook for insurance is gloomy all over the world.
On top of that, Lloyd's has another problem. As my hon. Friend the Member for Richmond, Surrey (Sir. A. Royle) said, it needed to expand in the latter half of the 1970s from about 5,000 to 20,000 names. That led to more syndicates, which led to more competition and lower rates in Lloyd's.
I accept, as I am sure most of my hon. Friends do, that self-regulation is the right direction in which Lloyd's should go. Fisher made that clear on page 3 of the report. Referring to self-regulation, it said in paragraph 1.12:The freedom thus granted by the law carries with it great responsibility. The areas of activity controlled by self-regulating bodies are of considerable national importance and affect the lives of many people. Self-regulating institutions must use their freedom wisely and fairly in the public interest and must be able to demonstrate by their actions that they are doing so.I understand that the argument behind self-regulation, as opposed to governmental regulations, is, perhaps "set a thief to catch a thief'. I should like to consider the major issues on self-regulation, why they are important to Lloyd's and whether in its current legislation Lloyd's lives up to what Fisher said in paragraph 1.12 it must do.
All right hon. and hon. Members will accept that one cannot have effective self-regulation if there is a conflict of interest. The problem now in Lloyd's is that since the war the power of the brokers over the whole Lloyd's market has become dominant. Of the present council of Lloyd's, 11 members are attached to brokers in one way or another. One has only to look at the enormous power of brokers in the business that they give and at the control that they have over managing and membership agencies to realise their dominance.
If Lloyd's wishes to come to Parliament to ask for self-regulation, it can do so only if there is no conflict of interest. If the gloomy picture painted by the chairman of Lloyd's is correct, increasing pressure will be brought on Lloyd's by its external names, and by the vast number of people who have invested in Lloyd's, without fully understanding what they were doing. Therefore, in seeking assurances about alterations to the Bill from my right hon. Friend the Member for Crosby (Sir G. Page), who has been extraordinarily helpful, the question of divestment cannot and must not go away. I am sure that if Lloyd's tries to make it go away, untold damage will be done.
There is a great need for the representation at Lloyd's to be seen to be fair. My right hon. Friend has gone a long way towards achieving that. However, six members of external names is not enough. It is crucial that when the election to the new council takes place the external names know who they are voting for. My right hon. Friend has also gone some way towards meeting that need. However, if the new council were to end up by being dominated by the same group of people as in the past and if the same whiff of scandal continues as the economic problems of Lloyd's mount up, the danger to Lloyd's of a different kind of legislation and control will become much greater.
The right of members to have recourse to the court was mentioned in connection with immunities. I hope that my right hon. Friend's shrewd change will mean that the Bill need never come back to this place. I openly admit that. Clause 10 should be sufficient.
888 If Lloyd's wonders why we doubted it in looking at the Bill, it is because when an institution comes to us for self-regulation it is asking too much if there is nothing in the body of the Bill about divestment, nothing about fraud, an unsatisfactory attempt to set up an electoral system and a demand for enormous immunities.
I am delighted that my right hon. Friend the Member for Crosby is dealing with fraud. It is crucial to Lloyd's that everyone within the market is clear beyond doubt that fraud is a criminal issue and comes above the law of agency. Through my right hon. Friend, Lloyd's has given these assurances.
There are doubts in my mind that until Lloyd's has established these byelaws further pressure will be needed to bring them into effect. It will be a great tragedy to the insurance business if there is any more fudging or mudging. Lloyd's and the council will have to live with the pressure that they will get from 20,000 new external names. It is in the interests of Lloyd's and of the market that Lloyd's should act on the byelaws as soon as the Bill goes through Parliament.
§ Mr. Archie Hamilton (Epsom and Ewell)
I would first declare that I have no financial interests in Lloyd's; nor has any near member of my family. I am concerned about the Bill because I regard Lloyd's as a major financial institution that must work in a way that is beyond reproach, must at all times avoid scandal and must be seen to be whiter than white.
I therefore welcome he Bill, with the undertakings that my right hon. Friend the Member for Crosby has inserted in it. It is essential that Lloyd's has greater powers of self-regulation. Here we must look to the experience of the Stock Exchange, which shows that policing is best done by those who understand the business.
I hope the new committee with greater powers will realise that there are certain new realities of Lloyd's. The first is that it is no longer a coffee shop where deals are struck between people who know each other extremely well. It is no longer an exclusive gentlemen's club, if it ever was. It has today about 19,000 members many of whom are foreigners living abroad. It can hardly therefore be described as exclusive. It is also a major financial institution and, with its massive export earnings, it needs the skills of players rather than those of gentlemen. It is a business of professionals rather than of amateurs.
The problem is that non-working members who risk their capital are by definition amateurs. These people look to the committee ultimately to safeguard their interests. Recently they have had reason to feel that they do not have the protection to which they imagine they are entitled, so I am delighted that Lloyd's committee should have these greater powers, but only on the strict understanding that it carries much greater responsibilities as well.
One responsibility must be to ensure that non-working members, particularly new members, understand how Lloyd's works. There is still far too much mystique at Lloyd's. This seems to be maintained for the benefit of working members, the people on the inside track, while it works against the interests of new members and people who may not understand how well it works.
For instance, how many potential new members know that commissions can now be paid for introduction to syndicates of up to £1,000, which is not inconsiderable in anybody's language? How many potential new members 889 know that a members agency cannot offer the full choice of syndicates at Lloyd's because the best syndicates may be over-subscribed? Anyway, a members agency is liable to be greatly influenced by the commission that is paid to it by a managing agency. How many potential new members know that there is a complete list of underwriting syndicate results but this is held by the committee and is not available to anybody who is thinking of investing in Lloyd's. Those who do understand the way that Lloyd's works know that, of the 400 syndicates, 50 are extremely profitable, 300 make a decent return and 50 lose money.
We have to ask ourselves why the members should not have this information. In the opinion of Lloyd's members who were on the Fisher committee, that information could be misleading. I am afraid I fail to understand how knowledge that certain syndicates lose money year after year could he misleading. The only thing that I consider could be misleading is to put somebody on to such a syndicate and risk his money.
I look to the new committee to take the responsibility of opening up the amount of information on syndicates that is available so that market forces can work properly. In those circumstances, bad syndicates will go to the wall and good ones will flourish, but that is the way that markets should be seen to operate.
A further protection for non-working members must come from uniform agency agreements; all members should be offered the same deal by their members agencies and there should be no exclusion of liability by these members agencies, as there has been in some instances in the past. Members must be aware that commissions paid to underwriting agencies can vary considerably between 20 per cent. and 33 per cent. of the profits that they get from those underwriting agencies. Those commissions vary dramatically. That is the sort of information that should be available to people who intend to invest in Lloyd' s.
Finally, we must turn to divestment. Eight brokers, all publicly quoted companies, control nearly 60 per cent. of the underwriting syndicates, yet, as we know, brokers are supposed to act for the client and underwriters are supposed to work for the members who have their money at risk. So there is clearly a commercial conflict of interest here. Also, the invitation is permanently there to push through fraudulent claims, as the big brokers want to keep their large customers satisfied and they cannot risk losing business; they might well take the view that they can get the money back on the next premium anyway.
In the opinion of one of the witnesses to the Fisher committee, brokers are prone to load their expenses on to the syndicates. The Fisher report recommended that there should be complete divestment within five years, and surely the evidence is overwhelming that this should be in the Bill. I hope that the Bill's later stages will include some definite commitment to divestment, as Fisher recommended.
Then there is immunity, in clause 11. I accept that there is a radical amendment now in the schedule by my right hon. Friend the Member for Crosby (Sir G. Page), but it is outrageous that this provision should ever have been in the Bill. In the whole of its existence Lloyd's has only been sued once, and that was by the Sasse syndicate. The committee paid up because, in my opinion, it realised that it had been negligent since the information received by it in 1976 from its lawyers in the United States was not passed on to the agent or the syndicate. Why, in these circumstances, should we then give Lloyd's immunity 890 from future prosecution? It seems absurd that, if Lloyd's committee does not carry out its obligations to members, it should not be liable to be sued.
I welcome the increased powers and responsibility to pursue fraud. It must be possible for working members, particularly brokers, now to report fraud to the committee when they know about it, and there is no doubt that the brokers are the people most likely to detect fraud. If Lloyd's became known as an insurance market that was easy on fraud, its days would be numbered. As it is, its reputation can only be enhanced by taking a firm stand on fraud.
I wish this Bill luck and I wish Lloyd's and the chairman, Mr. Peter Green, every good fortune. If he strives to protect the interests of non-working members with the same courage and determination with which he has resisted amendments to this Bill, the members of Lloyd's will be able to face their future with confidence.
§ Mrs. Peggy Fenner (Rochester and Chatham)
I sat through the debate in the hope that I would have a few minutes to introduce a different note. I cannot agree with my hon. Friend the Member for Epsom and Ewell (Mr. Hamilton) that the chairman of Lloyd's has been reluctant to amend the legislation. Almost everything said by my right hon. Friend the Member for Crosby (Sir G. Page) demonstrated the co-operation of the society in getting the Bill on to the statute book.
The Minister paid tribute to the way in which Lloyd's contributes to our economy. I am not a member of Lloyd's, nor am I one of the rich and influential people referred to by Opposition Members. I wish in the time-honoured tradition of the House to pay tribute to Lloyd's for its important contribution to my constituency. I have a constituency interest in the continuing success of this great international institution. It has fine, award-winning buildings fronting the Medway, where a large number of my constituents work in magnificent conditions. From the introduction of the Bill I learnt nothing about the prestigious nature of Lloyd's. Some of my hon. Friends have done less than justice to the institution. It is a wonderfully participating business constituent and a fine contributor to Medway's community life.
There can be no dispute about the necessity for the Bill. No one could expect such an important institution to continue with regulations determined in 1871 without changes. Lloyd's requires an effective system of self-regulation. My right hon. Friend the Member for Richmond, Surrey (Sir A. Royle) told us that the scale of business at Lloyd's and the expansion in the number of members demands that it has additional powers in order to be self-regulating. I was impressed by the degree of concentration, and disappointed that some of my hon. Friends found it less than satisfactory.
I am also impressed by the fact that the overwhelming majority of Lloyd's members are wholeheartedly behind the sponsors in deciding the contents of the Bill. There has been full consultation with the market associations, which all support the Bill. In discussions with hon. Members and in the subsequent compromises arrived at there has been great awareness of the concern inside and outside the House over the controversial clauses. In the innovation of external members on the committee there was bound to be a divergence of view about the right number. I am 891 delighted that my right hon. Friend the Member for Crosby has balanced the number by announcing that it will not be six but eight.
I accept the concern about immunities. I do not agree with the comparison made by some of my hon. Friends. I share the view of the Secretary of State for Employment 892 in the Green Paper about trade unions. We should be thinking about a positive Bill of Rights and not about immunities. I am delighted that it is sought to move clause 11 from the main substance of the Bill and to introduce it in the second schedule so that Lloyd's can be truly self-regulatory and form an effective byelaw.
§ Question, That the Question be now put, put and agreed to
§ Question put accordingly, That the Bill be now read a Second time:—
§ The House divided: Ayes 206, Noes 42.894
|Division No. 122]||[at 10.00|
|Adley, Robert||Gardner, Edward (S Fylde)|
|Alexander, Richard||Garel-Jones, Tristan|
|Arnold, Tom||Gilmour, Rt Hon Sir Ian|
|Aspinwall, Jack||Glyn, Dr Alan|
|Atkins, Robert (PrestonN)||Goodhart, Philip|
|Baker, Kenneth(St. M'bone)||Gorst, John|
|Baker, Nicholas (N Dorset)||Gower, Sir Raymond|
|Beaumont-Dark, Anthony||Grant, Anthony (Harrow C)|
|Beith, A, J.||Greenway, Harry|
|Bell, Sir Ronald||Griffiths, E. (B'ySt. Edm 'ds)|
|Benyon, Thomas(A 'don)||Griffiths, Peter Portsm'thN)|
|Benyon, W. (Buckingham)||Grylls, Michael|
|Bevan, David Gilroy||Gummer, John Selwyn|
|Biggs-Davison, John||Hamilton, Hon A.|
|Blackburn, John||Hamilton, Michael(Salisbury)|
|Bottomley, Peter (W'wich W)||Haselhurst, Alan|
|Bowden, Andrew||Hastings, Stephen|
|Braine, Sir Bernard||Havers, Rt Hon Sir Michael|
|Bright, Graham||Hawkins, Paul|
|Brinton, Tim||Hawksley, Warren|
|Brittan, Leon||Hicks, Robert|
|Brotherton, Michael||Hill, James|
|Brown, Michael (Brigg&Sc'n)||Hogg, Hon Douglas (Gr'th'm)|
|Browne, John(Winchester)||Hooson, Tom|
|Bruce-Gardyne, John||Howell, Rt Hon D.(G'ldf'd)|
|Buchanan-Smith, Alick||Howells, Geraint|
|Buck, Antony||Hunt, David (Wirral)|
|Bulmer, Esmond||Hunt, John (Ravensbourne)|
|Butcher, John||Hurd, Hon Douglas|
|Carlisle, Rt Hon M. (R'c'n)||Jenkin, Rt Hon Patrick|
|Channon, Rt. Hon. Paul||JohnsonSmith, Geoffrey|
|Chapman, Sydney||Johnston, Russell (Inverness)|
|Clark, Sir W. (Croydon S)||Kaberry, Sir Donald|
|Clarke, Kenneth (Rushcliffe)||Kershaw, Anthon y|
|Clegg, Sir Walter||Kilfedder, James A.|
|Colvin, Michael||King, Rt Hon Tom|
|Cope, John||Knight, Mrs Jill|
|Cormack, Patrick||Latham, Michael|
|Corrie, John||LeMarchant, Spencer|
|Cranborne, Viscount||Lennox-Boyd, Hon Mark|
|Crawshaw, Richard||Loveridge, John|
|Critchley, Julian||Luce, Richard|
|Crouch, David||McCrindle, Robert|
|Dean, Paul (North Somerset)||Macfarlane, Neil|
|Dorrell, Stephen||MacKay, John (Argyll)|
|Dover, Denshore||Macmillan, Rt Hon M.|
|Dunn, Robert (Dartford)||McNair-Wilson, M. (N'bury)|
|Dunnett, Jack||McNair-Wilson, P. (New F'st)|
|Durant, Tony||McQuarrie, Albert|
|Eden, Rt Hon Sir John||Marten, Neil (Banbury)|
|Elliott, Sir William||Mawby, Ray|
|Emery, Peter||Maxwell-Hyslop, Robin|
|Eyre, Reginald||Mayhew, Patrick|
|Fairbairn, Nicholas||Miller, Hal(B'grove)|
|Fairgrieve, Russell||Mills, Iain(Meriden)|
|Fenner, Mrs Peggy||Mills, Peter (West Devon)|
|Fisher, Sir Nigel||Miscampbell, Norman|
|Fletcher, A. (Ed'nb'gh N)||Molyneaux, James|
|Fletcher-Cooke, Sir Charles||Monro, Hector|
|Fookes, Miss Janet||Montgomery, Fergus|
|Fowler, Rt Hon Norman||Morgan, Geraint|
|Fox, Marcus||Morris, M. (N'hampton S)|
|Fraser, Peter (South Angus)||Morrison, Hon P. (Chester)|
|Freud, Clement||Mudd, David|
|Gardiner, George(Reigate)||Murphy, Christopher|
|Myles, David||Speller, Tony|
|Nelson, Anthony||Spence, John|
|Neubert, Michael||Spicer, Jim (West Dorset)|
|Newton, Tony||Spicer, Michael (S Worcs)|
|Normanton, Tom||Squire, Robin|
|Page, John (Harrow, West)||Stanbrook, Ivor|
|Page, Rt Hon Sir G. (Crosby)||Stanley, John|
|Page, Richard (SW Herts)||Steel, Rt Hon David|
|Patten, Christopher(Bath)||Stevens, Martin|
|Pattie, Geoffrey||Stewart, Ian (Hitchin)|
|Pawsey, James||Stewart, A. (E Renfrewshire)|
|Penhaligon, David||Stradling Thomas, J.|
|Percival, Sir Ian||Tapsell, Peter|
|Pollock, Alexander||Taylor, Teddy (S'end E)|
|Powell, Rt Hon J, E. (S Down)||Tebbit, Norman|
|Prentice, Rt Hon Reg||Temple-Morris, Peter|
|Prior, Rt Hon James||Thomas, Rt Hon Peter|
|Proctor, K. Harvey||Thompson, Donald|
|Rathbone, Tim||Townsend, Cyril D, (B'heath)|
|Rees-Davies, W. R.||Trippier, David|
|Rhodes James, Robert||Trotter, Neville|
|RhysWilliams, Sir Brandon||van Straubenzee, W. B.|
|Ridley, Hon Nicholas||Wainwright, R, (Colne V)|
|Ridsdale, Sir Julian||Walker, B. (Perth)|
|Rifkind, Malcolm||Walker-Smith, Rt Hon Sir D.|
|Rippon, Rt Hon Geoffrey||Waller, Gary|
|Roberts, M. (Cardiff NW)||Walters, Dennis|
|Roberts, Wyn (Conway)||Weetch, Ken|
|Ross, Stephen (Isle of Wight)||Wells, Bowen|
|Rossi, Hugh||Wheeler, John|
|Sainsbury, Hon Timothy||Whitelaw, Rt Hon William|
|Sandelson, Neville||Whitney, Raymond|
|Scott, Nicholas||Wilkinson, John|
|Shaw, Michael(Scaroorough)||Williams, D.(Montgomery)|
|Shepherd, Coline(Hereford)||Wolfson, Mark|
|Sims, Roger||Tellers for the Ayes:|
|Skeet, T. H. H.||Mr. John Major and Mr. John Meddle.|
|Ashton, Joe||McKelvey, William|
|Bagier, Gordon A. T.||Marshall, Dr Edmund (Goole)|
|Bennett, Andrew(St'kp'tN)||O'Neill, Martin|
|Booth, Rt Hon Albert||Palmer, Arthur|
|Campbell-Savours, Dale||Powell, Raymond (Ogmore)|
|Clark, Dr David (S Shields)||Prescott, John|
|Cryer, Bob||Price, C. (Lewisham W)|
|Davidson, Arthur||Roberts, Gwilym(Cannock)|
|Dixon, Donald||Robinson, G. (Coventry NW)|
|Dobson, Frank||Ross, Ernest (Dundee West)|
|Duffy, A. E. P.||Sheerman, Barry|
|Ellis, R(NE D'bysh're)||Skinner, Dennis|
|Evans, John (Newton)||Spriggs, Leslie|
|Field, Frank||Stott, Roger|
|Fletcher, Ted (Darlington)||Strang, Gavin|
|Freeson, Rt Hon Reginald||Straw, Jack|
|Hamilton, W. W. (C'tral Fife)||Taylor, Mrs Ann (Bolton W)|
|Haynes, Frank||Wigley, Dafydd|
|Lewis, Arthur (N'ham NW)||Young, David (Bolton E)|
|McDonald, Dr Oonagh||Tellers for the Noes:|
|McGuire, Michael(Ince)||Mr. K. J. Woolmer and Mr. Nick Budgen|
§ Question accordingly agreed to
§ Bill accordingly read a Second time and referred to the Examiners of Petitions for Private Bills