§ Order for Second Reading read.
§ Mr. Speaker
I wish to inform the House that I have selected the amendment in the name of the Leader of the Opposition.
§ The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Leon Brittan)
I beg to move, that the Bill be now read a Second time.
The City of London and the financial services sector as a whole comprise one of Britain's most successful industries. It provides jobs for a million people. In 1984, it generated overseas earnings of over £6 billion. It provides the finance for new investment and new ventures on which our prosperity depends.
Last year, for example, new issues of stocks and shares listed on the stock exchange raised £6.2 billion—money which was invested in industry and commerce, leading directly to the creation of new jobs. Those resources are available because the City of London is the repository of the savings and investments of millions of ordinary people. It is our responsibility to ensure that those people can have confidence in the good practice and honesty of those who do business in the City. That confidence is all the more important with the increasing competition between the financial centres of the world.
If the City of London is to remain a leading centre, then there must be no doubt about the integrity of its institutions, because once that doubt takes root it is only too easy for the customers of the City to take their business elsewhere.
This is all the more important at a time when the City is experiencing major changes. I pay tribute to my right hon. Friend the Member for Hertsmere (Mr. Parkinson) whose agreement in 1983 with the chairman of the stock exchange opened the way for those changes to take place.
For those reasons the Government have been determined to take comprehensive and firm action to deal with financial fraud and, at the same time, establish an effective and flexible regulatory framework in which the City can operate.
The Financial Services Bill is one of the most important measures to achieve these objectives, but it is, of course, only one of a range of such measures. They include the Companies Acts of 1980 and 1981, which strengthened the powers of investigators and increased the powers of the courts to disqualify directors for misconduct, the Insolvency Act 1985 which built upon the Companies Acts by making disqualification of directors for wrongful trading easier, the Green Paper on extradition which contained proposals designed to make it more difficult for offenders to escape the consequences of their actions by going abroad, and the banking White Paper which will increase the requirements for disclosure of information, thus helping to detect fraud at an earlier stage.
I especially welcome the recent report of the fraud trials committee chaired by Lord Roskill, on which my right hon. Friend the Home Secretary has made a statement this afternoon. As he has made clear, the report contains many important recommendations on ways in which the conduct 939 of the investigation and prosecution of fraud, and the subsequent conduct of criminal proceedings, can be significantly improved.
In addition, the Government have already announced significant increases in the resources available to deal with the investigation and detection of fraud and other malpractices, including the provision of a further 195 people in the parts of the DTI dealing with this. So let there be no doubt of the Government's determination to take the most vigorous action against fraud wherever it occurs.
Having said that, I should like to make it clear that I do not believe that the City of London is riddled with fraud. The overwhelming majority of the people who work there are honourable and hard-working men and women who are extremely anxious that the wrongdoers should be brought to book. Anyone who suggests otherwise risks doing enormous damage to the reputation of the City, which would be wholly unjustified and damaging to the country as a whole. While I believe that the Financial Services Bill is a valuable contribution towards the elimination of fraud, its primary purpose is much wider than that.
It is right for me to pay tribute to the work of my predecessor, my right hon. Friend the Chancellor of the Duchy of Lancaster, and of my hon. Friend the Member for Edinburgh, Central (Mr. Fletcher). It was their White Paper on financial services in the United Kingdom, published in January last year, which laid the foundation for this Bill. I am only sorry that my right hon. Friend cannot be here to see the work he started come to fruition, and I am sure all the House will wish to join me in sending him best wishes for a speedy recovery.
The primary purpose of the Bill is to establish a framework of regulation which will provide effective protection for investors while at the same time promoting an efficient and competitive financial services industry in the United Kingdom. At present, the rules governing conduct in the City are based on legislation passed over 40 years ago. Inevitably, they are inadequate to meet today's needs, but the effect of the Bill will be not just to bring the law up to date and extend its coverage to include a wider range of investments; it will also establish a new and flexible system of regulation capable of responding to changing circumstances and dealing with new problems as and when they arise.
Of course, no system of regulation can or should remove all risk to the investor. If he makes a foolish decision, on the basis of adequate disclosure, then he cannot look to any regulator to make good the losses from his own misjudgment. It is for him to bear the consequences. But it is legitimate for an investor to expect that those who do business with or for him are fit and proper persons to do so, and that they are subject to rules which protect his interests as an investor. It is to meet that expectation that the Bill is designed.
Under the terms of the Bill, anyone who carries on investment business in the United Kingdom will require authorisation to do so, or, in very limited and special circumstances, specific exemption. That power of authorisation and regulation will lie with the Secretary of State. To do business without authorisation will be a criminal offence, carrying penalties of fines and imprisonment. Contracts made by the business will be unenforceable.
940 The Secretary of State will also have powers to apply to the court for an injunction to ban a person from carrying on investment business without authorisation or to seek a restitution order requiring investors to be recompensed for any loss that they have suffered as a result of the improper conduct of that business. That last power is a new and powerful weapon, the existence of which will be a major deterrent against misconduct and the exercise of which can provide effective redress for a wronged investor.
For the first time, the Bill provides a comprehensive definition of investment and investment businesses and it is estimated that there may be as many as 15,000 businesses which will require authorisation as a result.
As well as those already covered—
§ Mr. Alan Howarth (Stratford-on-Avon)
On the definition of an investment, to which my right hon. and learned Friend has just referred, he is, I am sure, aware that some anxiety is felt about the definition in schedule 1 of "Long term insurance contracts". Will he undertake that, in Committee, the Government will be willing to reconsider that point to see whether the schedule, as drafted, may not treat as investments some pure protection policies on which potentially no profit or loss could arise, such as, for example, renewable accident and health insurance policies?
§ Mr. Brittan
Of course, we shall look at that and any other points. Towards the end of my remarks I shall be saying a word about the Government's spirit and general approach towards the Bill in Committee.
§ Mr. D. N. Campbell-Savours (Workington)
Does the Secretary of State accept that a person who invests in a syndicate at Lloyd's is an investor and that what he places is an investment? On that basis, in the light of all the scandals that there have been over past years, why should Lloyd's not be included? Is it not true that if the Bill is passed as it stands, it in no way affects Lloyd's?
§ Mr. Brittan
I shall be coming to the subject of Lloyd's later.
It is the belief of the Government that the task of regulation of businesses of the kind I have been asking about can most effectively be conducted by those who have direct experience of the financial services industry and who are in close touch with developments in the market.
The Bill therefore enables the Secretary of State to transfer the majority of his powers to one or more designated agencies, made up of providers and users of financial services who will have the knowledge and expertise to ensure that investors' interests are being properly looked after.
The chairman and members of the agency will be appointed jointly by the Governor of the Bank of England and the Secretary of State.
However, powers will be transferred to the agency only if the Secretary of State is satisfied that the agency's rules will adequately protect investors and are in compliance with the principles contained within the Bill and that the agency is prepared to enforce them.
§ Mr. Anthony Nelson (Chichester)
My right hon. and learned Friend has referred to the appointment of the chairman of the designated authority. He said that that appointment will be made jointly under the schedule by the Secretary of State for Trade and Industry and the Governor 941 of the Bank of England. Does he think it right that the Governor of the Bank of England should have an effective veto over the appointment and discharge of the chairman of the designated authority over an investment rather than a banking industry?
§ Mr. Brittan
In view of the broader role of the Governor of the Bank of England in relation to the City, it is a reasonable requirement that he should be enabled to do that jointly with the Secretary of State for Trade and Industry. I was going to say that the transfer of functions will itself be subject to parliamentary approval.
If the Secretary of State is not satisfied that the agency to which powers have been transferred is continuing to meet the criteria set out in the Bill, then he will, once again subject to parliamentary approval, be able to resume those powers either in part or in total. We believe that those arrangements will ensure the proper level of accountability of the designated agency.
Some have suggested that it would have been better to establish a statutory commission; but in doing so they have singularly failed to identify any benefits which our proposals do not already provide. Those who argue for such a system should specify precisely which powers they say are present in a fully statutory system, but are absent from ours and would make our system more effective. I challenge them to do so in the debate. We should proceed from glib labelling to precise proposals. A statutory commission of the kind suggested would lack the advantages of the practitioner-based system that we propose. Its remoteness from the market place and lack of first-hand expertise would make it cumbersome and bureaucratic and unable to react swiftly to changing market needs. Our system enables rules to be made quickly and flexibly by a body which can count on the personal commitment of those it regulates to high standards of conduct, because such a body has been proposed and will be financed by them.
None the less, it is important not to exaggerate the difference between what is proposed and the creation of a statutory commission, for the designated agency will itself be operating within and be controlled by the clear statutory framework set out in the Bill.
§ Mr. John Butterfill (Bournemouth, West)
Clause 104 provides that the Secretary of State must consult the Director General of Fair Trading about any rule changes. Does my right hon. and learned Friend consider that that obligation is sufficiently wide, or should the Secretary of State have a much wider obligation to consult other than merely with the Director General of Fair Trading?
§ Mr. Brittan
In the context of that provision, it is a reasonable requirement because it relates to the relationship between the areas of policy covered by the Director General and the rest of the Bill's structure. I believe that the requirement is reasonable, but I have no doubt that it is a matter that will be considered in Committee.
There will be two further measures to ensure public accountability. First, the Bill will establish a financial services tribunal to which a business or individual will have the right of appeal against the agency's decisions. The tribunal will be chaired by a lawyer appointed by my noble Friend the Lord Chancellor and will have two other members appointed by the Secretary of State, one of whom will be appointed for his or her relevant practical 942 experience. The tribunal will investigate and report on the cases referred to it and the agency will be bound by its findings.
The second further measure of accountability will be a requirement that the agency submit an annual report which will be laid before Parliament, and will, of course, be open to the House to debate. Although the Bill provides for the possibility of more than one designated agency, the House will be aware that the Securities and Investments Board and the Marketing of Investments Board Organising Committee have announced that they intend to merge to form a single body. It had always been the intention of the Government that this opportunity should be open to them, and I welcome their announcement.
Once designated, the agency will itself be able to authorise a fit and proper person, individual or corporate, to carry on investment business. It will also have the power to withdraw or suspend authorisation in the event of breaches of the rules occurring. The regulatory powers at the disposal of the agency are designed to enable firm and speedy action to be taken to protect investors' interests. They are also hard-hitting and extensive.
Let me outline just some of the powers available to the agency for the protection of investors. It will be able to investigate any authorised business; and it will be able to impose restrictions on the kind of investment business done by any person it has authorised. It may require assets to be kept in the United Kingdom; and it may appoint a trustee to control the assets of an authorised business. It may issue a public reprimand as to a person's misconduct; it may seek injunctions to restrain businesses from breaching or continuing to breach a rule; and it may seek restitution orders for the repayment of losses suffered by investors through a breach of the rules.
Taken together, the range of these powers is just as extensive for the protection of investors as those of the Securities and Exchange Commission of the United States of America. What is more, they will be backed by the criminal law and the full range of criminal sanctions, including fines and imprisonment. It will be a criminal offence to try to induce someone to enter into an investment agreement by making a false or misleading statement, or to engage in any course of conduct which deliberately creates a false or misleading impression of the price or value of an investment.
It will be an offence, except in limited circumstances, for any person who is not authorised to do so to issue an advertisement inviting people to enter into an investment agreement. It will, of course, also be a criminal offence to continue to practise investment business once authorisation has been withdrawn.
As I have said, the Bill provides that the Secretary of State may transfer functions to the agency only if he is satisfied that the rules the agency proposes will afford investors an adequate level of protection and comply with the principles set out in the Bill. These principles draw substantially from the requirements of the common law of agency. Some deal specifically with the new potential conflicts of interest which will arise when dual capacity trading on the stock exchange is permitted from 27 October this year. More generally, the principles include requirements that the rules governing all investment business must promote high standards of integrity and fair dealing.
The rules must also impose a duty that businesses must act with due skill, care and diligence in the provision of 943 investment services. They must make proper provision for the disclosure of interests in, and facts material to, transactions or advice, as well as requiring an authorised business to subordinate its interests to those of its clients, and to act fairly between clients. They must require proper records to be kept and be open to inspection, and they must ensure that there is due regard for the circumstances of clients and that provision is made for the protection of clients' money and property. They must also make the best possible provision for compensation in the event of default by an authorised business.
If the rules are broken, an investor who suffers loss as a result will be able to make a claim against the business; but, to help him avoid having to go to the courts, the agency will have the power to set up an ombudsman or arbitration scheme to resolve disputes. This statutory framework, under which practitioner-based regulation will operate, is designed to promote the highest standards of investment business and deter fraud. It is in the interests of everybody who does business in the City that it should succeed.
Many, if not most, investment businesses may obtain authorisation by joining one of the practitioner-based self-regulating organisations which may be recognised by the agency under the terms of the Bill. Self-regulation has been shown to work, and work well. The stock exchange is living proof of that fact. Self-regulation does not mean relying on people's consciences; it means judgment by one's peers. The scheme proposed in the Bill is in no way a soft option. It will work because it is in the interests of those who will be charged with carrying out that it is seen to do so.
§ Mr. Peter Thurnham (Bolton, North-East)
Will my right hon. and learned Friend clarify to what extent the agency will have the power to ask an auditor to divulge information that he might otherwise consider to be confidential to his clients?
§ Mr. Brittan
As my hon. Friend perhaps knows, a consultative document was recently issued, and it is designed to explore and consider the way in which the relationship between auditors and the regulators can develop to meet precisely the problem that he has rightly identified.
To qualify for recognition, a self-regulating organisation will have to satisfy the agency that its rules and procedure for enforcement provide investors with a level of protection at least equivalent to that provided by the agency. If a recognised self-regulating organisation fails to continue to meet the criteria for recognition, the agency will have the power to apply for a court order directing the self-regulating organisation to take the steps necessary to ensure compliance. Alternatively, the agency will be able to restrict the types of investment business regulated by the self-regulating organisation concerned, or, indeed, remove its recognition altogether.
This deployment of self-regulating organisations is not some revolutionary and untested idea. Indeed, both the American Securities and Exchange Commission and Commodity Futures Trading Commission make increasing use of self-regulating organisations to regulate investment businesses. Some investment businesses with a wide range of investment activities may have to join several self-regulating organisations or even choose to be directly 944 authorised with the agency for some of their activities. Some may also provide banking services, be registered as a building society or be separately authorised as an insurance company under the Insurance Companies Act 1982. Both the Financial Services Bill and the proposed new banking Bill will lay down the boundaries of the two regulatory systems and provide powers to enable those boundaries to be swiftly adjusted to meet the needs arising from the creation of new financial activities.
§ Mr. Gerald Bermingham (St. Helens, South)
Will the right hon. and learned Gentleman confirm that in this Bill there will have to be a certain amount of tightening-up with respect to, insurance commissions paid to professional persons such as solicitors, accountants and estate agents? Very often the consumer—the purchaser of a house or the person who takes out a policy—is unaware of the exact amount of commission paid to professional persons.
§ Mr. Brittan
The hon. Gentleman will be aware of the provisions relating to investment on behalf of the professions and the requirements for the regulation of that activity. Those represent an adequate and important new protection.
The Building Societies Bill and the Financial Services Bill contain powers to enable information to be disclosed to other regulators. The Government intend to enlarge the scope of the powers in the Financial Services Bill to enable information obtained under the Banking, Companies and Insurance Companies Acts to be disclosed to other specified regulators in appropriate circumstances.
I now turn to the position of Lloyd's.
§ Mr. George Foulkes (Carrick, Cumnock and Doon Valley)
While everyone recognises the importance of the licensing of insurance companies, can the Secretary of State say whether or not a rumour that is going around, that the proposal is also to license individual insurance salesmen, is correct? There is some worry that it may give them some sort of spurious respectability. It would also lead to a great deal of administrative cost, which might not necessarily be of advantage to the consumer.
§ Mr. Brittan
We are awaiting proposals on that very point from the MIBOC. No decision has been taken. Of course, the administrative considerations to which the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) has referred must be weighed against any advantage that may be seen from the extra protection from the registration or licensing system. I certainly have not reached a conclusion as to where the balance of advantage lies.
§ Mr. John Smith (Monklands, East)
Under the Bill, a self-regulating organisation will be approved by the Securities and Investments Board, which will be able to look at the organisation's rules before approving it. However, it may emerge that some rules need to be changed because they are not working, but the SRO is not willing to change them because it does not suit it to do so. Is it right that the SIB has no power to enforce the change of rule but only a power to disband the whole organisation? This is rather like a nuclear weapon. Will the right hon. and learned Gentleman clarify that point, to which we shall probably return in Committee?
§ Mr. Brittan
I am happy to do so. The right hon. and learned Member for Monklands, East (Mr. Smith) is not 945 entirely right. The agency will be able to apply to the court for a compliance order. By that mechanism the SIB can deal with a situation in which the rules are felt to be inadequate.
As this is an important point, I should like to explain why we have reached that conclusion. The SROs will only work in the way we want if they attract people of calibre, integrity, experience and knowledge. They will attract such people only if they are allowed to operate in an independent way. None the less, the SROs must not be immune from investigation if something goes wrong. If the SIB, or its successor, is allowed to intervene directly and change the rules, that would undermine the balance between the SIB and the SROs to the detriment of the system as a whole. If a third party in the form of a court is interposed to consider whether there has been adequate compliance with the requirements, that balance would be maintained. There is no question of the SROs being able to disobey the requirements and face only the prospect of disbandment or disavowal. Equally, the SIB is equipped with the real power to intervene if it thinks it is appropriate to do so.
§ Mr. Paddy Ashdown (Yeovil)
Surely the right hon. and learned Gentleman's argument can be reversed—the SIB will attract people of quality and calibre only if it has the power to do things that are important. Would it not be better to give the SIB that reserve power to order the changes and also to protect the rights of the SROs so that they can appeal through the courts if they feel that the law has been overturned? In other words, one would have the presumption of action on the part of the SIB rather than the SROs.
§ Mr. Brittan
As the hon. Gentleman has fairly put it, it comes down not to a fundamental difference of principle—
§ Mr. Brittan
No, not of principle. It is a question of where the balance and onus shall be in terms of invoking the courts. It is right to say that if it were done the other way, it would be the SROs that would go to the courts. I think—and I believe that those who have heard my recital on the SIB's powers would agree—that the powers given to the SIB are so substantial that there is little risk that anyone would think that the SIB was an insubstantial body. I think that the balance in the Bill is right.
Hon. Members will know that on Friday I announced that I had decided to set up an inquiry into the regulatory arrangements set up at Lloyd's under the Lloyd's Act 1982. It might be useful to give a little of the background. Hon. Members will recall that in 1980 Lloyd's sponsored a private Bill to reform the constitution of the society. The Lloyd's Act, as it became, created the council of the society and provided for extensive new byelaw-making powers. The council since then has been setting up an extensive and far-reaching new system of regulation. This is a continuing process that is not yet complete, but Lloyd's has already made over 40 new byelaws.
It was shortly after the Act was passed that the facts relating to events in certain Lloyd's syndicates began to emerge—events, of course, occurring before its enactment. Lloyd's has investigated, or is investigating, these and other events under its new machinery, and some 946 of these matters are, of course, currently being examined by the Director of Public Prosecutions. It is, none the less, natural to ask whether, in the light of events, even allowing for the fact that they occurred before the passage, let alone the implementation, of the Lloyd's Act, any further regulatory action with regard to Lloyd's is necessary.
The Lloyd's Act 1982 does two things. First, and of paramount importance, it protects the interests of Lloyd's policyholders. It is buttressed in this by the Insurance Companies Act 1981. Secondly, it regulates the interests of members of Lloyd's the people who provide the capital for insurance business and stand behind the insurance policies.
Distinguishing between those two aims is a tricky problem. The problem is awkward enough for life companies, which are covered by the Bill. Hon. Members will have noted the complex provisions of schedule 8, reconciling investor and policyholder protection. But it is a relatively easy matter there—investors and policyholders are the same people, while in Lloyd's they are different. That is why I have grave doubts as to whether this Bill is an appropriate instrument to cover Lloyd's, even if it were decided that further protection was necessary and that protection had to be of a statutory character.
Because of the genuine concern that has been expressed about Lloyd's I am setting up an independent, full and rigorous inquiry. This will assist me in reaching a final judgment about whether further action is necessary. As the Prime Minister and I have already clearly stated, we will not hesitate to take whatever action we conclude is necessary. This inquiry should in no sense be interpreted as an indication that the Government have concluded that the arrangements currently in place at Lloyd 's are defective.
I am pleased to be able to announce that Sir Patrick Neill, currently vice-chancellor of Oxford university and chairman of the Council for the Securities Industry from 1978 to 1985, has agreed to chair the inquiry. I shall announce the other members very shortly. I shall ask the inquiry to consider whether the regulatory arrangements set up at Lloyd's under the 1982 Act provide protection for the interests of members of Lloyd's comparable to that proposed for investors under the Financial Services Bill. The report will be published, and I aim to have it by the summer.
I turn to some other specific points in the Bill. Members of certain professions—accountants, solicitors, and so on—carry on some investment business incidental to their profession. They are already subject to the discipline of their professional bodies, and the Bill will allow those bodies to obtain recognition, subject to meeting the same standards of investor protection as are required by the main regime.
The Secretary of State will be able to prevent a financial firm from any foreign country from doing business in Britain if United Kingdom firms are not given access to that firm's home market, equivalent to that provided by the United Kingdom. The Bill's provisions on reciprocity of access will extend to banking and insurance as well as to the investment sectors. The Bill recognises the importance of investment exchanges and clearing houses in facilitating investment transactions and providing investor protection and contains provisions for their recognition.
§ Mr. John Heddle (Mid-Staffordshire)
Has my right hon. and learned Friend seen a report prepared by the Royal Institution of Chartered Surveyors on the unitisation of property, which advocates a single property unit? In effect, this enables multiple ownership in a single property by the small investor. Does my right hon. and learned Friend agree that, if implemented, that would have the effect of diverting valuable resources to inner city renewal and urban decay? Does he also agree that, if the unitisation of property were a feasible proposition, it might involve amendment of the Law of Property Act 1925 and the Prevention of Fraud (Investments) Act 1958? Will my right hon. and learned Friend undertake in Committee to look at these recommendations to ascertain whether they can be implemented?
§ Mr. Brittan
I have seen the report to which my hon. Friend refers. It is not free from difficulty, but I am sure that we will want to look at it further.
The Bill also provides a special regime for the application of competition policy to the financial services sector. It reforms the regulation of unit trusts and other kinds of collective investment schemes. It brings together under one statutory roof scattered provisions on public offers.
It replaces the Stock Exchange (Listing) Regulations 1984 and provides a more satisfactory framework for the implementation of the three European Community directives on listing. In particular, there will be a general duty on those responsible for an issue to disclose all information reasonably required by a potential investor. If they fail to do so or supply false information, they will be liable for damages to any investor suffering loss as a result.
The Bill gives the Secretary of State a new power to appoint inspectors to investigate possible insider dealing. The inspectors will be able to question people on oath and require papers and documents to be produced. The Bill also extends the offence of insider dealing by Crown servants to other public servants.
There are three further specific provisions which the Government intend adding to the Bill in due course.
First, in the light of comments on our consultative paper about auditors, we shall propose amendments to enable auditors of investment businesses to have a dialogue with the supervisors of those businesses. In particular, auditors will be expected to report to supervisors when there is a public interest in disclosure—for example, because of suspicion of fraud.
Secondly, it is intended to facilitate the formation in the United Kingdom of open-ended investment companies.
Thirdly, we shall propose amendments to the Bill to restrict the Insurance Brokers (Registration) Act 1977 to non-investment insurance business, so as to leave room for the emergence of a new institutional structure to regulate life insurance intermediaries.
This Bill is complex and highly technical, but it is also important.
§ Sir John Page (Harrow, West)
I am extremely grateful that my right hon. and learned Friend has referred to the Insurance Brokers (Registration) Act, which is known, nationally and internationally, as the Page Act. There is a rather serious point here for the smaller registered insurance brokers who already have to pay fees as registered brokers under the Act and who, if they went in for life insurance and so on, would have to pay 948 additional fees under this new Bill. Could my right hon. and learned Friend in his kindness think of some way in which this doubly harsh wind might be tempered to the shorn lamb?
§ Mr. Brittan
I would certainly like to look into the point. I am grateful to my hon. Friend for raising it. I am only sorry that parliamentary convention prevented me from giving the legislation the title that it justly deserves.
It would be absurd to put forward this Bill, which, as I have said, is a complex and highly technical but also important one, on a "take it or leave it" basis, and I shall not do so. We will listen carefully to the views of hon. Members and to points put to us by practitioners and investors. In general, I believe that the balance in the Bill is sound, but we shall respond constructively to what is said during its passage. The Bill will, I believe, provide our financial services industry with a regulatory framework as comprehensive as it is modern. By this legislation we can ensure that both the reputation and the competitiveness of the City are preserved and, indeed, enhanced.
I commend the Bill to the House.
§ 5.3 pm
§ Mr. John Smith (Monklands, East)
I beg to move, to leave out from "That" to the end of the Question and to add instead thereof:this House declines to give a Second Reading to a Bill which fails to provide, through the means of an independent, self-standing commission, a clear and direct statutory framework for City regulation, which fails to bring within its provisions some City institutions, particularly Lloyd's, which are most urgently in need of effective supervision and regulation, and which fails to provide to the supervisory authorities the powers which are needed to prevent, detect and punish City fraud.The need for legislation to deal with fraud in the City and associated institutions is uncontested in the House. We have seen over recent months and years fraud on a scale and to a depth which has caused great and justified concern not only throughout the financial institutions but throughout the whole country. Legislation of this kind, therefore, is long overdue. I do not propose at this stage, however, to go in detail through the complex provisions of many parts of the Bill. That is a task which can be undertaken in a much more effective way in Committee.
Nevertheless, it is important at this stage, before the House decides whether or not to give approval to the shape of this legislation, that we face up to some important and controversial issues which arise from the form in which the Bill is couched and from some of the decisions that the Government have taken. We have covered this area to some extent in a number of earlier debates on the White Paper, and points were made on these occasions about the scope of the Bill. I do not think that the Government have deviated very much from the proposals that were contained therein.
A great deal of the Bill is unexceptionable because it results from the recommendations of Professor Gower, many of which were sensible; these have been incorporated in the Bill. I do not object to the concept of authorisation which lies at the heart of the Bill, but, as our recent amendment makes clear, we believe that there are three important qualifications to be made, three important faults in the way in which the Government are approaching this matter.
The first is the decision on what to include and what to exclude; the second is the technique of enforcement, the 949 whole question of whether there should be an independent commission or whether it should be left to the so-called self-regulating organisations; the third is the question of bringing to book people who are found to have transgressed the laws which Parliament has passed.
On the first point, I find it frankly incredible that at this stage, after what has happened, Lloyd's is to be specially excluded from the provisions of the Bill. We have seen more fraud in Lloyd's in the past two or three years than I hope took place in the whole of its previous history. We saw, for example, £39 million disappear with Alexander Howden, £38 million disappearing in the Minet Holdings affair—
§ Mr. Brittan
I am sorry to interrupt the right hon. and learned Gentleman so early in his speech but I wonder if he could identify which charges he is making in relation to the past two or three years, which is what he said.
§ Mr. Smith
They have come to light in the past two or three years. [HON. MEMBERS: "Oh."] We are exhibiting already, it seems to me—or rather the Secretary of State is exhibiting—very great care, before we even get into the question of Lloyd's, to make sure that we are absolutely accurate in what we say. Of course that is fine. I ought to take exactly the same care. He knows, however, perfectly well what I am referring to. He knows about the major scandals that took place in Lloyd's and if he wants me to go into more detail I will be glad to do so, of, for example, the Peter Cameron-Webb syndicate, where something like £130 million has disappeared.
The Minister knows perfectly well that there are people who practise at Lloyd's—some of them have responsibility for this so-called self-regulation—who have had to be brought to book for the way in which they carry out their affairs. Anyone who can speak so blandly about the merits of self-regulation, after having seen what some of these self-regulators have done in their own interests, is someone who is not taking a grip of the realities of the situation.
§ Mr. John Smith
I will give way to the hon. Gentleman. I am quite happy to give way to all the apologists of Lloyd's, of whom the hon. Gentleman is, no doubt, another.
§ Sir Anthony Grant
Is the right hon. and learned Gentleman aware that it was precisely because many of these major scandals were known and because Lloyd's had not the power to deal with them that the 1982 legislation was enacted—and strongly supported by Opposition Members?
§ Mr. John Smith
It is a touching tale, is it not? All the time that they were really panting to deal with the problem, they did not have the powers in place. Now that they have the powers in place, of course, we can all relax. But that is not the general feeling in this community, and there is still justified concern about the affairs of Lloyd's.
This is a concern which has not diminished with the departure of the chief executive of Lloyd's, whose appointment to that position, I think, lessened the fear that many people have had; the circumstances of his departure are such as to raise once again these very questions about whether Lloyd's can be trusted to look after its own affairs.
950 There is also the question of the Inland Revenue investigation into Lloyd's, one of the largest ever undertaken by the Inland Revenue. While these two matters, both of which have occurred in very recent times, are fresh in the memory, I do not think that the community will be as easily satisfied as the Secretary of State and his colleagues are.
§ Mr. Nicholas Baker (Dorset, North)
On the answer that he gave to my right hon. Friend who was, with me, a sponsor of the 1982 Lloyd's Bill—since then, I myself have become a member of Lloyd's—what the right hon. and learned Gentleman should be seeking to show is that any of the scandals that he is talking about have arisen in respect of events post-1982, that the council of Lloyd's today does not have the power under the Act to deal with such scandals as have appeared or that there is any negligence or complacency on the part of the council of Lloyd's in dealing with those matters. I submit that there is no such thing and that it is up to the right hon. and learned Gentleman to establish that that is the case.
§ Mr. Max Madden (Bradford, West)
On a point of order, Mr. Deputy Speaker. Would you ask hon. Members who are members of Lloyd's and who intend to speak or intervene in the debate to disclose that interest, notwithstanding whether or not any declaration is made in the Register of Members' Interests? I am sure that it is within your memory that, when the Register was established, clear advice was given that when hon. Members who held an interest spoke or intervened in a debate they should disclose that interest at the time, and not rely on the Register of Members' Interests to declare that interest.
§ Mr. Deputy Speaker (Mr. Harold Walker)
The practice of the House is clear. Hon. Members who take part in a debate and have a direct pecuniary interest in the matter under debate should declare that interest. As the hon. Gentleman has rightly reminded us, every hon. Member is obliged to declare his interest in accordance with the rules of the Register of Members' Interests.
§ Mr. Smith
I was asked whether I was satisfied that all was well at Lloyd's, and whether I was prepared to accept its assurances. [Interruption.] It is some time since the question was asked, and it was not clearly phrased. Its general import was that I should be content with assurances which appeared to be emanating from Lloyd's. I have already made it clear that I felt considerably disturbed at the departure of the chief executive, and no new chief executive appears to have been appointed.
§ Mr. Best
I am happy to declare an interest as a member of Lloyd's. The right hon. and learned Gentleman will accept that, if anything, members of Lloyd's have an interest in Lloyd's being included in, not excluded from, the Bill. Does he accept that the successor to Mr. Ian Hay Davison will serve on precisely the same terms? That has been made absolutely clear. Does he further accept that the information contained in early-day motions tabled assiduously by his hon. Friend the Member for Hackney, 951 South and Shoreditch (Mr. Sedgemore) is known only as a result of the investigations carried out by the council of Lloyd's, as at the end of those investigations matters are made public?
§ Mr. Smith
Following the departure of Mr. Davison, Lloyd's had to give certain assurances that his successor would have the same powers, but I do not know whether the chairman of Lloyd's offered them willingly. There seemed to be some dissension about the matter. The fact that some controversy existed over the role of Mr. Davison's successor did not make people feel easy about the whole position.
§ Mr. Foulkes
Can I urge my right hon. and learned Friend not to give way to every member of Lloyd's on the Tory Benches? It will delay the debate, because there are 52 Tory Members who are members of Lloyd's. That may explain why Lloyd's is not included in the Bill.
§ Mr. Deputy Speaker
Order. Irrespective of the number of members of Lloyd's in the House, I hope that interventions will be limited and brief because many hon. Members wish to take part in the debate.
§ Mr. Smith
I hope that some members of Lloyd's will feel that they have made a sufficient contribution already by the interventions which I have permitted them to make.
The reason for a so-called inquiry into Lloyd's which was announced on 10 January was because the Second Reading of the Financial Services Bill was today. The Secretary of State was so anxious to announce an inquiry that he had not even organised the chairman by the time he announced the inquiry. It was imperative that he had something in place when he came to speak on Second Reading. It is nothing more than a transparent device to pretend that the Government are truly worried about Lloyd's.
The press notice which the Secretary of State issued at the time is a giveaway. He explained that the inquiry would consider whether the regulatory arrangements at Lloyd's provided protection comparable to that provided in the Bill, and immediately said that the inquiryshould in no sense be seen as indicating any conclusion by the Government that the arrangements at Lloyds were defective.No sooner had he announced the inquiry than he rushed to assure Lloyd's that it did not imply that Lloyd's arrangements were defective. That hardly shows the anxiety which a Secretary of State who is determined to eradicate scandals would exhibit. Therefore, our function in Committee will be to table amendments to remove the exclusion of Lloyd's from the Bill.
It may be that the inclusion of Lloyd's would require special measures, in which case all those involved should provide them. Lloyd's should be included within the scope of a Bill which seeks to regulate financial institutions. If the Government do not give way on the matter in Committee—they show little sign of doing so—the seriousness of their resolve to introduce this new legislation will remain in doubt.
The Secretary of State said that there was merit in self-regulation, but he did not seem to want to go far down that 952 road because he said that some powers would be similar to those which exist in countries with independent statutory bodies. We argue for an independent statutory body primarily because it is independent. The trouble with too much self-regulation is that it can be turned too easily to self-protection. Regulation should be based on an independent commission, as it is in most countries in the western world which have supervisory systems. The Labour party has advanced that view for more than 10 years, and I have noticed recent converts to that proposition.
The problem with the Government's proposal is that recent happenings have caused a loss of faith in the capacity of some organisations to regulate themselves. We are told that, while there may be merits in an independent commission, it would inevitably be legalistic and bureaucratic; the Securities and Exchange Commission in the United States is referred to. We do not necessarily need to follow the United States' experience, even if there is any truth in the allegations, and I am not sure whether there is.
First, there is no question but that in the United States people are much more interested in litigation for its own sake than we are. Secondly, life in the United States is complicated by the existence of federal and state legislation working together. That inevitably means that any supervisory body must be more complex than it would need to be here. I do not believe that any conclusion adverse to an independent commission in the United Kingdom can be drawn from the United States' experience.
It would be much simpler and clearer to move towards an independent commission. It may not be popular with those who are to be regulated, which seems to be the main reason why the Government have moved against it, and it may not be popular in the City, but, with respect to the Government, that is not important. The question in the public interest is: which will provide the more effective system of regulation?
The Labour party is not alone in advancing that view, although it has advanced it for longer than any other body that has commented on the whole question. On 18 October 1984 a Financial Times leader about financial services' legislation stated that the proposals put forward in the White Paper wereonly in skeleton form: the flesh and the muscle have yet to be filled in. The preliminary verdict, though, is that the Government would have done better to take a deep breath and go for an independent statutory agency.I have also recently noticed that Sir John Nott, who was Secretary of State for Trade in one of the recent Conservative Governments and who is now a figure in the City—actively involved in another matter which concerns the Secretary of State and the Prime Minister—believes that the time has come when it is necessary to have an independent commission. There is a growing body of opinion within the City itself that the most effective way in which to approach this matter is through an independent self-standing commission. The failure to take that step forward is one of the crucial omissions of the legislation.
§ Mr. Brittan
Will the right hon. and learned Gentleman tell me in what way the body which he has in mind will be more independent, more free-standing than 953 the Securities and Investment Board, jointly appointed by the Governor of the Bank of England and the Secretary of State?
§ Mr. Smith
It would be independent and would not be dependent for finance on the organisations which are to be regulated. The point about a self-regulating organisation is that it springs from the bodies which are to be regulated; they finance the organisation and are bound to have a heavy influence on how it goes about its affairs. It would be possible for the cost of the operation to be—
§ Mr. Smith
I hope the hon. Gentleman will sit down. I have given way extensively. I must be allowed to develop my argument, particularly in response to the Secretary of State's intervention.
The financing of these bodies is important. I am not suggesting that the cost should be borne by the taxpayers. There are other ways in which those concerned could provide the money. The fact that it is done in its present way is bound to raise some suspicions. [Interruption.] Conservative Members can titter and grimace but they must remember that, to people outside, they look like people defending special vested interest. The interest of this side of the House is to take account of the proper public interest.
§ Mr. Smith
I will not give way to the hon. Gentleman. I do wish that we had decided to televise the House of Commons. If this debate were on television the public would be able to see the vested interests ranged against me. Almost all the Conservative Members who have intervened have a special interest in the context of this legislation.
Another major omission from the structure of this Bill is that it does little in the process of enforcing the law. We may have a detailed and comprehensive system of law but unless it is enforced properly, there is little point in having the laws on the statute book. We have been told that extra bodies will he provided for the Department of Trade and Industry investigation branch. More people will be provided at the office of the Director of Public Prosecutions. The more there are the better. Certainly there is a need for more people to be engaged actively in the detection of fraud which exists in the City.
We know perfectly well that the Conservative party has been content for years to live with the system wherein the detection and the prosecution of fraud in the City was done in an especially lax manner. It is staggering to contemplate the fact that not one criminal prosecution has arisen from the Lloyd's scandal. If the Government gave this the sort of priority which they give to other matters then something would have been done years ago. I remind the Secretary of State of the enthusiasm that has been shown by members of the Government for the detection and prosecution of fraud in the social security system. We have had campaigns by Ministers; one Minister who is no longer with us, his services dispensed with by the electorate at the last election, made a name for himself with his constant obsession with social security abuse. The right hon. and learned Gentleman's Parliamentary Private Secretary has a close knowledge of these matters, and indeed might be called an accidental beneficiary of the electorate's wisdom on that occasion.
954 The report of the Public Accounts Committee of 7 November 1983 states that there are 5,500 staff engaged in anti-fraud activities. These 5,500 people find out frauds, which are estimated to cost the Department of Health and Social Security £190 million a year. All the social security fraud which is detected and prosecuted is equal to the sum in the major Lloyd's scandal. There are only a handful of people dealing with the whole of the City but thousands are committed to the social security system. The Government constantly tell us about the problems of law and order in our society. The Government tell us of the virtues of the short sharp shock treatment for offenders. I wish that the Government would think of a short sharp shock for some of the offenders in the City; they would benefit greatly from that approach to their misdemeanours.
§ Mr. Smith
I stand corrected by the percipient hon. Gentleman. A long sharp shock is what is required for some of the offenders to stop them practising their trade to the detriment of fellow citizens.
If the Government are at last coming round to do something, belatedly and unenthusiastically, about prosecution of fraud in the City and the financial institutions, they are doing so because of mounting public concern and pressure and because they know that they cannot hold the line any longer. Like the Establishment in dealing with all radicalists, they will retreat in the face of the popular demand for something to be done. There is nothing like the enthusiasm which there should have been from any Government who are possessed with a real concern to bring fraud in the City to book. This legislation avoids some of the controversial matters which should have been tackled by the Government. The time for the Government to be bold has never been more ripe because of the changes to which the Secretary of State referred and which will occur on 27 October this year, the so-called "big bang".
The Secretary of State presented the arrangements that were made between his right hon. Friend the Member for Hertsmere (Mr. Parkinson) and the stock exchange as some carefully planned imaginative change for the future. It is nothing of the kind. It was a hastily cobbled deal to exclude the stock exchange from the restrictive trade practices court. It will bring about a series of changes that will alter the face of the City and which the authors of the agreement had not the slightest conception would occur when they entered into it. The character of the City will change fundamentally. Formal institutions will own stock exchange members; the previous divisions of the functions of the stock exchange will be obliterated. Inevitably there will be large international financial conglomerates. There will be organisations offering a complete range of financial services.
It is bound to be a period of change, a period of depersonalisation as institutions become conglomerates. The old boy system, in which people adhered to a code, cannot be maintained when these old boys are taken over by foreign financial interests. There will be new people, new systems. In these circumstances, the time was never more ripe for an independent commission which could tackle these mighty institutions and not have to depend upon some consensus among the petitioners. The 955 commission should be able impartially to enforce the law passed by Parliament and have the capacity and weight to take on the mightiest of the financial institutions.
§ Mr. Alan Howarth (Stratford-on-Avon)
The right hon. and learned Gentleman earlier mentioned that for ten years the Labour party has taken the view that there should be some statutory self-standing independent commission. Many I ask him why, when the Labour party was in government, it did not introduce such a system?
§ Mr. Smith
As the hon. Gentleman will probably remember, the last Labour Government of 1974 to 1979 did not have a working majority. That apart, the approach taken by my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) when he was Secretary of State for Prices and Consumer Protection and I was Secretary of State for Trade was that the stock exchange should be referred to the restrictive trades practices court. It was a perfectly sensible and intelligent policy.
The incoming Conservative Government after 1979, and Sir John Nott as Secretary of State for Trade, adhered to that decision. The Stock Exchange was knocking at the Secretary of State's door shortly after that election asking for that reference not to be made. He took the view that the Government should adhere to the Labour Government's policy. I and my right hon. Friend the Member for Sparkbrook were constantly asked by the Stock Exchange not to refer it. Now that the reference has been removed and we live in completely different circumstances as a result of the deal struck with the Stock Exchange, that argument which always had merit, is essential.
There has also been change with new technology, the speed with which money can be transferred, the internationalisation of decisions and a 24-hour market in every corner of the world. Trying in those circumstances to approach the formidable task of ensuring that the law is observed and administered when it involves some of the most powerful institutions in the world and there is only a ramshackle self-regulating orgainsation to do it is not satisfactory. We need a powerful and independent body. It should be the task of such a body to bring offenders to book. At the moment, all that happens is that reports are made by the police or other organisations and sent to the Director of Public Prosecutions.
It seems that a fairly relaxed view is taken about whether prosecutions should be made. Many factors are taken into account, such as the complexity of pursuing the offender and the length of trials. Rich people can influence the decision whether to prosecute by threatening that, if they are prosecuted, the authorities will have a long and complex task on their hands. The same is not true for social security claimants, who are got into court very smartly. The powerful and the rich, because they can complicate the process, can almost buy themselves immunity from the process of prosecution while having all the rights that the law confers on them.
I am all for simplifying the procedure, if possible, to ensure that we get specialist officers. It will not do any longer for a sergeant in the Metropolitan police to be given the task of bringing to book some of the most devious minds in society. In today's Britain, however, they are given a pretty free hand to make as much money as they 956 can. All these things can be done, and I hope will be done, but they would be strongly reinforced by an independent body with some clout.
With modernised markets and as a result of the "big bang", the case for an independent commission is overwhelming. One reason why the Government do not share that view is that they do not want such an effective institution as those who are to be regulated are, by and large, the Government's supporters. Such people are doing well at the moment. Industry has declined and unemployment has soared but the new rich have been created—people who manipulate money rather than produce goods. They have benefited from tax changes introduced by the Government and the near-elimination of capital taxation in successive Budgets. They have benefited from the special treatment afforded to high earners in Budget after Budget. They have benefited, too, from a society which admires prowess in making money. Such a culture is being fostered by the Government.
We have seen, however, that people who get rich quickly are not moderate about pursuing further riches. On the whole, the reaction to getting money easily is to try to get even more money even more easily. There is no doubt that the standards in some financial institutions have been affected by the climate that I have described, which has a great deal to do with the Government's economic and social approach.
The Bill provided a chance to do something effective. That chance has been missed. We shall do our best to improve the Bill, but I am sorry to say that an inauspicious start has been made.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
My right hon. and learned Friend the Secretary of State referred to our right hon. Friend the Member for Chingford (Mr. Tebbit). I echo what he said when wishing him well. I rang up this morning to find out how he had come through his operation. I am told that he has come through well and is making good progress.
The right hon. and learned Member for Monklands, East (Mr. Smith) talked rather more rubbish than we are accustomed to hearing from him. It is right to remember that Professor Gower was asked to make his report in 1981 and that Lord Roskill and his committee were established in 1983—before many people outside had heard of the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore). The suggestion that the Government have taken an interest in the problems of fraud only in response to public disquiet in the past few months scarcely bears examination. The right hon. and learned Member rather demeaned the character of the debate with his peroration in that regard.
I know that many others wish to speak so I shall confine my comments to the Bill, Lord Roskill and Lloyd's. I warmly welcome the main thrust of the Bill. My right hon. and learned Friend described it as practitioner-based regulation within a statutory framework. I listened to the Opposition spokesman carefully and I am still at a loss to understand what he hopes to achieve by setting everything in a framework which he describes as a statutory commission—a rigid statutory commission.
I suppose that it would be full state regulation run by people appointed by Ministers and under the detailed and continuing scrutiny of the House. That would be wrong. 957 The reasons are well stated in a recent speech by the chairman of the Stock Exchange who summed it up admirably thus:The statutory process is too slow to recognise abuse, too exact in its interpretation of permitted behaviour, and too slow in dealing with offences—if it gets round to doing it at all. If you do not believe me, look at what has happened to insider trading since it became a statutory offence or at the poor record of regulation of dealers in securities directly licensed by the DTI. Changes in the law, furthermore, take too long to be enacted.In my discussions with people in the United States who are accustomed to operating in markets there, it was made abundantly clear to me that, if they were starting afresh, they would go for a system precisely such as is in this Bill. They would not wish to repeat their mistakes and go for a full statutory system.
London has remarkable financial markets in which practitioners have shown great skill and a talent for innovation and flexibility that has served the country well. Markets need to be able to respond quickly to new needs, new technologies and a new climate. The regulatory system must be able to respond quickly as well.
I spent last weekend in a Group 2000 conference—an Anglo-Japanese group that was set up a couple of years ago by the Prime Ministers of the two countries. One of the subjects that we discussed concerned the differences in access to the financial markets in London and Tokyo. It was said that more than 40 Japanese banks have set up to do in London what they are not allowed to do in Tokyo because it is over-regulated. We urged upon them reciprocity, so that British financial institutions could go and take advantage of the business that is to be done in Tokyo; but the lesson was not lost on our Japanese friends that an over-regulated market is one which actually drives business overseas. If regulation is too rigid and heavy-handed, it fails to allow new businesses to develop and new products to be marketed and these will go to our competitors and not to ourselves.
Therefore, I support the main structure proposed by the Government—if I might so summarise it, supervised self-regulation. As the right hon. and learned Member for Monklands, East said, there is a mass of detail which will require careful scrutiny by both Houses. I think that this will be helped greatly by the document published before Christmas by the SIB entitled "Regulation of Investment Business—The New Framework". I make it very clear that I would support one board rather than two, together with the idea of combining the self-regulating organisations so that there are as few of them as possible to minimise what are obviously the complex problems of conglomerate businesses engaging in a series of separate markets. However, I hope that the extent of the direct regulation by the intermediary body, the SIB, will be as limited as possible and that every effort will be made to devolve the maximum authority to the self-regulating organisations to carry out the day-to-day running.
It is because the SIB has itself to provide for the possibility of it being the direct regulating authority that I think many of the details in that booklet have to be spelt out in great particularity. There is a danger that the intermediary body may itself be too prescriptive and seek to set too standardised a pattern when the very reason for the existence of the SROs is that they are dealing in widely differing markets serving widely differing patterns of investment and therefore needing different regulatory systems. I ask my hon. and learned Friend to say in reply whether even now it might not be possible to have a clearer 958 distinction between the role of the SIB as the supervisory, and authorising body and its role when it has to authorise traders direct—that is to say, its function as a regulator.
I wish to say a brief word about Roskill. I listened to the Home Secretary's statement this afternoon. I welcome very much the readiness with which the Government have taken swiftly on board the recommendations of what was by any standards a very powerful committee, which has made a formidable body of recommendations. Much has been done. The fraud investigation group is under way. We heard on Monday from my right hon. and learned Friend the Attorney-General that there are to be increased resources for the Director of Public Prosecutions. The Roskill report shows that a great deal more needs to be done. I simply say to the legal professions and perhaps to some of my right hon. and hon. Friends who are themselves lawyers, that I hope that the legal profession will show the same readiness to recognise the need for change in the legal system in the same way that the institutions in the City of London have recognised the need for change. I agree with the statement made in the leading article of The Times on 11 January:The public will not forgive the legal system if it obstructs the bulk of the reforms.I should perhaps say at this point that I am, although non-practising, a qualified lawyer and I have no City interest to declare.
In particular I support the proposal that complex fraud trials should be conducted by a judge in a special tribunal with assessors. I support the proposals for limiting the prescriptive right of challenge of jurors. The argument is a simple one. A clever financial fraudster—and some of these men are very clever—is not being tried by his peers if they consist of people who know nothing of finance or who lack the ability to grasp complex transactions. It may well be that the mass of repeated small frauds are successfully prosecuted, but the big ones are riot and that is not satisfactory. It is right that we should look to our procedures in the courts to make sure that we are successful in prosecuting and convicting fraudsters.
The enthusiasm of the Opposition to see more successful prosecutions for large complex frauds may be measured by their readiness to accept the recommendations of the Roskill committee.
I come to my third point, with which the right hon. and learned Member for Monklands, East also dealt—my concerns about clause 40 and the exclusion of Lloyd's. I am bound to tell my right hon. and learned Friend that this exclusion has caused me some unhappiness. I might add that it did not require the disreputable self-publicising activities of the hon. Member for Hackney, South and Shoreditch under the cloak of the privilege of this House to make us aware of the insurance scandals which have without doubt stained the record of an important and valuable institution.
Indeed, in so far as the hon. Gentleman has indiscriminately mixed well-established facts open to anyone who reads the records of the Lloyd's investigatory tribunals with a welter of personal smears and innuendoes, he may actually—as he has been warned by the City fraud squad—be making the activities of the fraud squad more difficult and the prosecutions which he claims to wish to see less easy to attain. The hon. Gentleman is no different from the sleazier end of the popular newspapers in recycling lurid court proceedings for the titillation of their audience. The only difference is that 959 those newspapers are subject to the laws of libel and slander to which the hon. Gentleman, who well understands these matters, has been very careful not to subject himself. It is, if I may say so, a measure of the changed character of the Labour party that some 40 or 50 of the hon. Gentleman's hon. Friends have joined him in his squalid political vendettas.
My anxieties stem from the other end of the scale, and a wish to restore and enhance the reputation of Lloyd's. It is a hugely important part of our invisible earnings—a huge earner of foreign currency. Moreover, at a time when world capacity for general insurance seems to be shrinking, Lloyd's stands out as able and willing to accept growing volumes of business. Indeed, the chairman of Lloyd's told me only a few days ago that it looks as if the amount of business that will be able to be done in 1986 will be no less than 20 per cent. up on that which could be done last year.
I start from the proposition: when all the rest of the financial services are to be subject to a new regulatory regime of supervised self-regulation, why should Lloyd's be an exception? To this a number of answers are given. First, it is said that Lloyd's runs an insurance business and the new regulatory system concerns investment business; any investment management is clearly incidental—indeed, an intrinsic part of the business of insurance. Technically, of course, that is right, but if one talks to any members of any of the syndicates that have suffered in many cases grievous loss as the result of mismanagment of their affairs by the underwriting agents, I think that they would find that argument difficult to accept. I find it interesting that it is an argument on which not many of those active in Lloyd's place much weight. When people enter a syndicate as names, they are making an investment because they see it as a profitable way to invest their assets and they are prepared to accept the risks. They are as entitled to equivalence of protection as any other investors. I think that is the argument. I do not attach much weight to it.
Another argument advanced by my right hon. Friend, which has much more substance, is that Lloyd's now has its own tailor-made regulating system under the Lloyd's Act 1982. That is quite right, and it is also right to put it on record that all the well-publicised scandals happened before that Act was implemented. It is also right—I hope that people outside the House will note this—to give credit to Lloyd's for what has been done since that Act was passed. A great deal has been done, such as divestment by brokers of ownership of managing agents; a new system of investigation and discipline, which has already dealt with many past offenders; new rules for publishing annual financial reports by underwriting agents; and as important as anything else, new rules and a code of practice covering conflicts of interest, thereby ending the damaging practice of so-called baby syndicates.
All that is already in place, and so it will be with other self-regulating organisations. Therefore, I do not necessarily take that as a conclusive answer.
It is also said that, in effect, Lloyd's is already supervised. There are eight external members of council elected by names, and three members nominated by the Governor of the Bank. In addition, there is the independent 960 chief executive who is also a member of council and deputy chairman. All that is quite true and is a great improvement on what went before.
But will not many other self-regulating organisations have external members and distinguished outsiders? Lloyd's might argue that the three nominated members—Sir Kenneth Berrill, Mr. Walker Arnott and Mr. Brandon Gough—might come to see their function as entirely otiose and worthless if Lloyd's was subject to the general supervision of the SIB. I cannot speak for those gentlemen and have not consulted them, but I doubt whether that is so. As I have said, we want to see the maximum devolution of the regulatory function to the self-regulating organisations, and all SROs will want to ensure that they are fully qualified and capable of earning the respect and trust of those whose affairs they will regulate. Therefore, that is not a argument to which I attach much importance.
None of those arguments necessarily rules out extending the system to cover Lloyd's, but I agree that they are not conclusive. It was against that background that we had the announcement, with six months' notice, of the resignation of Ian Hay Davison, a man of unimpeachable integrity and ability, whom I have known well for more than a quarter of a century. I think I can accurately summarise his reasons for tendering his resignation. He felt that his independence—essential for the proper conduct of his functions—was being compromised by the relationship that appeared to be developing with the chairman and council of Lloyd's, and that he could not continue to perform his crucial task as an independent chief executive as effectively as had been intended when the then Governor of the Bank persuaded the previous chairman of Lloyd's to appoint him. Much has been said and written about this event, and I have the advantage of having had long and separate discussions both with Mr. Davison and with Mr. Peter Miller, the present chairman.
My conclusion—I put this forward simply as my own view—is that the episode is symptomatic of a continuing division of view within the underwriting community at Lloyd's about just how far they are prepared to let the rules be drawn up and administered with the benefit of continuing expert and independent outside guidance. People in Lloyd's obviously want to see Lloyd's above reproach, while retaining the advantage of a market unique in its skills, enterprise and flexibility. That is a wholly laudable ambition which requires the support of this House, and is similar to the way in which all men of integrity in oher markets are ready to be supported by the device of external supervision.
I would go further: I know for a fact that some in Lloyd's would welcome external supervision as demonstrating their determination to be seen to be concerned to put their house in order. Ultimately that is what this is all about, and that brings me back to the Government's role because there is a political dimension.
Ministers have rightly said a great deal—and it has been welcome—to demonstrate their commitment to securing the highest standards of integrity in our business life. We cannot have it said, however unfairly, that those who cheat the welfare state or the Inland Revenue must be pursued with full rigour but that those who cheat in business may be subject to a less rigorous regime. It would reinforce the Government's determination to rebut this 961 criticism if they were to accept in principle that the system of supervised practitioner regulation should be extended to Lloyd's
My right hon. Friend has announced an inquiry under a distinguished chairman, whom I have also known for many years, and that will no doubt help to clarify the issues. But in the last resort that cannot alter the political need for the Government to be seen to be doing everything they can to restore confidence in the integrity of our financial markets. I accept that this Bill may not be the right vehicle to amend the Lloyd's Act, but I am quite clear that the extension of external supervision to Lloyd's will have to be done sooner or later. I wish to leave Ministers in no doubt that that is my view.
§ Mr. Paddy Ashdown (Yeovil)
I listened with care to the speech of the right hon. Member for Wanstead and Woodford (Mr. Jenkin) and agree with a number of the points that he made. In particular, the right hon. Gentleman made a compelling and powerful case in relation to Lloyd's
The City—Britain's financial services industry—is a major source of foreign currency earnings, the supplier of finance for our industry—a fact that is all too frequently overlooked—and the place to which individual investors entrust their savings. However, it has recently had its reputation damaged with talk of an infestation of corruption and shady dealings.
Unlike some hon. Members, I do not say that everyone in the City and the City itself is bent, nor will the alliance, like the Labour party, succumb to the temptation of a blanket condemnation of the whole of the City as a wicked capitalist institution—[Interruption.] The hon. Member for Dagenham (Mr. Gould) may object, but I suspect that the whole of the Labour party is not together on this matter, and many members of the Labour party use that rhetoric.
What cannot be doubted is that there is now so much serious concern about crooked dealing in the financial institutions of the City of London that the City's own greatest invisible asset—its reputation and probity—is being undermined. Proper protection for investors, particularly after deregulation—the so-called "big bang"—will enhance rather than diminish the City's primacy and reputation. It will also make it possible for those who will seek to use the City after the big bang to do so with confidence.
But as the right hon. Member for Wanstead and Woodford said, a balance must be struck. On the one hand, the investor must be protected, but on the other, those within the industry must also have a framework within which they can operate efficiently. If regulations are too onerous for potential investors, users of the City of London will simply go elsewhere, and Britain will have lost one of its primary industrial assets and a great source of wealth.
We therefore believe that it is right to combine statutory regulation with self-regulation, as generally outlined in the Bill. Frankly, it would be wrong simply to set up a parallel to the Securities and Exchange Commission in the United States. Such an institution, which appears from the amendment to be what the Labour party wants, would provide a field day for lawyers in that there would always be a squabble about the letter of the law instead of the spirit of the law being enacted. We are in favour of regulation 962 that permits partnership in a framework of statutory power and policing by experienced practitioners. The statutory framework proposed by the Government is too weak arid in some areas seriously deficient.
Lloyd's has been referred to by several hon. Members, in particular the right hon. Member for Wanstead and Woodford, with many of whose comments I agree substantially. As a first reaction our view is that Lloyd's should be brought within the scope of the legislation. These are complex matters and we do not have a closed mind on them. [Interruption.] Labour Members might like to listen. We are concerned to ensure that something is done about Lloyd's but not to ensure that the purely political rhetoric of the Labour party has primacy. The Under-Secretary of State may enlighten us when he is replying to the debate. There appear to be powers in clause 2 to encompass Lloyd's if that is required. An alternative may be to amend the Lloyd's Act 1982 or to choose another mechanism for cleaning up Lloyd's of London.
We cannot accept complacency over the matter. We do not accept that all is well now as a result of the Insurance Companies Act 1982. The PCW scandal and others occurred before that Act was in place but there is evidence that the PCW scandal was merely the tip of the iceberg and that there are still areas of Lloyd's that cause concern. We do not have to indulge in some of the hyperbole that has been obvious to recognise that. The fact and the manner of the recent removal of the chief executive of Lloyd's, Mr. Hay Davison, give special cause for worry and do not enhance Lloyd's tarnished reputation.
We are prepared to listen to the Government's arguments on what to do about Lloyd's. As some have said, there might be a problem in the Bill over hybridity if Lloyd's were brought within its scope. The Securities and Investments Board, as envisaged, would not have enough power to cope with Lloyd's. Our initial belief is that Lloyd's should be drawn within the scope of the Bill, but we are prepared to judge that issue on its merits and as a result of the forthcoming inquiry, provided that inquiry is not used by the Government, as so often in the past, simply to shelve the matter.
However, we are not prepared to sit idly by and do nothing while the reputation of Lloyd's continues to suffer from rumours of scandal and malpractice. [Interruption.] We hear wonderful comments from Labour Members who clearly are driven more by ideology than by good sense. They seem to believe that they are elected to the House of Commons simply to take the dogma out of the last party manifesto instead of using their brains to come to a sensible conclusion about what might be done.
§ Mr. John Smith
The amusement on the Labour Benches has been caused by the recollection that the leader of the Liberal party only a few weeks ago called for an independent statutory commission such as I have been advocating. Was that his first reaction or is it the policy of the Liberal party?
§ Mr. Ashdown
I should like to know exactly what the right hon. and learned Gentleman means by the phrase which he keeps using, independent statutory commission. What we are proposing, as is clear from our amendment, is a commission which would indeed by publicly funded; that would make it independent in all senses of the word. We are talking about a commission which should be independent in precisely those terms but would 963 nevertheless be able to combine statutory and self-regulatory powers. What is wrong about that? When the Labour party spokesman sums up, perhaps he will enlighten us. What does the right hon. and learned Gentleman mean by the all-embracing and simplistic phrase, an independent statutory commission? What does that mean in detail?
§ Mr. Nicholas Baker
Perhaps I could help the hon. Gentleman. I declare an interest in that I am a lawyer. It seems that the spokesman for the Labour party wants a Securities and Exchange Commission on the American lines because he wants to promote work for lawyers. That is one of his aims. The other, more serious and worse aspect of the motivation of the Labour party, is to knock, as it does frequently, an institution whose overseas earnings in 1984 were £564 million. That is what the Labour party is up to. The hon. Gentleman might take that on board.
§ Mr. Ashdown
I take that point on board but in the interests of time I shall move on to other points.
In respect of auditors, we wish to see a specific duty laid down within the Bill for auditors to report frauds which they discover in the course of audit. We accept that that would change the nature of auditors' responsibility. However, it needs to be accepted that auditors could and should be a key line of defence against corruption and that they simply cannot in the modern world continue to place themselves in an ivory tower where their only responsibility is to the firm which employs them.
The SIB should have a duty to draw up criteria for membership of, approve and amend rules for, and arbitrate in demarcation disputes between, self-regulating organisations. The SIB should have a reserve power to order an SRO to carry out its instructions. It, is interesting and contrary to the arguments put forward by the Secretary of State that Sir Kenneth Berrill, the head of the SIB, seems to take the same view—in other words, the onus should be on the SIB to act independently and others should seek redress if the law has been overturned.
The statutes of each SRO should set out a clear line of responsibility for imposing rules of conduct. There will be a real problem within SROs with cross-membership and lines of demarcation. We need to know who is responsible for what, and where the responsibility lies. In passing, as was also mentioned by the right hon. Member for Wanstead and Woodford, there could be a significant danger in allowing too many SROs to exist. A careful eye will have to be kept on that.
We wish to see assurances that there will be a strong lay element in the managing bodies of the regulatory authority and the SROs. The appointment and removal of all SIB board members, who should be full-time, and appointments to the chairs of SROs, should be made by the Secretary of State for Trade and Industry and should be subject to parliamentary scrutiny.
Those are realistic and significant proposals for strengthening the statutory framework within which the City of London can put its house in order. We are prepared to see the statutory framework tightened further if the City is unable to ensure that the self-regulatory element is properly enforced and effective.
As to enforcement and prosecution, the resources allocated by the Bill to investigating and prosecuting fraud 964 are wholly inadequate and will remain inadequate even with the additional resources announced by the Secretary of State on 10 January. Hitherto the failure of enforcement has been notorious in quantity, quality and attitude. The quantity of enforcement is a function of the resources which the Government must commit. That has been touched on by other right hon. and hon. Members. In regard to attitude, no system of regulation will work unless the City wants it to and makes it work. That is why we support a degree of self-regulation.
Achieving the necessary quality of enforcement will not be easy. That is why wiser heads in the City see clearly that unless the brightest and best professionals are working in enforcement, it will not succeed. Indeed, second-rate enforcement paradoxically encourages the wide boys. Therefore, we urge the Government strongly to accept that the enforcement arrangements should satisfy some key criteria. First, enforcement and prosecution functions should be separate although they should liaise closely. Secondly, we are opposed to an enforcement agency which is part of the Department of Trade and Industry because we are unimpressed with the Department's record in policing the City. That should be the exclusive responsibility of a separate enforcement arm of the SIB. The enforcement function should be conducted by experienced practitioners in the City. Service of that nature should be seen as an enhancement to a general City career.
Thirdly, prosecution should be handled by a special unit of the independent service with exclusive responsibility in the same area. Finally, in so far as the police are necessarily involved in some matters because of their special statutory powers, the City fraud squad should be retained but should be considerably enhanced. As with all other aspects of the Bill, there will be boundary problems, but bestowing exclusive powers in respect of the City on this triumvirate of special units offers the only chance of that success in enforcement without which the rest of the Bill is so much hot air.
These regulations should be seen at best as putting the City on probation. If they prove inadequate for the protection of individual investors following deregulation, they will have to be reviewed and strengthened. The Bill proposes a system primarily balanced towards practitioner regulation. It may be that, in the light of developments, we move further and further towards transaction regulation. Review and subsequent adaptation are vital. I note that there is a provision for review in clause 99. In our view, the reports rendered under this clause should be subject to annual parliamentary debate.
It is possible to welcome the fact that the Government have brought before us a Bill to reform the City of London, but it is not possible to welcome the Bill as the instrument of that intention. It is inadequate to the great task that it purports to set itself. The City is a vital institution. We have no wish to see it destroyed or so emasculated that it cannot continue to perform its vital function for Britain. We have no wish to see the City hogtied with the sort of regulations that seem to be proposed by the Labour party's amendment. Nor do we accept the apparent complacency contained in the Government's proposals. We shall vote against the Bill tonight to show our view of the inadequacy of the Bill as presented. However, if, as I imagine, the Bill goes through, we shall have to fight to see that the reforms that I have advocated tonight are incorporated into the Bill in its final form.
§ Mr. Speaker
Order. Before I call any more hon. Members to speak, I point out that I have a long list of hon. Members who wish to take part in the debate. I have no authority to limit speeches to 10 minutes, but I hope that hon. Members will bear in mind that such a limit on speeches would be helpful to their colleagues.
§ Mr. Alex Fletcher (Edinburgh, Central)
I listened carefully to the speech made by the hon. Member for Yeovil (Mr. Ashdown), which I think showed the impact of the new alliance politics in Britain, because if I understood correctly, the hon. Gentleman seemed half to accept the Bill. No doubt, in an hour or so's time, his colleague in the SDP will half reject the Bill and then we shall have some idea of what conclusions to draw from their joint speeches.
I congratulate Ministers in the Department of Trade and Industry on the way in which they have presented the Bill to the House. As the House knows, my right hon. Friend the Member for Chingford (Mr. Tebbit) worked hard on the White Paper during his stay in hospital. Unfortunately, he is again in hospital as we debate the Second Reading. I know that he will appreciate the wishes of the House, and the remarks of my right hon. and learned Friend the Secretary of State in opening the debate.
I am completely unbiased—I think that this is a splendid Bill. I shall make two comments about its content. One issue that has come up in every speech, not least in that of the right hon. and learned Member for Monklands, East (Mr. Smith) is why there is not an SEC. Another issue, which has also been mentioned by all speakers so far, is the importance of the enforcement powers in the Bill.
The critics of the Government's proposals opt for some kind of independent statutory commission, SEC or whatever, and this is seen in the Opposition's amendment. However, this has more to do with familiarity with a Government-type commission in these circumstances than with a rejection of the statute-backed self-regulation proposed by the Bill.
Many of us are familiar with the SEC in the United States and similar organisations in Canada, Australia and elsewhere. We are also aware that most EEC countries have heavy governmental control in investment business and insurance. Therefore, it seems to me that the reflex reaction in a debate such as this is to opt for something of the same sort—a a Government-controlled commission. However, our needs are different. The United States, Canada and Australia all have federal structures. Therefore, in the case of the United States, Washington needs an agency to apply federal rules and regulations throughout the country. We have no such problem so on that count alone we are different and need to examine the situation differently.
Government regulation in Europe has stifled the development of financial services, not just internally but in the development of financial services throughout the Community. We do not wish to go down that road. Our need is for a system of regulation that builds upon the best that we have at present, and the stock exchange is an excellent example of self-regulation. We have to make the best comprehensive so that it covers all investment business.
966 It is important, the Bill proposes, that the United Kingdom is subject to a high standard of regulation or, as I would use the term, investor protection. The Bill demonstrates how this can be done without a Government-type statutory body. In explaining the particular system that the Bill proposes, our biggest difficulty is in the use of the words "self-regulation" as if compliance with the new laws and the rules that will stem from them were voluntary.
The Bill makes it abundantly clear that this is not a "take it or leave it" voluntary system. On the contrary, all investment business will have to be authorised by a recognised regulatory body. Therefore, regulation or investor protection in the United Kingdom will be just as compulsory and comprehensive as elsewhere. Perhaps the major benefit of the Bill is that it proposes a system that will be more flexible and therefore more responsive to the needs of fast-changing domestic and international markets—much more flexible and responsive than any type of statutory commission. Therefore, the new regulatory system proposed in the Bill will form a new first line of defence against fraud and malpractice.
I say this because, for the first time, we shall have legislation that requires all investment businesses to be authorised by licence, and because I expect the Securities and Investment Board to introduce stiff audit requirements as part of the fraud prevention process. As a result, the detection of fraud should be enhanced and remedial action should be more immediate. Similarly, complaints from investors should be dealt with more effectively than at present.
It is important to remember that these steps will be entirely additional to the powers that the Government already have at their disposal to deal with fraud or suspected fraud—for example, the powers under the Companies Acts available to the Department of Trade and Industry to appoint inspectors to wind up companies. What matters here—by a happy coincidence, this has already been touched on today by the statement on the Roskill committee—is that the resources available to the Department should also be enhanced to match the powers available in the new regulatory system.
As my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) pointed out, the Government have already taken a number of steps in this direction, such as the Roskill committee, looking at the receivers in court cases, the rules of evidence in jury trials and so on, which is all part of the process of dragging the legal profession into the latter half of the 20th century.
My right hon. Friend also spoke of Lloyd's. The Government have put a sensible proposition to the House. It is correct to say that the Bill is not suitable for amending the Lloyd's Act. I have been critical of Lloyd's over the past few years, but we need to give it more time—the Government say Lloyd's should have until the end of this year—to satisfy the Government as well as public opinion that it is putting its house in order. To back that up the Government have announced the setting up of an inquiry. That is the correct preliminary step for any legislation that might be necessary in the next Session of Parliament.
§ Mr. Cash
I hope that my hon. Friend will also accept that clause 43 empowers the Secretary of State to remove Lloyd's exemption, so that if, after the inquiry he has now 967 announced, he was not satisfied, he would be able to take the exemption away from Lloyd's anyway. That answers all the points that have been made.
§ Mr. Fletcher
Another process in the steps that the Government have taken is the passing of the new insolvency legislation that puts greater duties and responsibility on directors. That includes the directors of financial services companies.
In the matter of staff resources the Government need more properly trained and experienced in-house staff to make the enforcement powers work for example, in the Solicitor-General's Office, the Department of Trade and Industry, the company investigation branch and the insolvency services. I welcome the Roskill recommendations and the Home Secretary's statement this afternoon. It is not enough to agree to additional staff numbers. The Treasury must permit the salaries offered to the staff to reflect the market value of the qualified and experienced people that are needed if the Government's attack on serious financial fraud is to succeed.
The Home Secretary referred to the Roskill recommendations for a unified command of fraud investigation. He said that it was being pursued by the Chief Secretary. My right hon. and learned Friend the Secretary of State will know that the last time that that was pursued within Government the Departments failed to agree which of them should be in command of a unified fraud organisation. I hope that in view of the firm recommendations of Lord Roskill the Prime Minister will determine which Minister, and therefore which Department, should take command of a unified structure. Clearly, Roskill has confirmed that, although the fraud investigation group is only a year old, the present split command is inadequate and requires urgent reconsideration at the highest level.
I support the suggestion to engage experienced professional people on short service engagements. They could be lawyers and accountants in their fifties who are approaching retirement or who can retire early who have had experience of audit work. I am not speaking for myself. My hon. Friend the Member for Kingswood (Mr. Hayward) is looking at me quizzically. I am not retiring yet. Certainly, there are people with that type of experience who could do an invaluable job in helping to investigate fraud. I think that it is a good idea to offer those short service engagements to those who might need them in the future.
It is important to remember that the Bill is not an emergency measure that has been brought before the House because of stories about alleged fraud at Lloyd's or Johnson Matthey Bankers or elsewhere. As my right hon. Friend the Secretary of State said, the origins of the Bill go back to July 1981 when the then Secretary of State asked Professor Gower to undertake a review of investment protection. That excellent report was published in January 1984 and led to the January 1985 White Paper which was a follow-up to the July 1983 decision to remove the barriers to competition in the financial sector. The right hon. and learned Member for Monklands, East (Mr. Smith), who opened the debate for the Opposition, referred to the chummy agreement made between my right hon. Friend the Member for Hertsmere (Mr. Parkinson) and the stock exchange. That was a view that some people 968 held then. For all I know, the stock exchange held that view. I know that now the stock exchange, among others, realises that there has been a strong blast of competition through all of the City institutions. The Bill has not been prepared in a rush to meet a crisis. It is a more positive measure than recent comments might suggest. It is aimed at giving investors, at home and abroad, even greater confidence in the United Kingdom as a place in which to do investment business. It is aimed at encouraging wider share ownership and bringing share ownership opportunities to every high street in the country. It is aimed at imposing share shops and generally removing much of the mysticism surrounding personal investment. In other words, it is aimed at enhancing and expanding the financial services sector of our economy. I believe that in the Bill the Government are demonstrating their commitment to a proper and comprehensive system of investor protection. The financial sector in the City and elsewhere in the country must make an equally firm commitment if top quality people and financial resources are to be available to ensure the success of the new system. It is only a partnership of Government and industry that can ensure the success of the legislation.
I am glad that Ministers have made it clear—the Secretary of State said so again today—that, while sticking to the principles surrounding the Bill, they will take a constructive view of the opinions of others. With the best will in the world a Bill is inevitably a different animal from a White Paper and many ideas will flow from the City and elsewhere to members of the Committee. I am glad that the Government will be constructive in listening to any proposals that may be made. There are many important details to be discussed in the Bill and all that I can do is wish it every success in Committee.
§ Mr. Brian Sedgemore (Hackney, South and Shoreditch)
I will begin by ignoring the inelegant personal abuse of the right hon. Member for Wanstead and Woodford (Mr. Jenkin). The answer to that lies in the 800 or so letters and the 50 Christmas cards that I received backing me in the campaign to clear up fraud. The card that I liked most was sent to me by Mr. Peter Middleton who is the permanent secretary of the Treasury. It is a picture of Siena in Tuscany. I believe that Peter Middleton must have known that when I went on my Florentine holiday in the summer of 1985 I was going to spend some time in Siena looking at the banking practices of the Medici in order to compare them with those of the current Bank of England.
The only point that I want to concentrate on is the exclusion of Lloyd's from the Bill. I wish to argue that Lloyd's should be brought within the ambit of the Bill. There are two reasons for that. I believe that the evidence that Lloyd's is prepared to cover up for top people cannot be disputed, and I believe that there are too many people at Lloyd's who do not accept the rule of law. I know that some Conservative Members prefer a general philosophical debate to hard fact, but they will have to listen to a few hard facts. The matter of covering up for top people is important in any society or organisation.
I put down some early-day motions criticising Sir Peter Green, the former chairman of Lloyd's. He responded, as he is entitled to, on Thursday 9 January. His response has caused consternation at Lloyd's because it is unusual for a defendant to point a pistol at his own head, pull the 969 trigger and blow his brains out. I do not believe that special treatment should be given to Sir Peter Green, and I am therefore calling on Lloyd's to help the House to decide whether it should be brought within the Bill to answer the charges that arise out of his defence. He says that I have been unfair in my criticism of the way in which the Imperial reinsurance scheme works. Members of the House will know that Imperial reinsurance is a non-risk reinsurance policy and that it is a banking policy designed to evade exchange control and avoid taxation.
In the light of that I was astonished to read this sentence from Sir Peter Green, as were many people at Lloyd's to whom I have spoken subsequently.We were advised by the brokers that such terms were at least as good and in some cases better than any other similar cover available in the Market. In the circumstances, Imperial was entitled to the interest it retained.I invite any right hon. or hon. Member to intervene if he wishes. The purport of that statement is that it was open to the directors of Imperial, including the past chairman of Lloyd's to steal the interest on the money in Imperial. That was the basis of one of the charges against Ian Posgate, and of one of the charges in the Brooks and Dooley case, and it is the basis of one of the charges being examined in the Bellew Parry Raven case. It is extraordinary that the chairman now admits to what is effectively theft, and, by my calculations, that theft involves over £3 million.
Lloyd's should make a statement tomorrow on why it has been several years before charges have been brought. Lloyd's should say that it is about to charge Sir Peter Green with theft in relation to the Imperial policy and the interest, with a breach of fiduciary duty and with a conflict of interests. If Lloyd's does not do that, it should give us a public explanation. Is it because there has been an agreement to protect the top person at Lloyd's? That would be scandalous, and every Conservative Member would agree if that were so.
Secondly, Sir Peter Green makes the extraordinary statement: "I have paid the tax, or at least the tax which I have not paid, I am about to pay." However, in the statement he does not say why the chairman of Lloyd's had discussions with two Governors of the Bank of England—Lord Richardson and Robin Leigh-Pemberton—and why eventually he was told that he should step down at the first available opportunity. He has not told the people what the settlement was that he eventually reached with the Inland Revenue about the non-payment of tax and whether it involved hundreds of thousands of pounds or—I use my words advisedly—millions of pounds.
The way in which Sir Peter Green covered for Peter Cameron-Webb over the Unimar scandal and the way in which Lloyd's has carried out no proper investigation into that scandal—I know about the Tuckey inquiry—bodes ill for self-regulation at Lloyd's
There is only one basic question that should have been asked about Unimar. Did Sir Peter Green try to find out who the beneficial owner of Unimar was? If he did, he was dishonest in not revealing it to the names. If he did not try to find out, he was grotesquely negligent in his inquiry and never intended to reach a successful conclusion.
I am told that in that inquiry by Sir Peter Green, he had access to all the papers and asked all the right questions. If he had access to all the papers, he had access to the papers that I have in my possession—for example, the 970 letter from Mr. Banyard to Mr. D'Ambrumenil, dated 5 December 1978. Whether Sir Peter Green read it is another matter. The letter said:I have prepared all the documentation in respect of the P. Cameron-Webb Whole A/C Q S Treaty for the 1st half of 1978 … I disagree that they should be issued and will not add my name to them as I am not satisfied that there is not some element of non-disclosure or misrepresentation in the placing of the Treaty.Furthermore, by giving the 10 per cent. overrider to Unimar the members of the Syndicate will lose this income which amounts to approximately £200,000. It also appears unrealistic to expect £200,000 net profit to the Syndicate under such an arrangement as, taking an average profit on Treaty business at 5 per cent., this would call for a Gross Premium Income to the Syndicate of £4,000,000.I have no intention of resigning either from Seascope or the Syndicate as I feel fully justified in my refusal to administer this account until such time as it is put right and handled in a proper professional manner.Mr. Tucker and Mr. Cole join me in those views and so I believe do Mr. Tobin and Mr. Proctor. Mr. Cole and I could not authorise any of the staff in our Department to process this Treaty in the way suggested by Unimar.If Sir Peter Green had the access to all the papers that he said he had, he had access to the letter from Mr. Tucker on the day he resigned from Seascope, the company that administered the scheme, dated 30 August 1979 He wrote:If it is perfectly legal, why does not Cameron-Webb himself pay the commission (it will probably be in excess of £400,000 by early next year to this Monte Carlo Company). If it is perfectly legal why does Mr. D'Ambrumenil refuse to obtain Bank of England permission and that of the Committee of Lloyd's as I have repeatedly requested?If Sir Peter Green had access to all the papers, he had access to this letter from Mr. Tucker to Mr. D'Ambrumenil dated 17 September 1979:As you know I have been very concerned about the payrnents made on your instructions to Unimar in Monte Carlo … I was told that the Company's lawyers, Morton, Rose, Botterell and Roche, had advised on the matter and that I could see the advice but, in fact, this has been subsequently refused.If Sir Peter Green had the access to all the papers that he said he had, he had access to this memorandum from Mr. Tucker, a director of Unimar, in which he said:The Treaty was placed on the terms of the Treaty as set out in the papers, notably a 10 per cent. overrider and 2.5 per cent. brokerage. Later I was informed that out brokerage was to be halved and given to a broker called Unimar in Monte Carlo. This was unusual firstly because I had never heard of the company—subsequently I found out that Unimar did not exist prior to the Treaty placement. Secondly, the request came from Cameron-Webb, bearing in mind Lloyd's Underwriters are expressly forbidden to deal with anyone except a Lloyd's broker. Thirdly, no check was made on Unimar and no information given, which was abnormal.At the next Executive meeting I maintained that the Unimar payments were illegal and required Bank of England approval, and even if this was forthcoming, I doubted that the Lloyd's Committee would agree. Privately this latter point had been confirmed to me … I refused therefore to handle the Cameron-Webb Treaty and informed the Board that I was advising the staff in my division to have nothing to do with it.Perhaps Sir Peter Green was influenced by the letter, dated 24 June 1982, from Peter Cameron-Webb and Peter Dixon, who are spending the proceeds of their ill-gotten gains in foreign countries. It admits that the contract and the treaty never expressed the intention of the parties. It claims that they tried to rectify the terms of the contract and the treaty in 1979 but somehow everyone forgot and it was rectified only in May 1982. The letter goes on to assure Sir Peter Green that the contract and the treaty were always honestly administered.
971 Could anyone conduct an inquiry with such background and with such documents, and simply present an oral, not written, report to the Lloyd's committee: "I am satisfied that everything was all right"? At least there must be a prima facie doubt in the person's mind. It is outrageous that Lloyd's has carried out no inquiry into that.
§ Sir Peter Tapsell (East Lindsey)
In the past, has the hon. Gentleman submitted all the documents that he has just read to the House to the Director of Public Prosecutions? If not, the speech that he is now making will make it extremely difficult to bring anybody to trial.
§ Mr. Sedgemore
The point about the Director of Public Prosecutions is that he will want the papers from the Lloyd's inquiry, which has not been held, to process the matter. Whether he will process it quickly, I do not know. The answer is that, as far as I know, he does not have those documents, but I cannot be certain about that.
In an early-day motion, I also asked that the relationship between Janson Green and Cresvale Securities be examined. In Sir Peter Green's defence, there is a document which he supplied, from Mr. Valentine, who is connected with Cresvale Securities. He says that there has been an inquiry into Cresvale Securities and Janson Green. It was undertaken by Lloyd's, the Department of Trade and Industry and the Bank of England. This information was given last Thursday. That is astonishing.
I telephoned Lloyd's and I have also spoken to those who are advising me on these issues. I did not find a single person at Lloyd's who had heard about any of these inquiries. If Lloyd's has conducted an inquiry, what were its terms of reference, when did the inquiry take place, who carried it out, what were the results of the inquiry and where is the report? Similar questions must be asked of the Bank of England. I am sure that the Under-Secretary of State for Trade and Industry will be able to tell us whether the Department of Trade and Industry has carried out an inquiry.
However, my point is this: is it possible in this day and age for three major institutions to carry out an inquiry, but for nobody—I do not know whether any Conservative Members know anything about these inquiries—to know about its existence? Is Mr. Valentine's information false? I believe I am entitled to say to the House that there has not been a proper investigation of the ex-chairman of Lloyd's. Is that the climate which still exists at Lloyd's? Mr. Peter Miller went to the City forum, which I addressed recently, and said that nobody would get an amnesty and that there would be no cover-up. That suggests that there should be outside regulation.
My last point relates to Lloyd's not liking the rule of law. This is a very important point. A number of people said that they believed that they were defrauded by managing agents at Lloyd's. Whether or not they were defrauded is another matter, upon which they can go to law. However, they said that they believed that they were defrauded and they decided to take legal action. When they decided to take legal action, they also decided to 972 change their syndicate. However, when they tried to change their syndicate they could not get into another one. The only reason given for the refusal was that they were taking legal action against their previous syndicate. That is an abuse of the rule of law. Every citizen of this country has the right to go to the courts to try to establish legitimate, legal redress.
When I told people about this they said, "Well, Mr. Sedgemore, you are not telling us anything new. That is widespread at Lloyd's." I am horrified to find that Mr. David Coleridge, who only recently relinquished the post of deputy vice-chairman at Lloyd's, wrote a letter dated 2 June 1983 to a person who has decided to exercise his legal rights according to the laws of England, in which he said:However, my dislike of taking any transfer name, who is contemplating litigation with his former Underwriting Agent still remains. I think I ought to tell you also that Three Quays Underwriting Management Limited, (the Underwriting Agency for Non-Marine Syndicate 190—Dick Hazell) has informed us that they would not accept you on their Syndicate through our Agency if you do decide to transfer.I am told that there are countless—no, not countless, that is an exaggeration, but many—examples of that happening at Lloyd's. If Lloyd's is not prepared to accept the rule of law and to act without fear or favour in relation to top people, that is surely the most powerful argument one can provide for bringing Lloyd's within the ambit of the Bill.
§ Sir William Clark (Croydon, South)
Despite your plea, Mr. Speaker, we have listened to a 17 or 18-minute speech from the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) which had very little to do with the Second Reading of the Financial Services Bill. He used those 17 or 18 minutes to continue his sordid, scurrilous attack upon people in the City, although he is absolutely scared stiff to make those allegations outside the House. He is abusing parliamentary privilege. The only comfort that we can draw from this is that even hon. Members of his own party do not agree with him. [HON. MEMBERS: "Name them."]
I welcome the Bill. It proves that the Government have taken the initiative. I pay tribute to my hon. Friend the Member for Edinburgh, Central (Mr. Fletcher) who did much of the work on the Bill. However, we should be careful not to provide too much regulation. As my right hon. and learned Friend the Secretary of State for Trade and Industry has already said, the City is an extremely important part of our economy. It represents about £6 billion of invisible earnings. The City also provides jobs for 2 million people. We must treasure this.
However, the Government were absolutely right to introduce the Bill. It provides my right hon. and learned Friend the Secretary of State for Trade and Industry with many powers which he can delegate to the boards. The Securities and Investments Board and the self-regulatory organisations will contain outside members. We must make certain that the SROs and the SIB are absolutely independent and that they do not consist only of members of a particular industry. Any future action that is taken must be swift. In the past there was delay in initiating action on fraud. However, the key factor relating to the SIB is that it should be provided with sufficient teeth to discover whether or not fraud has taken place. It is right to leave it to the professionals to run the SIB provided that 973 lay persons serve on it, too. The right hon. and learned Member for Monklands, East (Mr. Smith) said that the Labour party has been committed for 10 years to the establishment of a statutory board. Why the Opposition did not establish such a board when they were in office I do not know. If they had felt so strongly that a statutory board was needed, they could have established one.
We must, however, make absolutely certain that no member of the SIB or the SROs can be sued for libel or slander when they carry out investigations of firms or companies. The members of the council of the stock exchange are indemnified from legal action. I understand that the SIB has provided itself with such an indemnity, but the SROs will be doing the work. They will discover whether or not there has been fraud. They must therefore be provided with a similar indemnity; otherwise it will be very difficult to persuade laymen to serve upon them. That applies in particular to the international SRO.
I have to declare two interests. I am a consultant to the Life Insurances Association and to the Commercial Union. My right hon. and learned Friend the Secretary of State for Trade and Industry referred to licensing. I believe that there should be a licensing system for salesmen of life assurance, whether it be straight life assurance or whether it be connected with a pension scheme. However, it should be qualified. That is what happens if one belongs to a profession. Accountants and lawyers are provided with exemption because they have passed examinations. Provided that it is qualified, licensing would solve many of these problems.
§ Sir William Clark
I hope that my hon. Friend will forgive me if I do not give way. I am trying to keep within the 10-minute time limit.
Clause 41 seems to deal with commissions; that point should be discussed in Committee. There seems to be a difference in the treatment of agents. Tied agents are exempt persons and I see no reason why they should be treated differently from agents who are not tied. It has been pointed out that, particularly with the conglomerates, it may be necessary for firms or companies to belong to one or more SRO. There may be some administrative difficulty with that, but that is a major point.
In its new form, the SIB needs to be strengthened. One may compare the stock exchange, which has a staff of more than 2,000 people, with the' staff of Sir Kenneth Berrill numbering 40 to 50 people. When such a small body takes on such a mammoth task we must ensure that it is properly staffed. The SIB should be able to take swift action. If anything is wrong, immediate action must be taken and the DPP must be alerted. I welcome the fact that the fraud squad is to be expanded.
I also welcome the possibility of recommendations in the Roskill report being accepted, particularly in the case of large frauds. Lay members of a jury in a case that may last a year, a month or two months become lost and baffled by science. Consequently, it might be a good idea to have the tribunal system for large frauds.
We can maintain the confidentiality between client and auditor in relation to the completion of audits. If an auditor qualifies an audit certificate, it should be automatic that he immediately informs the SRO or the SIB. That would not affect confidentiality because, if an auditor should see 974 something out of order in the accounts, he can question the client and explain to him that reference must be made to that matter in the audit certificate.
I am pleased that the regulations will insist on clients' accounts. There is a loophole in the law that allows many companies to take money from the public for investment or from those going on holiday. That money should go into a clients' account until that contract is completed. That would remove the difficulty that exists, particularly in the travel industry, where firms have gone broke or into receivership and the deposits paid by the would-be holidaymakers have been lost. There would be no question of the receiver having a lien on a client's account.
In future there will be a banking supervisory Bill, and the Lloyd's inquiry. The Lloyd's scandals which the hon. Member for Hackney, South and Shoreditch is so keen to publicise under parliamentary privilege, all occurred before 1982. Since 1982, the Bill has tightened up the position.
I do not think that it is of much moment whether Lloyd's comes under the Bill. That is not a major issue. In view of our reform of social services, the upsurge in the pensions business and the increase in the number of small investors because of our privatisation programme, it is essential that we give maximum protection to ensure that the small investor is safeguarded. I welcome the Bill as a step in that direction.
§ Mr. Austin Mitchell (Great Grimsby)
There is something rather odd in the arguments presented by Conservative Members. The essence of what has been said is that there is something slightly rotten in the state of the City though it is not quite as rotten as my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) implied. Conservative Members say that we do not need to do very much about that. They believe that the Bill, which does not do much, will in the end be satisfactory because we must trust those who created the problem in the first place.
In answer to that, I must state that the Bill is unsatisfactory considering the circumstances and the Government who produced the Bill. The Bill must be considered against an extraordinary background of fiddle and fraud. That might be acceptable to Conservative Members, but ordinary people in the kind of constituency that I represent are aghast and puzzled at what is happening.
The City seems to have shown the ethics of Thatcherism, the spirit of grab and greed and "do it quickly because the country is on a downhill slope" coming home to roost almost like the last days of a decaying empire.
There has been the JMB scandal. On a lending portfolio of £500 million, £248 million was suspect. There is the scandal at Lloyd's—the school for scandals—which has exceeded even its best efforts of the 1970s in the PCW affair with £130 million-worth of losses. Cameron-Webb and his associate made off with an estimated £40 million and no prosecutions resulted. There have been fiddles in the applications for British Telecom shares, with merchant bankers and others making a killing on the applications as well as the killing they were making in fees for their professional services.
Money is being made from the Government's privatisation programme and on top of that there is the frenzy of bids, takeovers and mergers pouring the credit 975 and money available not into investment to provide for the country's future or into jobs, but into a frenzy of speculation. It is no wonder that there is an aura of sleaze hanging over our financial institutions. That is undesirable.
The Government are trying to legislate, but this Government represent many of the vested interests that caused the problems in the first place. One in seven Tory Back Benchers is a member of Lloyd's. The Conservative party has not been too nice about selling honours in return for contributions to the Conservative party's political funds. That party has not been too nice about selling the country's foreign policy in endorsing star wars in return for the hope of contracts to come—though they are almost certain not to come—from the American Government.
The Government's attitudes and ethics are guiding the legislation and it is no wonder that the legislation is unsuitable. Springing from such a background, the legislation cannot be satisfactory and it is hard to resist the conclusion that the Government do not know what they are doing. They commenced with an instinct to do as little as possible, to give power to the boys, to allow them to regulate themselves and not to disturb them too much. The result is the botched job that is the Bill before us. That botched job attempts to deal with a changing situation which is moving too fast for the Government and which will soon be out of control unless strong action is taken to control it.
The measure is vague and at the same time extremely complicated. It gives power to the Secretary of State on the assumption that he will delegate to a body about which we know very little. That body in turn will delegate powers to SROs, most of which have not been set up and therefore have no experience.
§ Mr. Barry Porter (Wirral, South)
The hon. Gentleman has made certain assertions about hon. Members and their connections. At least his hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) had the courage to say who those people are. Will the hon. Gentleman give more details about the assertions that he makes?
§ Mr. Mitchell
The only assertion I made was that one in seven Tory Back Benchers is a member of Lloyd's. If the the hon. Gentleman is interested he can look that up in the Register of Members' Interests.
§ Mr. Maples
As one of the one in seven Conservative Members who is a member of Lloyd's, I must say that the hon. Member for Great Grimsby (Mr. Mitchell) and his hon. Friends are missing the point. Those of us who are members of Lloyd's are deeply concerned about what has been happening there. The enhanced protection given to members of Lloyd's could surely help us and for that reason we are not standing in the way.
We feel that a designated agency to deal with the securities business in the City of London is not the appropriate statutory vehicle for regulating insurance. The frauds that have taken place in Lloyd's are essentially insurance frauds and if there is an agency to control that problem it should be one to deal with insurance aspects. It should not be confused with the board set up to deal with the business of securities.
§ Mr. Mitchell
The answer to that is to change the definition of investment and to appoint a special SRO to deal with Lloyd's.
The Government, with their background, are suspect in any decision that they take about Lloyd's. The question that hon. Members who are members of Lloyd's have to answer is whether there should be effective supervision of Lloyd's, given what has been happening there. If they feel that there should be, no doubt they will support our efforts in Committee to get Lloyd's included in the Bill. That would be the most simple, straightforward and direct way to deal with the problem.
Power is delegated to the Secretary of State, who will hand it on to a body of which we know nothing, which will pass it on to SROs, most of which have not been appointed yet, and therefore have no experience, to operate on a principle about which we know nothing and on the basis of powers that they will not have, using regulations about which we know nothing, particularly as regards the important problem of conflict of interest.
In that framework, no one will have power over the SROs and everything will overlap, particularly the jurisdiction of the SROs over the players, many of whom will work under competing jurisdictions.
Finally, the major problem of Lloyd's is excluded from the legislation. It is amazing that Lloyd's has only just required its syndicates to offer a "true and fair" account. Indeed, it was argued that if that requirement were brought in too quickly, 130 of the 530 syndicates would not qualify, because their accounts would not be appropriate.
With all those confusions and gaps, the legislation can only be characterised as typically English, typically complacent and not good enough. The only solution to the problems confronting us is the sort of statutory institution which virtually every other capital market has established. They have institutions regulated by a statutory authority.
Such an institution would fulfil all the requirements in this instance. First, it would be independent and would be seen to be independent. It would be seen to be a custodian of the public interest and of the interests of the small investor and not the custodian of vested interests and those involved in markets. This is not a question of running the prison by allowing the prisoners to take it over; the institution should operate independently and on behalf of the public.
A statutory institution, with a legal base, would have the power to impose its will on the SROs. That is what we need. If the SROs refuse to do what they are asked to do, what will happen? I know that they could be derecognised, but that is the equivalent of dropping an H bomb on them—the ultimate deterrent. That is not an adequate power. We need a statutory authority with the power to impose its will on the SROs if there is a conflict or if they do not move fast enough or cannot cope with the situation.
A statutory institution would have the power to institute prosecutions. The suggested body would not have that power. We need the power of independent investigation and prosecution.
Finally, the statutory authority would need to be strong, because of the uncertainties that lie ahead. We are entering a period of rapid change in technological innovation and in the internationalisation of competition. We do not know what the consequences of the big bang will be.
If we wish to compete, we do not want to have to offer a sleazy, amateur version of Liechtenstein, where we hope to be attractive because regulation is less effective here. 977 We need regulation to be more effective and we must lead the way in the international harmonisation of regulation which must come. That is why we need a statutory authority.
The consequences of change are unpredictable. We can foresee the domination of the gilt market by two big players, both of them American. What implications does that carry for Government funding? We can foresee the domination of the stock market by big players, with the slaughter of firms and the slaughter of jobs and a takeover by two species of organisation—the international players who are big enough to survive the lean years and the banks, using the profits from their financial business, which has always been operated in a fashion that is harmful to the needs of long-term investment and productive industry.
We need a strong institution with power to take strong stands and to impose its will. If we wish to impose a recognition of the national interest, we must consider who is to be the custodian of that interest in the rush towards liberalisation and a more effective competition.
We must have a strong, effective, independent regulatory organisation with a statutory base. We do not need the confusion, uncertainty and casualness of the legislation.
At one end we are dealing with huge problems of scale and with disciplining and controlling powerful international institutions. At the other end, we need the power to protect the small investor who needs more protection than he is likely to receive from the legislation. It is open to doubt whether the small investor will get enough protection when self-regulation by the ethical wide boys is introduced. We need a strong enforcement agency to provide protection for the small investor.
We also need new rules and it is not clear from the December document on the regulation of investment business that we shall have the firm rules and regulations that the small investor needs. According to that document, even the basic requirements will not be forthcoming or will be introduced only in a half-hearted fashion. It is essential that there should be no cold calling. The document envisages that there could be cold calling, subject to a cooling-off period.
It is also essential that there should be full compensation—or at least 90 per cent. compensation—to investors if an investment business becomes insolvent. In fact, a compensation limit of £30,000 per customer is envisaged.
It is essential that independent intermediaries should have to declare their commission so that anyone who is having policies or investments pushed on him can assess what is in it for the person pushing them and his motives for pushing them. In the December document, that issue is fudged. It seems that no requirement for such a declaration is envisaged.
There is a need for a prominent statement of the cash-in, surrender or maturity values of policies, but it is not clear whether we shall get that requirement. There also needs to be a statement of all charges being imposed; we need a standard statement so that people can evaluate one policy against another. Again, it is not clear from the document whether we shall get that.
An independent investment ombudsman is needed to whom complaints can be referred, so that people can be satisfied that their complaints are being investigated. There has been talk of an ombudsman, but the way that 978 it has been expressed could mean a multiplicity of ombudsmen. Investment businesses must be fully responsible for their salesmen, so that if there are persistent breaches of rules by salesman the company and the salesmen can be disciplined. However, what is envisaged is a simple licensing scheme for salesmen rather than a regulation under which the companies can be disciplined.
The regulations to be made under the Act are unknown and we do not know how they will operate. There is far too much uncertainty. Too little is being done to protect the small investor. There is also uncertainty about how to deal with the big people at the other end of the scale.
The Bill is like so much else that has come from the Government—a limited step. It is a step on the right road that should have been taken years ago, but it comes too late and it does not cover the real problem. The Bill is half-hearted and it is a wasted opportunity. We shall do our best to improve it in Committee.
§ Sir Anthony Grant (Cambridgeshire, South-West)
In a rather woolly speech the hon. Member for Great Grimsby (Mr. Mitchell) made one or two good points. His basic premise was wrong, but I share his desire to help the small investor and to ensure that there are strong powers in the Bill. However, when he mentioned honours and star wars, I concluded that he was doing what all of us sometimes must do, which is to respond to the requests of the Whips to keep the debate going from one to one on either side.
I declare all my interests on the register and especially my capacity as adviser to Barclays bank and Bowring insurance brokers. I am not and have never been a member of Lloyd's, which is far too risky for me.
I declare another interest. Many years ago I was a founder member of the wider share ownership movement with the late Maurice Macmillan. In those happier days we had the support of Labour Members, which was very valuable. I am pleased that recently the cause has obtained the support of the Chancellor of the Exchequer.
I formed the group with Maurice Macmillian because I believe in the spread of wealth and ownership throughout our community. To achieve such a spread, the small investor must be encouraged. However, he will not be so encouraged if he is not adequately protected against those who must bluntly be called crooks. He does not need to be protected against honest risk because that is what investment is all about, but he must be adequately protected against fraud. That must be the fundamental purpose behind the Bill, and it should be the policy of any Government.
I declare another interest. I am a past master of the Guild of Freeman of the City of London. I spent 20 years working professionally in the City of London, of which I am a liveryman. It is immensely sad that the standards that prevailed when I started working in the City have, alas, deteriorated. Far too many flash Harrys attracted to the City are long in aggression and cunning but short in morals. In the City the old saying used to be "My word is my bond." All too often now if a man says that his word is his bond, one would be well advised to insist on taking his bond.
The rewards of fraud are substantial and they make the great train robbery look like minor pick-pocketing. It is one thing to pass a law but it is quite another to enforce 979 it. It is vital that the fraud squad and those engaged in enforcing the law should have adequate resources. For far too long they have worked on the man and boy principle. They have worked valiantly and done their best, but the villains have flown too rapidly and easily.
I was pleased to see that in answer to a question on Monday 13 January from my hon. Friend the Member for Harrow, East (Mr. Dykes) the Attorney-General announced increases in resources and in the staff of the fraud squad. I do not know whether they will be adequate. Much more must be done to improve the quantity and quality of those who enforce the law if we are to achieve our objectives. Some fraud is now big business and is on an international scale.
If the Roskill report is implemented, it will be of great value. I believe in trial by jury and consider that it is fundamental to justice. However, there is a good case for considering the report's proposal that complex fraud cases should be heard by a judge and two assessors. The Opposition are justified in saying that many people are prosecuted—quite rightly—for small social security frauds. Those simple cases are easy for a jury to understand, but major fraud cases, where millions of pounds are involved, can be immensely complex and can be made even more complex.
When I practised in the City, the standard defence was to make the case as complicated as possible. Jurors are irritated in the first instance to be made jurors because it interferes with their lives. They are annoyed to discover that it is not a juicy murder or sex case that they can understand. They are angry to find that they have three or four weeks to sit through a monumentally complicated fraud case. If the case is made more complex, the jury will take the easy course and acquit the defendant. The Roskill proposals merit further consideration. I am sorry that they were treated so half-heartedly by the Opposition. When they have had a chance to digest the proposals fully, I hope that they will realise that the Roskill proposals could be a valuable implement to provide a deterrent to the worst fraudsters.
Happily, dishonesty is confined to a small minority, but that small minority does huge damage to the reputation of the City. We must be careful that any legislation is not a steam roller to squash the ants in the strawberry bed. The Government seek to enact the Bill before the big bang in the autumn, which is the revolution whereby brokers, jobbers, and banks will merge and there will be an invasion of foreigners. That is already taking place—notably by Americans with very large purses.
The intention is to enable the City to compete in an increasingly tough international market and to enable us to use the traditional expertise of the City institutions that contribute so much to the British economy. New regulation of new activities is necessary. We cannot have a free-for-all and no one would suggest that we should.
A Securities and Exchange Commission on American lines is sometimes suggested, but I believe that that would be undesirably rigid and would hamstring the City at a time when it needs the flexibility to compete internationally. It is significant that the chairman of the SEC in the United States is not wholly satisfied with his commission. I am not surprised. He is looking with envious eyes at what we are doing. The Government are right to reject that solution.
980 I do not believe that the Opposition's amendment would do anything to achieve the desired effect. The object is to achieve the right balance, and I believe that the Bill does that. The hon. Member for Great Grimsby should realise that the powers reserved to the Government are considerable should the self-regulation fail.
The big bang or City revolution poses a problem that the Bill does not solve. I wish to put that problem to my hon. and learned Friend who is to reply. It relates to conflicts of interest. I did not catch the remarks made by my right hon. and learned Friend the Secretary of State about the agency and whether it could lay down principles, but no doubt my hon. and learned Friend will clarify the point when he replies.
As one who took through the Lloyd's Bill in 1982, I find it ironic that the stock exchange, which strongly supported me, as did the House, in separating brokers from underwriting agencies to avoid conflict, has now gone the other way. It has merged brokers and jobbers. That has caused the problem. They are plainly forming the huge conglomerates which will be needed to compete internationally. I am involved with one of them. Banks, jobbers and brokers work together as a conglomerate to compete against big competitors abroad.
There is at law a broker-client relationship of trust. It is one of principal and agent between the broker and the client. However, the jobber at the other end of the corridor might be innocently and honestly making the market itself. There is a possibility that a conflict will arise. We are told that the so-called Chinese walls of the City will prevent any such difficulty. I venture to doubt that, because an aggrieved client may well sue. As I understand it, the Government say that if that happens the courts will resolve the problem and we shall have a body of case law and understand what it is all about.
How can the City wait three years in this competitive business while a possibly vexatious litigant pursues a claim which may well be rejected? We may have to wait even longer if, as someone has suggested, the Law Commission studies the problem of principal and agent. That is a genuine dilemma for those working on the new revolution and trying to make it work well for Britain. I hope that when he replies my hon. and learned Friend will give some reassurance to those people who are anxious about that issue.
A great deal of nonsense has recently been talked about Lloyd's. I repeat that I am not and never have been a member of Lloyd's, but I carried the Lloyd's Bill through the House in 1982. I was then well supported by the Labour Opposition. The Committee, which was most ably chaired by the hon. Member for Oldham, West (Mr. Meacher), scrutinised the Bill with the greatest care and approved it, as did the House, with a substantial majority.
The Bill, which was a private Bill, was scrutinised by the House for a record length of time. Opposition to the Bill came from my hon. Friends who thought that it was too tough and rigorous. The Lloyd's Bill, which was largely an enabling measure, was valuable and necessary to bring Lloyd's up to date—something which had not been done since 1871. Under that measure, Lloyd's publishes new regulations. It has done so almost every week. As far as I can discover, there has been no objection to the new regulations. Lloyd's has also used its new powers to pursue miscreants, all of whose misdeeds occurred before the passing of the 1982 Act.
981 I believe that the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) was right to castigate the scandalous goings on in Johnson Matthey Bankers. However, he has gone hopelessly adrift over Lloyd's. In so far as his allegations are true—and many of them are—they are old hat and have been or are being dealt with. The latest points that he has made would carry more conviction if he uttered them outside the House. While his campaign has done little to help British companies compete abroad, I am sure that we all rejoice that it has helped him in his battle for reselection, about which we are all delighted.
I wish to deal with the suggestion that Lloyd's should be brought within the scope of the Bill. It is probably impractical and certainly premature, but I do not take a rigid view about it. I respect what my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) said. I understood his argument, but he overlooked one rather important point. When the scandals were emerging and my Bill—I call it my Bill—was going through, every attempt was being made by our competitors overseas to knock Lloyd's and to say that it was a scandalous place which was not working and was out of date. When the Bill was passed and we could take action over those scandals, our competitors' criticism was largely muted and Lloyd's business continued happily overseas, to Britain's benefit.
If it is suggested that the 1982 Act and the regulations stemming from it are insufficient, or that Lloyd's was not using its powers adequately, that could have an adverse effect upon our competition overseas and would give the impression that we do not know what we are doing.
Having said all that, no one can suggest that everything is perfect. The right course to be taken, therefore, is the one taken by my right hon. and learned Friend—to set up an inquiry to investigate whether Lloyd's powers are inadequate and are not being handled properly. If that is so, amending action can be taken.
To bring Lloyd's within the Bill would do nothing. It would not give it any more powers or make them more effective than those it already has under the 1982 Act. More powers may be required—
§ Mr. John Butterfill
Does my hon. Friend agree that it would be illogical to bring Lloyd's into the scope of the Bill without bringing in the remainder of the general insurance market?
§ Sir Anthony Grant
That is right. That is why I said that it was certainly premature and probably impractical. I agree entirely with what my hon. Friend says.
The Government have adopted the right course. We should judge by uses, not abuses. The overwhelming majority in the City are honourable people contributing to our society and to the British economy. The overwhelming number of people in Lloyd's and the insurance market are honourable and honest, contributing vastly to Britain's invisibles and overseas earnings. Brokerage and insurance contribute well over £1 billion per annum to our invisibles. Lloyd's gives honest and honourable direct and indirect employment to about 83,000 people.
The Bill can be improved in Committee. All Bills can. The Bill is a brave and skilful attempt to steer a course between the rocks of excessive rigidity and the whirlpool of financial anarchy. It should be given a Second Reading as a preliminary to ensuring that London remains the world's financial centre.
§ Mr. D. N. Campbell-Savours (Workington)
We shall have the opportunity to debate much of the Bill's detail in Committee. Those of us who are fortunate enough to be selected by the Committee of Selection look forward to those debates.
I should like to take up one thing that the hon. Member for Cambridgeshire, South-West (Sir A. Grant) said. He referred to the good old days when one's word was one's bond in the City. The old school tie in Threadneedle street is having to give way under the new arrangements to the stiletto in Shoe lane. Values are changing in the City. There will be a substantial change on 17 October when the big bang takes place and we see a completely new regime effectively taking over many city institutions.
I believe that the contribution of my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) to these debates in the past few months has been crucial. On the margin one is bound to be slightly inaccurate—that is the way of the world—but 99 per cent. of the arrows that he has fired since the beginning of his campaign have hit home.
The measure of how successful he has been in his campaign is seen in the antagonism shown by Conservative Members. Ministers, including the Chancellor of the Exchequer, and Back Benchers have repeatedly and systematically set out to attack him and undermine him personally. In the way he has persisted he is serving the public interest and in the end his efforts will be adequately rewarded by way of legislation, whether it is produced by this Government or by the next Labour Government. The demise of this Government will come with the discrediting of free market principles, particularly those being practised in the City.
§ Mr. Campbell-Savours
The hon. Gentleman says that that is what we are about. It is the business of any hon. Member of this House to draw attention to deficiencies in that area, and if legislative change is required, then that is precisely what we are about. I am glad to see that the hon. Gentleman endorses our position. There is clear evidence that the recent spate of City scandals has clone considerable damage to the Government, and unless the Government act to deal with these matters of great public concern, more damage will be done. The Government are caught by a Catch 22. If the restrictions they introduce in the City are too fierce, business will be lost, but if the regime they introduce is too liberal, the Government will lose credibility.
In terms of debate that provides us with the ultimate irony. Modern capitalism, when revealed to the public in its raw, unbridled, unregulated, unrestrained and unattended state, is ugly. II is violent and repulsive to public opinion. That does not necessarily mean that I am in favour of planned economies or extreme economic principles. I believe in a mixed economy, but it has to be a mixed economy based on clear regulation and firm riles which cut out the excesses of those who wish to abuse the legal framework.
In whatever area one looks, the argument today is for intervention. This is non-intervention, and it is pleasing to know that during this debate some hon. Gentlemen from the Government side are courageous enough to stand up and say that they recognise the need for intervention. They 983 understand the need for compromise, and I hope when we go into Committee in a few weeks time we can forge some cross-party alliances with the single intention of strengthening the Bill in the areas of weakness outlined by my hon. Friends and contained in the speeches by hon. Members opposite.
The Bill certainly needs strengthening in its application to Lloyd's. That fact has been recognised by Mr. Stephen Merrett, the chairman of one of our largest underwriting groups. A recent newspaper report said:Mr. Stephen Merrett, chairman of one of the largest underwriting groups in the market, has told names on his syndicates that Lloyd's disciplinary rules introduced following the 1982 Lloyd's Act 'have not had quite the effect that we would have liked.'Mr. Merrett cited the delay in bringing members to account and publicising major investigations as one way in which the new rules are not working fully. He has also talked of 'the extraordinary levity of the sentences in view of the seriousness of the crimes of which people have been accused.'" He goes on to say:Where persons have a responsibility for the unlimited liability of members of the society we believe it to be quite wrong for theft, fraud or misappropriation of one kind or another to be treated as if it were a matter of no great consequence and appropriate only for a temporary suspension.Those are the words of a senior man in Lloyd's. They are not the words of a Labour Back Bencher, but of a man working daily in the market. He understands how the market works and he is clearly demanding far higher standards. He deserves the support of this House.
It may be that Mr. Merrett was one of those who sat through the proceedings of the Bill in 1982. I remember the night well. I sat in this very place next to my hon. Friend the Member for Oldham, West (Mr. Meacher). The Benches were packed on the Government side, but what was more remarkable was the crowd in the Gallery. I think it was about 11 o'clock at night and one could not move in the Gallery. A suited army of citizens from the City was there to pay regard to our performance and our proceedings, and they knew what was happening. I believe that many of the people in the Gallery that night knew that the House was being deceived. They knew that the Bill before us would not work and that in the end statutory regulation would be necessary. Perhaps the same gentlemen are here tonight to watch our debate. It may be that there are those among them who recognise the great deficiency that has been thrown up in the last few years.
§ Sir Anthony Grant
The hon. Gentleman will find that the greatest interest in the Gallery was shown by those who were anxious to see that the powers proposed in the Bill were going to be in the Bill and not defeated by my hon. Friends.
§ Mr. Campbell-Savours
I am sure I can refer to the Gallery "on that occasion" insofar as I am not referring to it tonight. I do not know who was in the Gallery but I know they were all gentlemen from the City and that they had come to watch our proceedings. They seemed enormously 984 pleased with the work done by my hon. Friend. I remember thinking to myself, "There is something wrong. It cannot be right that my hon. Friend is gaining all this support."
§ Mr. Campbell-Savours
Perhaps the hon. Gentleman wishes to intervene.
The Government response to arguments about Lloyd's has been to produce a rabbit out of a hat in the form of an independent inquiry. We are not fooled, because it seems that this decision to produce a rabbit out of a hat was taken only last week. An announcement was made last Friday and built into the statement, as my hon. Friend has said, was a quote from the Secretary of State which in itself set out to undermine the inquiry. The quote said:It did not mean that Government felt Lloyd's arrangements for self-regulation were defective.The Government set up an inquiry and in doing so said that they did not believe the rules were defective. To some extent that could set the terms of reference for the inquiry. Perhaps, within the curious logic practised by the Secretary of State or the Under-Secretary, hon. Members can find some other way of interpreting that statement.
§ Mr. Butterfill
Does the hon. Gentleman not agree that it would be even more of a rabbit out of a hat if we were to tag Lloyd's on to this Bill without thinking how it would relate to the Bill?
§ Mr. Campbell-Savours
As I understand it, we could well have introduced legislation with this Bill to deal with Lloyd's. Nothing prevents us from doing that and it would have been in order, so I cannot see the point made by the hon. Gentleman. He may believe that it would require a different approach, but we were in a position to legislate during the course of the Bill to deal with the problem of Lloyd's. I am sure the hon. Gentleman accepts that. The Government are refusing to place on record the fact that something is wrong. They have spent the last 12 months denying the fact that there has been inexcusable activity in various parts of the City. The Government should ask some of their hon. Friends who lost money in Lloyd's. Those hon. Members have only recently been surfacing.
Salaries in the City are another matter of concern. The major expansion in the City is fuelling a pay explosion. Mr. Nigel Halsem, the managing director of the Michael Page Partnership, a City employment agency, says that salaries have doubled in two years in the Eurobond market. He says that it is commonplace for salaries of £50,000 basic and perhaps a further £150,000 commission to be paid. Some people may say, "The best of luck to those who are capable of earning such salaries when they are young men." What about the people in the country who say, "Where is the fairness in those people earning such high salaries? Is it reasonable that they can secure such high income levels through high commissions?"
Recently, a 31-year-old Eurobond dealer moved from a British to an American bank in the City for a basic salary of £62,000 a year with a guaranteed bonus of £100,000 after two years and a possible bonus of £300,000 if he performs well. A 28-year-old went to an American bank for a basic salary of £50,000 a year and a slice of 20 per cent. of the profits that he makes for the firm—guaranteed £250,000 a year. In a typical deal, a 28-year-old analyst earning £35,000 with one firm of City 985 stockbrokers was lured to another firm under American control for a pay package of £130,000, including incentive bonuses. Those are almost football transfer fees.
§ Mr. Campbell-Savours
Will 27 October and the big bang deal with this? Estimates suggest that large overseas operators are pumping hundreds of millions of pounds into the City to buy up talent. Will salaries fall when the big bang comes? How will the market respond? Will the operators stop this practice, which is referred to as "churning"? Will they start involving themselves in unnecessary transactions simply to boost their incomes on the back of commissions? Some people do not like pay cuts. How does the City intend making up the salaries of those with a high salary expectation?
The role of the banks is another matter of concern. One of the more positive aspects of the attack by the former Secretary of State for Trade and Industry on restrictive practices in the City was the ending of fixed commissions. Since then, there has been a steady movement of large international financial institutions, including banks, into the City. Will the banks cross-subsidise from orthodox banking to dealings in the City? We know that the fiercest of competition will be in gilts. At the moment, two jobbers have 80 per cent. of the business—Akroyd and Smithers, owned by the bankers S.G. Warburg, and Wedd Durlacher Mordaunt and Co., partly owned by Barclays, another bank. They rely on fixed commissions. Next year, 29 market makers take over. One United States firm has said that it will not make money for at least seven years. I am told that some banks will be in on that market, but how will they pay for it? There seems to be only one possible way to pay for it—to cross-subsidise. Who pays?
§ Mr. Campbell-Savours
The hon. Member for Winchester, (Mr. Browne) knows who will pay. I think that he is a consultant to one of the clearing banks. I am sure that he would want to explain to the House how it intends funding the losses expected in the gilts market. Some of his colleagues seem to agree partly with my suggestion that there might be a high level of cross-subsidy. Unless the banks cross-subsidise, foreign institutions will move into the market to take it over. It is predicted that within a few years gilts will be under the control of foreign institutions. Perhaps some hon. Members would like to intervene to tell me that I am wrong and that that will not happen.
§ Mr. Austin Mitchell
My hon. Friend is right. All the viable industries and firms that have been put out of production and closed down by the banks will at least have the satisfaction of knowing that their money will subsidise the banks in the gilts market.
§ Mr. Campbell-Savours
What can I add to my hon. Friend's wisdom? A Labour Government will not want 986 foreign control of that market. We will want United Kingdom control. We may well have to act to restore control because of the conditions that have been created.
The role of auditors is of concern. I agree whole-heartedly with the hon. Member for Yeovil (Mr. Ashdown) in this respect. He referred to his reservations and to the recent Green Paper which deals with the new responsibilities of auditors. The Green Paper states that, in the spirit of deregulation, confidentiality does not prevent disclosure to an appropriate authority where public interest is involved. This would include cases of suspected fraud and any breach of a statutory duty liable to cause significant harm to a third party. The Secretary of State used the word "expect"—so this is only an expectation of the auditors. The right hon. and learned Gentleman said that the Government might introduce amendments to deal with this aspect. I hope that, in doing so, he accepts that we should place statutory responsibility on the auditors to report where they find fraud. Under this method of self-regulation, the system does not work.
Auditors that operate under the Companies Acts are subject to two types of control—Companies Act legislation and professional rules of conduct laid down by the institute of which they must be a member. The Companies Act 1985 contains two relevant sections. Section 237 states the circumstances in which an auditor must qualify his report on the accounts. This includes cases where proper account of records has not been kept. Section 393 strengthens the powers of the auditor by making a criminal offence of anything thatconveys or purports to convey any information or explanation which the auditors requirewhich ismisleading, false or deceptive in a material particular.The guidelines issued by the accountancy profession are more vague. The guidelines issued by the Institute of Chartered Accountants in guidance note 1306 on the disclosure of defaults or unlawful acts states:It is an implied term of a member's contract with his client that a member will not, as a general rule, disclose to other persons information about his client's affairs acquired during and as a result of their professional relationshipduring an auditagainst his client's wishes. Therefore, where a member becomes aware that a client has committed a default or unlawful act, the member should in principle keep the matter between himself and his client by virtue of the contract. A member who acquires knowledge of the commission of a criminal offence (other than treason), or a default which is a civil wrong, is under no legal obligation to disclose what he knows to a proper authority. There are, however, circumstances in which, in spite of the contractual position, a member may be obliged to disclose information to the authorities or may be free to do so if he wishes".Then it sets out the circumstances:(a) the auditor is obliged to disclose information by a Court; (b) or where the client has authorised disclosure; or (c) where there is a public duty to disclose information.The code of practice says:Council therefore recommends that members, even though free to do so, should not disclose past or intended crimes or civil wrongs (except treason) which they are legally obliged to disclose unless they feel that the damage to the public likely to arise from the non-disclosure is of a very serious nature.The truth is that there are no real obligations. Unless this is reinforced in the Bill, once again these people will escape. In my view, self-regulation in this particular area is out.
Is the Bill strong enough? Sir Kenneth Berrill is unhappy and has made his discontent public. He says that 987 he "wants stronger powers to discipline the SROs". He wants the SIB rules to have precedence over SRO rules. What we want is a statutory body with teeth, real power to police the City, something akin to what is available in America, but different.
There has been so much discussion tonight about the difference between what we want and what is available that I can only compare what the Government want to set up with Securicor and what Labour Members want with the Metropolitan police. Perhaps that is the best distinction that one can draw. There is a distinction and it is an important one. Securicor is privately funded. It has powers, the powers available to any citizen. It even has the power of arrest, the citizen's power of arrest. The Metropolitan police force is a statutory authority. In so far as the Metropolitan police would appear to be an effective policer of London, I should have thought that a similar body operating in the City would be seen to be an effective policer of City institutions.
The statutory body would define rules and the SROs would comply. Default would lead to trouble. At the moment we do not even know what the rules are. I hope that we shall learn much in Committee about the intention of the Government in that particular regard.
§ Mr. Deputy Speaker
Order. May I repeat Mr. Speaker's appeal for brevity? Many hon. Members still wish to speak and time is getting short.
§ Mr. Anthony Nelson (Chichester)
It is always a pleasure to follow the hon. Member for Workington (Mr. Campbell-Savours) who traditionally speaks with colour and conviction and today comprehensively. If he will permit me to say so, and stripping away some of what might be regarded as prejudice and hyperbole, he has raised issues with which I can agree—in particular, the anxiety to ensure that this is good legislation and that we stiffen it up and improve it, where necessary, in Committee. I can assure him that if I am able to play any part in that, I will do so.
I welcome the Bill as a significant improvement in investor protection and a radical and much-needed change in the regulation of the financial services industry. The financial services industry now accounts for 7 per cent. of our national income, employs 2 million people and generates over £6 billion in foreign exchange. The reputation, integrity and attraction of the industry to investors at home and abroad have been ensured in the past principally by three forms of control—the law of convention, common law and statute law, in that order.
The law of convention provided, through self-regulation, an acceptance of personal obligation in exchange for privileged membership of exchanges such as, for example, the stock market through membership of the Stock Exchange or merchant banking through membership of the acceptance houses committee. That led to the old adage, "My word is my bond." That motto characterised the City for many years and served its reputation well.
Common law was perhaps less important than that basic self-regulating convention. It provided a recourse to the 988 courts in civil disputes, for example, on matters of agency or contract law, and the recognition of the limits of good practice as defined by precedent and case judgments.
Historically, it can be said that statute law was the last and least important of those forms of control which governed the City, imposing, as it did, legislative restrictions and obligations—examples are the Companies Acts and, in this instance, the Prevention of Fraud (Investments) Act 1958—on the activities of the multiplicity of institutions in the City.
Since the development of the City under this system of convention and of common and statute law over 300 years, rapid and major changes which have taken place in recent years and months have rendered such regulation inadequate. First, there has been a massive expansion in the number of investors, the medium of investment and the practitioners in the financial services industry.
Secondly, there have been major changes in technology which have led to the more rapid transfer of funds, greater flexibility in the range of investment instruments now available and, indeed, the size of the markets which are accessible.
Thirdly, the internationalisation of the industry and the arrival of foreign companies, many with enormous resources and different standards of practice, have also changed the commercial environment substantially.
Last, and by no means least, the restructuring of the financial services industry and the merging of different activities into financial conglomerates, heralded by the abandonment of stock market minimum commissions and rules on outside shareholdings in stockbroking firms, have made the process of change very substantial.
All these changes have left the investor more vulnerable to malpractice and fraud, created apprehension about future standards of conduct and conflicts of interest, and undermined the old adage, "My word is my bond" to the extent, sadly, that the new motto ought to be, "My word is my flexible and revocable instrument", with the result that statute law has become a more important basis of regulation than the convention of voluntary good behaviour or than common law which has thrown up some conflicting and inadequate judgments in recent years.
For those reasons, I congratulate my right hon. and hon. Friends and predecessors on their efforts to strike the right balance in this Bill and the presentation of it between freedom and fairness, and indeed on consulting so widely among interested groups before presenting these provisions.
Turning to the contents of the Bill, I welcome, in particular, the decision to establish one board rather than two or more for the supervision of self-regulating organisations. The decision to go for the "Snow White and seven dwarfs" regulatory system is a challenging one and will obviously have some teething troubles, but I believe it to be the right decision. My hon. Friends will know that some of us have been pressing for it for years. I am very pleased that this Government have been responsive to the views expressed by Opposition Members and by many on the Government Benches in successive debates on the Gower report. Indeed, in my own submission to the Gower committee, it was my preferred solution, which at the time was felt by the Government and by Professor Gower to be unworkable; but opinion is gradually moving much more in that direction and I welcome it. I welcome, too, the provisions to make it a criminal offence to trade without authorisation or to make false or misleading statements.
989 This is the occasion to point out, however, those areas where one feels that improvements can be made or where one has some misgivings about the tenor and content of the Bill. I would have preferred to see the SIB or the delegated authority given statutory recognition, authority and objectives rather than the so-called "flexible" structure of enabling the Secretary of State to transfer his functions to a designated agency. Opposition Members make a valid point when they say that such a statutorily recognised authority would be independent, free from sudden discharge, totally responsible for the organisation of its market and more overtly, objectively, publicly accountable for the control and regulation of the many activities within its boundaries. The Bill goes a long way towards establishing such a designated agency, but I would not have minded, and would still like to see in more detailed areas, more statutory definition and authority being given to the body.
Much of the new structuring and many important detailed rules are to be introduced by order after the legislation is enacted. A more general point, which I hope will find accord with my hon. Friends, is that there is far too much legislation by order nowadays. It is preferable to consolidate as much as possible into primary legislation. Examples of that can he found throughout the Bill. I understand the complexity and range of its provisions, but it is in the detail of matters such as disclosure requirements and cold calling limitations that we can judge how authoritative the Bill will be, and the extent to which it can genuinely protect the interests of investors.
In the past, I have expressed strong reservations about the composition of supervisory boards and self-regulating organisations which historically have been, and remain, too practitioner—oriented and cosy. There have been welcome improvements in increasing the so-called lay membership of such authorities, but all too often those lay members are on the periphery of the practitioners, and do not genuinely represent the interests of the consumer and the investor, as they should.
The principal function of both the designated agency and the SROs should not be to provide an easy working machine which is not subjected to criticism. Their principal objective is to protect investors. Their face must always be pointed towards the investor, and they must apply that criterion to every decision. They must ask whether the decision protects the investor. That is their job. Their principal function is not to co-ordinate a nice smooth market and to keep everyone happy, but to represent the interests of the profusion of people who come to the market.
The provisions in schedules 5 and 2, which relate to the composition of the governing bodies of the designated agency and the SROs, are imprecise and place insufficient emphasis on the representation of investor or public interests through lay membership. Also, schedule 5 provides for the appointment or removal of the designated agency chairman by the Secretary of State and the Governor of the Bank of England acting jointly, thereby giving the Governor a veto and an undue influence over the investment market. I raised that question with my right hon. and learned Friend the Secretary of State at the beginning of the debate, and we should return to it in Committee.
Clause 151, which enables the Secretary of State in the national interest to disqualify from carrying on financial business in the United Kingdom anyone from a country 990 which does not afford us favourable access to its financial markets, should find no place in the Bill. The provision is irrelevant to the protection of investors, and flies in the face of our long-established tradition of open access to markets. We should consider seriously that aspect of the Bill, although it may be peripheral to some of the Bill's objectives.
I shall now deal with the question whether Lloyd's should be in or out. Initially, I was receptive to arguments for drawing Lloyd's within the ambit of the Bill, but after consideration I have concluded that that would be an error of judgment. First, the principal business of Lloyd's is different from that engaged in by those involved in the investment markets. Just as commercial banking And non-life insurance are outside the scope of the Bill, so should Lloyd's be. Secondly, there is a distinction between the types of people and the objectives of those who become underwriters at Lloyd's and of those who invest in stocks and shares. The former place their assets at risk, although retaining direct ownership of them, in order to engage in the insurance business as principals. The latter convert their assets into investments in the businesses of others. There is a significant difference between the characteristics of the sole trader and the passive investor. They should be afforded the regime of protection.
The Government have announced an inquiry into the regulation of Lloyd's, and we should await the outcome before hastily absorbing an essentially different industry into the ambit of the Bill. Nevertheless, I have a responsibility to point to my preferred alternative. Unlike some, I am not satisfied with the way in which Lloyd's is going even now, although I recognise that substantial changes have been instituted since 1982. My preference would be for a public, not a private, Bill, if we could overcome the legislative problems of hybridity, which would tighten the supervision of Lloyd's and provide, among other things, for the appointment of a chief executive with terms of reference. It should provide less self-interest on Lloyd's ruling body, an end to "baby" or preferred syndicates, legal responsibilities for Lloyd's policy signing office, and more disclosure on such practices as reinsurance to close, and the credentials of offshore rollover funds.
I feel sorry for the affected Peter Cameron-Webb names who, as a result of fraud, maladministration, inadequate supervision and straightforward bad risk-taking, have lost about £168 million over the years. They and other underwriters are entitled to higher standards of probity and supervision, but they are not entitled to evade their responsibility in the final analysis to pay the calls on them. I have heard that they are selling up and moving abroad before further calls are made on their assets. That would do immense harm to the reputation of Lloyd's, whose underwriters have historically been prepared to pay claims promptly, and it would be no less evasive and unlawful than they accuse Mr. Cameron-Webb of being.
Greater protection for investors is needed urgently. The new regime provided for in the Bill must cope with the aftermath of the big bang, which will be bloody with a bear market following this bull market as surely as night follows day, and with marketing techniques and investment instruments the like of which we have never seen before.
It is vital for the interests of investors and the financial services industry generally that we enact good legislation which will stand the test of time, and command the widest 991 respect. The Bill may not go quite as far as I should like it to go, but it is most welcome as far as it goes, and it will enjoy my support tonight.
§ 8.7 pm
§ Mr. Gerald Bermingham (St. Helens, South)
Most hon. Members who have spoken have dealt with Lloyd's and the City, and little has been said about the guy at the end of the chain who will pay the bill. He is the fellow who pays insurance commissions and is talked into a policy which he does not particularly want because he is buying a house and is sold an endowment policy with it. He is the guy who pays the interest on his overdraft because the banks need to compensate their profits. The Bill should protect such people.
I accept that Second Reading is not the time to take the Bill apart clause by clause. I welcomed the Gower report and hoped for a Bill that would go to the heart of the problem, and look after the chap at the end of the chain, that is the small investor, or the man who pays his monthly premium on his endowment policy or pension fund. I hoped that such people would be looked after, but I fear that the Bill will not do that.
I hope that I shall be fortunate enough to serve in Committee. Perhaps some of the Committee's time could be spent on asking those questions. The chap who pays the bill may be a name at Lloyd's who has been defrauded, a small shareholder who has been sold a pup in a bucket shop, or an old lady who puts her savings on the line and finds her investment worthless. Such people should be protected. It is all very well to say, "Lloyd's is out of this. It is a separate entity." A moment ago the hon. Member for Chichester (Mr. Nelson) spoke of some members who are thinking of going abroad to avoid further frauds. That people are driven from this country by the fraud of others is an absolute disgrace and a sad reflection upon the institution of which those who committed fraud were said to be proud members.
As a barrister I am not at all satisfied with the running of Lloyd's. I doubt whether, if tested, Lloyd's code of conduct could be shown to be the same as the code of conduct that we expect from the man in the professional office, the man serving behind a shop counter. There are still things going on and things that are talked about which are smelly and fishy. One hears rumours as one walks the streets of the City and talks to the people involved in the business world about what is still being done, about money that is still being shifted abroad, about how there is a new wheeze whereby premiums can now be moved this way or that or reallocated.
While all this continues, the reputation of Lloyd's continues to sink and so does the reputation of the City. There comes a time when one has to end amateurism and have a little bit more professionalism. This is urgent because, as has been said so often tonight, in October this year we have the big bang. This is the arrangement whereby the distinction between the jobber and the broker is to go. This will save everybody money on commissions. The end result has been a rat race of job-swapping in the City, escalating salaries and golden handshakes, for the likes of which many a man in the coal or steel industry would give their right arm, ear or eye.
At the end of the day who will pay? It will be the likes of the small investor because the services and commissions 992 will not be the same. The other effect of the big bang will be the invasion of the overseas banks and the overseas merchant houses. The City will never be the same again. If we change the City but still want it to be the financial market centre of the world we must regulate and order that market so that it equals if nothing else, the rest of the world. We must cut out the crook and the spiv. They should have no place within the centre. We must make sure that when somebody acts as an adviser or as a broker they act by a set of rules which conform to the criminal law. Anyone who makes a sly or fast buck, who seeks to cheat or to deceive must pay the full penalty of the law, and quickly.
In clause 147 there is one superb subsection to which I shall refer, and if I am lucky to be on the Committee I shall go back to it in much greater detail. Subsection (9) reads:Nothing in this section shall require a person carrying on the business of banking to disclose any information or produce any document relating to the affairs of a customer unless—(a) the customer is a person who the inspectors have reason to believe may be able to give information concerning a suspected contravention;This is fine until one looks at subsection (2), which states:The appointment under this section of an inspector may limit the period during which he is to continue his investigation or to confine it to particular matters.In other words, we appoint an inspector to investigate insider dealings—we have been so brilliant in tracking down the people in insider dealings that in the last two years we have had four or five prosecutions. If one listens in the coffee shops of London one will hear whisper after whisper about that company and this company. We all know that it is going on but we have done nothing to track down the people.
According to clause 147, the inspector may go in for only a limited period as may be deemed advisable, and the banks are limited as to what they need give away. Subsection (9)(b) states:the Secretary of State is satisfied that the disclosure or production is necessary for the purposes of the investigation.I ask you. The Secretary of State has to be satisfied. We are talking about the way dishonest people make considerable sums of money at the expense of other investors—indeed, at the expense of the investment company itself within which the insider dealing is taking place. This is just one example of one clause and one subsection of this Bill which demonstrates how much is needed to be done by way of amendment if we are to create a set of investment protection rules and regulations which in some way might give the investor proper protection.
I want to see the City as the financial capital of the world but we shall only do so if we have a City that is clean and where there are no suspicions of fraud, of people making the quick buck, easy money. We shall achieve this only if we have a set of regulations that are equivalent to those in the rest of the world and of which we can be proud. We shall have this only if the supervising bodies—I agree with much of what the hon. Member for Chichester said—have teeth that can bite fast and deep. We must be prepared to toss out the rotten apples from the barrel. We must have a proper policing force, perhaps police officers in our fraud squads who are sufficiently trained to bring prosecutions speedily. The courts of the land must impose penalties that deter.
Until we have all these things we shall not have protection for the investor. This Bill is a little step on the way. A great deal needs to be done. It has to be done 993 carefully and with courage. If the prejudices of yesteryear are forgotten and everybody on those committees works with a clean City in mind we may do something that is worth while.
§ Sir Brandon Rhys Williams (Kensington)
Earlier this afternoon it was declared that Conservative Members who sought to take part in this debate all had vested interests. I should like to say that I am not a director of any public company. I do not own any shares in any public company. I am not a partner in any business. I am not a member of Lloyd's. I am not a trustee of any profit-making property. I have no consultaciesor retainers, and I am not a member of a trade union.
Hon. Members may say that all that means that I do not know much about business, and they could well be right. However, I did serve for 20 years in heavy industry and in consultancy before being elected to the House. I have sufficient interest in business to have brought forward specific suggestions to amend company law in every Session of Parliament since 1969. I did this with the support of well-informed Members on both sides on the House.
I consider that the Bill has a number of deficiencies. That is due to the Department's preoccupation with serious fraud and gross mismanagement rather than the milder business diseases which are unfortunately all too common in Britain. Insufficient attention has been given to the way in which fraud and other disasters can overtake a business in a climate of general inefficiency, management sloppiness, malpractice, corner-cutting and business practices which may be within the law but are generally accepted as contrary to the ethics of business people. That is the ground in which fraud can grow, and unfortunately all too often does.
In recent months I moved into a house which had been standing empty for a number of years. As soon as we turned on the central heating, the most hideous mushrooms appeared out of previously innocent-looking timber and plaster. It was, of course, dry rot. The experts told me that I could get rid of the symptoms as and when they occurred, but that the real solution was to have a firm, sound, dry and well-ventilated structure. I think that the Bill is rather like people who are trying to pick off the mushrooms by using chemical methods in this spot and that without attending to the background in which business is carried on in Britain.
The Bill defines investment business in such a way as to include managing investments and advising on the exercise of rights conferred by the ownership of assets. It appears to put most emphasis on the time of the purchase of the asset—possibly the disposal of investments to some extent—rather than on the advice that should be given to investors on constructive, continuing and responsible ownership of assets.
Are the owners of assets to be regarded and protected as absentee landlords once they have acquired their assets, or do we hold to the concept that investors should be component elements in a well balanced mechanism, including suppliers, customers, workers, managers, supervisors and proprietors, all working together in a fruitful relationship? I am sure that that is a more healthy aim, but it is not the Bill's aim.
I have often said that the weakness of the British economy is attributable in quite large part to the fact that 994 so much of our enormously voluminous company law is obsolete. The great 1948 Act was obsolete by the lime that it was enacted, and much of what we have done since has added to the complexity rather than attend to the fundamentals of business practice. We ought to consider company law as a whole. The same goes for partnership law. It is a great pity that the Department is not offering constructive thought on the background against which business is conducted.
I welcome the Bill. I am sure that it contains much that is necessary; nevertheless, it seems to be yet another major Bill regulating business which constitutes a rather wasted opportunity and perhaps a rather heavy drain on parliamentary time. But I am sure that it should go through, and I do not believe that we should clutter this already complex Bill by adding provisions relating to Lloyd's. I am not a member of Lloyd's and I do not know a great deal about insurance, but if existing legislation concerning Lloyd's is not working, another Bill aimed specifically at that target or at insurance generally would be better.
We should be making new provisions to strengthen existing supervisory elements governing how investors' assets are used. I am thinking, of course, of auditors and directors, especially non-executive directors, who are often ineffectual components in the business structure. About 100 years ago it was obvious that, as business was becoming more complex, the owners of assets needed advice from supervisory elements who would help to ensure that their businesses were properly managed. In Germany, there gradually evolved the concept of a supervisory board, whereas Britain experienced important battles which led to the imposition of the compulsory audit.
I am not suggesting that compulsory audit is wrong, but it has not stood us in good stead, because the practices and responsibilities of auditors have not been sufficiently sharply defined by Parliament. We have a large body of highly responsible professional people, but we are not making them as effective as they should be in preventing conditions which ultimately provide the opportunity for fraud.
Auditors and non-executive directors could be ruled by company law that could make them far more effective. All we need is quite minor changes in statutory procedures governing how companies are run. I shall not try to define them now. I have spoken on this subject often, and I hope to introduce a Bill in two or three weeks in which I shall set out several specific recommendations for minor changes which I believe could have big results.
That approach, which the Department has neglected for a long time, is just as important as setting up new agencies and could be just as fruitful as increasing the Department's staff.
§ Mr. John Whitfield (Dewsbury)
I welcome the opportunity to speak on this important Bill. As Lord Roskill's committee so aptly said:If the Government cherishes"—I understand that they do—the vision of an equity-earning democracy, with greater encouragement for ordinary families to invest their savings in shares, it faces an inescapable duty to ensure that financial markets are honestly managed and that transgressors are swiftly and effectively discovered, convicted and punished.995 In addition to suggesting changes in the law relating to the conduct of fraud trials—those recommended by Lord Roskill's committee are many, complex and far-reaching—Lord Roskill rightly says that there must be changes in practice and attitudes which will make demands on everybody involved in investment business. The Bill is concerned with such people's practices and attitudes.
The difficulties of bringing fraudsters to trial and securing their conviction are manifold, as is well known. I whole-heartedly welcome the report's recommendations in that regard and was pleased to hear today that parliamentary time will be found in the next Session to enable the majority of those recommendations to be implemented. However, improvement of criminal law procedures is not enough. We must ensure that our financial markets are managed honestly and that transgressors are brought to court, convicted and punished.
Self-regulation is a fine concept, but if the present system worked well, we should not be debating the Bill. Irrespective of whether one considers the Lloyd's insurance market, the stock exchange or my self-regulatory organisation, the Law Society—that is the only interest that I have to declare—the records show that, although each august establishment appears able to deal with the most blatant excesses of its ordinary members, it is unable or unwilling to cope when it comes to the atrocities, if that is not too strong a word—it often is not—committed by members of its hierarchy.
I need mention only three names to prove my case—Sir Peter Green, about whom we have heard a great deal today, Kleinwort Benson in the context of the British Telecom share allocation and the solicitor Mr. Glanville Davies. In each case, the regulatory authority concerned seemed unwilling to deal with serious examples of financial irregularity or abuse of a privileged position. In each case, the people concerned were on what has been aptly termed the inside track—they were members of the top table of the organisation.
Even in less important but equally serious cases when illegal or unlawful profits have been made at other people's expense—for example, the baby syndicates at Lloyd's, insider dealings that proliferate on the floor of the stock exchange, the abuse of buying shares for unnamed accounts, the facilities that have been offered to known rogues such as Mr. Jim Raper to plunder the assets of public companies for their own personal benefit and the share tipster who tips his own shares, the regulatory authorities, when they exist, have more often than not been unable or unwilling to prevent the commission of the offence or to provide a remedy.
Too often recently, we have had to listen to that weak and wet response to criticism which runs, "We have done all that we can. It is now up to the Director of Public Prosecutions or the inspectors of the Department of Trade and Industry. It is not our fault if they do not do anything." The chairmen of the stock exchange and of the council at Lloyd's are especially guilty of such buck-passing.
There is an enormous gulf to be filled between the present system of self-regulation and the criminal law. I understand that the Bill tries to fill that gap by introducing a system of statutory backing for self-regulation, which will preside over our fast-changing financial markets.
996 In this connection I welcome the new statutory provisions and powers to make rules for the conduct of investment business contained in chapter V of the Bill. Particularly I welcome the surely long overdue provisions in clauses 49 and 50, which will require those conducting an investment business to take out indemnities against claims and to hold clients' moneys in accounts separate from those containing their own moneys. I welcome clause 54, which provides for the disqualification of certain prescribed unfit and improper individuals; clause 56, which enables restitution orders to be obtained against those who have contravened the provisions of the Bill; and clause 57, which provides a new civil remedy for anyone who has suffered loss as a result of any breach of the rules.
I also warmly welcome the powers of intervention vested in the Secretary of State pursuant to chapter VI, which will enable him or the agent he appoints to prohibit an authorised person from entering into particular transactions or from disposing or dealing with any of his assets and give the Secretary of State power to sequestrate those assets. All these very necessary powers should be exercisable in my view in relation to any authorised person when it appears to the Secretary of State that they are required for the protection of investors—which is what the Bill is surely all about—or that the authorised person is not fit to carry on an investment business or has contravened the provisions of the Bill or furnished the Secretary of State with false or misleading information. I am therefore surprised and disappointed that, with one isolated exception, none of these very necessary powers of intervention seems to me to apply to any authorised person who is a member of a self-regulatory organisation or a professional body.
Subject of course to what my hon. and learned Friend has to say on this subject, it seems to me from reading the Bill that the vast majority of authorised persons will be safe from the Secretary of State's powers of intervention simply because they are members of their SROs. The Bill seems to have teeth, but the teeth will hardly ever be used.
It seems to me that this is the weak point, the Achilles heel of the Bill. The Secretary of State in my submission must retain for himself the powers to intervene in the affairs of the members of an SRO, because otherwise the public suspicion will remain, in spite of the new rules and system of supervision which the SIB will exercise, that the SROs exist to protect the best interests of their members, particularly their more influential members. This is the image which the council of Lloyd's, the stock exchange and even the Law Society have in the minds of members of the lay public who have had cause for complaint against many of the members of those organisations.
I hope that, in Committee, the Government can be persuaded to remove subsection (4) of clause 59 which provides that exemption. It is simply not enough to rely upon the Secretary of State's power to revoke a recognition order under clause 11. It is a power which he will be extremely reluctant to use, and the SROs will know that to be the case. One cannot imagine, for example, the authorisation as an SRO of the stock exchange itself ever being revoked.
What of Lloyd's itself? I will not detain the House long on this subject, because the point has been well covered by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) and my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant). I think that the Secretary of State has headed off the mounting 997 campaign to include Lloyd's within the ambit of the Bill by announcing last week the inquiry into whether that market is really protecting its members against the massive frauds which have occurred in the past and which many suspect are still taking place. In the light of the coming departure from the council of Lloyd's of the Government-imposed watchdog, Mr. Davison, this was the least the Government could have done. Hon. Members are of course aware that Lloyd's has its own piece of legislation, the Lloyd's Act 1982, but I fear that, even if one tenth of the allegations made in this House from time to time by the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) are true, the system of self-regulation set up by that Act is not working very well. Let us pay heed to that experience now and so be especially vigilant in dealing with the financial services market in the Bill.
There are already—without waiting for the results of the inquiry which has been set up—grounds at the very least for having severe reservations about the working of self-regulation at Lloyd's. We should not and must not discount that knowledge in our consideration of the Bill. Accordingly, we should ensure that, without exception, all those involved in investment business be subject to the powers of intervention.
The Government have rightly obtained a reputation as the champion of law and order. Bearing this fact in mind, let none of us on this side of the House forget, as Sir Kenneth Ben-ill himself has already pointed out, that to those of our constituents who for modest rewards actually make things there is something obscene about those in the City who, not content with just making a good living, as they do, through sheer greed and worse break the rules in order to make illegal and unlawful profits at the expense of the rest of us. They are a small minority, but they have to be dealt with.
Let us on this side of the House be seen to be imposing law, order and an effective system of regulation on such people and not shrink from setting up procedures which will enable the Secretary of State to deprive those who break the rules of their livelihoods as soon as those transgressions are discovered, while leaving those same people to face any criminal charges at a later date.
§ Mr. Robert McCrindle (Brentwood and Ongar)
The House will be relieved to know that, almost alone among contributors to the debate, I propose to say virtually nothing about Lloyd's, other than to suggest that, while the day may well come when the Lloyd's Act 1982 proves insufficient, I believe those hon. Members who suggest that now is the time are anticipating a course of events that has not yet been able to run its full course. I have no doubt that we will come back to the consideration of Lloyd's, but I regret that in the course of the debate so much attention has been paid to a matter which is not included in the Bill.
Living, as we do, in a period when the consumer's interest is paramount, it is perhaps surprising that we have not thought fit to update the legislative protection in this respect until now. I suppose it is fair to say that one or two scandals which affected relatively few people but received much publicity acted as the trigger. Following the rightly praised report of Professor Gower and the stock exchange agreement, to which reference has been made, it became clear that something approaching a revolution in the provision of financial services was on the horizon. Thus, the combination of isolated but serious scandals, a major 998 change in the City's activities and the era of consumer protection has led to the requirement for legislative change, the manifestation of which is before us in the shape of the Bill.
The Bill enshrines the principles of self-regulation by those offering financial services. I know that many disagree with that approach. Many feel certain that something akin to the United States Securities and Exchange Commission, with central Government involvement, would be preferable. I have to concede that even in the City there are misgivings. Many are convinced that the approach embodied in the Bill simply will not work and that tougher central Government control will have to ensue. I do not agree. In fact, I believe that is an excessively gloomy view and a rather unfair anticipation of the considerable movement represented by the Bill.
I believe that it is appropriate to give those in financial services the challenge to deal properly with the public. The vast majority of providers of financial services are honest people. It is regrettable that so much concentration is upon those who are not and who are clearly very much in the minority. I believe that many people—honest traders—in financial services want to provide a good and straightforward service. To encase such people in the straitjacket of bureaucracy, which I think could be well represented by the Securities and Exchange Commission approach, would be unacceptable, particularly to the small traders who abound in some of the areas under discussion within the ambit of the Bill.
If self-regulation is right, and if the Bill deserves a Second Reading—as it does—does that mean that there is no scope for improvement? On the contrary, there are wide gaps and omissions, most of which are for discussion in Committee. At the moment, all I need say is that although I understand the need for the Securities and Investments Board, I am concerned that so many of the rules that will underpin the legislation are to be left to a body that is effectively outside parliamentary control. If we cannot change that dramatically in Committee, we may feel that more positive guidance to the SIB is desirable.
I instance the licensing of an insurance salesman. There will be different opinions among hon. Members about whether or not that is a good thing, but it may not be wholly desirable to leave the decision on such important matters entirely to the SIB.
Further consideration should be given to whether we could at least lift the veil on the type of regulations that are likely to be issued by the SIB as this whole matter progresses.
More specifically, I draw the attention of the House to a glaring omission that I hope to seek to remedy if I am asked to serve on the Standing Committee. I refer to the failure to include non-life insurance within the ambit of protection of the consumer. Here I declare an interest as the parliamentary adviser to the British Insurance Brokers Association. I believe that anyone who considers that there is no scope for protecting the purchaser of fire, accident or motor policies has never been in the field and has not witnessed the considerable difficulty that can arise when a purchaser receives a policy that is either wrongly based or inexpertly sold. The Government's simple explanation is that this type of insurance cannot be included in the Bi11 because it does not constitute an investment as defined in the Bill, but that explanation does not go far enough.
I could give many examples of hardship caused by inexpertly arranged policies. It is true that there have been 999 few frauds in this area, but must we await the development of fraud before adequate consumer protection—which is no more than the purchaser of these non-life type policies has a right to expect—is extended to such policies? I hope that the Government will think again about this glaring omission. I repeat, if I am asked to serve on the Committee, I shall seek to amend the Bill to take care of that omission.
At this stage there is only one other aspect of the Bill to which I wish to draw the attention of the House. I am concerned that the protection offered to the investor when he is dealing with what clause 41 calls "an exempt representative"—before the Bill appeared it was called a tied agent—will be less than when he is dealing with an independent intermediary. In the public interest, there should be equalisation of protection. There should be a straightforward understanding in the public mind either that a person is dealing with an independent intermediary, with all that that implies, or that he is dealing with a representative of a particular life office. At present we are running the risk of obscuring the issue. We should turn our attention to that matter when the Bill goes into Committee.
I give a broad but sincere welcome to the Bill, which is a major step forward in investor protection and places responsibility on the practitioners. That is surely the right way forward. It does that, albeit with powerful guidance from the SIB. It will be welcomed by thousands of honest providers of financial services, just as I believe it will be welcomed by many of those to whom consumer protection will be extended.
§ Mr. Ian Wrigglesworth (Stockton, South)
Given the remarks of the hon. Member for Brentwood and Ongar (Mr. McCrindle) and other hon. Members, I imagine that we shall have an interesting Committee stage. I wish the hon. Member for Brentwood and Ongar and Ministers well in their deliberations, which I shall probably not be joining.
The remarks of the hon. Member for Chichester (Mr. Nelson) reminded me of the campaign that he has fought to get legislation of this sort on the statute book. At times the hon. Gentleman has ploughed a very lone furrow in order to try to bring about changes that are similar to those that are contained in the Bill. He reminded me of previous debates, and when he mentioned the old City adageMy word is my bond",he took me back to my banking examinations in the 1950s when I worked in the Midland bank. Before I came to the House I worked in the National Girobank and I am now an adviser to Barclays bank. I have therefore taken a long interest in this subject.
I welcome the legislation. It is overdue and has been long debated. The previous antagonisms and fears in the City about this sort of legislation have been misplaced, and will be proved to have been misplaced when this measure comes into operation.
I wish to make three general points before commenting on the structure in the Bill and the powers and standing of the SIB and the self-regulatory organisations.
First, as a number of hon. Members have already said, the abuses that have recently taken place in the City, as well as in times gone by, are not typical of the overwhelming majority of those who work in the City. 1000 That needs to be put clearly on the record, because it would be unfair and unjust if a substantial body of people—who are doing a perfectly honest and hard day's work and performing a useful task for the country—were blackened by recent events.
Secondly, fraud and malpractice will still continue even when the Bill gets on to the statute book. I am amazed at the naivety of those who think that we shall get a whiter than white, Persil-clean Lloyd's simply by bringing Lloyd's within the ambit of the Bill. All the evidence that I have seen from other western capitals and institutions in New York and Hong Kong shows that despite massive regulation, fraud still continues, collapses still take place and there is still malpractice. That is not an argument for not putting the measure on the statute book, but we should not run away with the idea that problems will no longer exist if we move in the direction outlined in the Bill.
Thirdly, the City makes a major contribution not only to our financial affairs but to the manufacturing and service sectors and to the life and prosperity of the country. That should also be put on the record.
So far, hon. Members have indulged in semantics in relation to the structure of the regulation prescribed in the Bill, because the gap between what is contained in the Bill and what the Labour party is proposing is not that wide. The proposals in the Bill have substantial statutory backup. The kernel of the argument is the balance between the powers of the SIB and the powers of the SROs. I do not know what the Labour party is proposing in detail; I do not know whether it proposes that there should be no SROs. That is not the case in the United States. Although there is a Securities and Exchange Commission, activities are regulated by the New York stock exchange and various other bodies.
Even under the proposals of the Labour party, I assume that there would still be some self-regulation and that it would not abolish the stock exchange council and the other organisations that exist. The question is what balance there is between the two spheres. In our amendment we have gone for a toughening of the Government's proposals. We do not think that they are as tough as they should be but again it is a matter of balance.
It is not just a question of toughness but of the standing of the organisation. The SIB must not be seen as a City body but as a body representing the public interest and, of course, investor and consumer interests. That is why we have suggested that it should be substantially if not entirely publicly funded, so that it is seen to be a public body and not a creature of the City. We have also suggested that membership of the organisation should be reviewed by a Select Committee of the House. That would be similar to the procedure adopted in the United States for public appointments. That procedure would have a beneficial effect on public appointments in this country if it was more widespread.
By those two principal means, the independence of the SIB would be greatly enhanced and its standing as a body protecting the public interest would thereby be greater. Most important, it would have the confidence of the public because it was seen to be a public authority.
If we were starting with a clean sheet there might be an argument for a different organisation of the sort proposed by the Labour party, but we are not starting with a clean 1001 sheet because we already have a substantial number of self-regulatory organisations. Therefore, it is inappropriate to go for the sort of statutory commission that the Labour party is proposing.
The powers of the SIB should be strengthened. Reference has already been made to the fact that the SIB has a nuclear deterrent power to act against SROs or just the power to issue remonstrance to them if they are not carrying out their duties properly. Clearly the SIB should be able to take action to change the rules of SROs without recourse to the courts. That is too complicated a mean of making changes.
In Committee and during the further passage of the Bill in another place the Government should take into account the way in which regulations will dovetail with international requirements. Virtually all the markets in the City operate on an international scale. In so far as it is possible it is important that our regulations dovetail with regulations in other financial centres around the world so that companies and institutions operating here are not at a disadvantage.
I have some worries that I hope will be considered during the passage of the Bill. I am concerned about overlap and confusion between different SROs. Quite a number of them are being established very late in the day. They are being set up without any track record, without real organisation and without real knowledge of how they will do their job. Everything is being done in a great rush. I hope that the SIB and Ministers will keep a close eye to see that there is not confusion and overlap. Individual institutions will have to register with a plethora of SROs because of the different activities within their organisations, and that may cause problems.
I do not believe that all of the City of London is aware of what will hit it after the big bang takes place. There will be rapid changes and an entirely new environment very different to the past. The aggressiveness, power, might and capital of the new international institutions that will come into the City will be a real challenge to the indigenous British institutions. The City will be much more aggressive and competitive. I hope that the City will become a larger international centre for the benefit of this country. It is because of the increased competitiveness that the Bill, with a tougher framework for the SIB, is necessary. I hope that when it comes back for Third Reading it will be of that character. Then we shall be happy to support it on its way to another place.
§ Mr. John Browne (Winchester)
I support the Bill but first I declare an interest in that I have worked in the stock exchange not only in London but in New York. I also control a company which may become subject to the Bill.
I support the Bill basically because it strikes a well-informed and good balance between allowing creativity in response to the needs of the market place and control in the interests of all participants, including the investors. By going for self-regulation with teeth we shall have policing by professionals rather than by amateurs.
Two basic issues divide the House. The first is about whether Lloyd's should be included. I shall not speak about that, in deference to other hon. Members who want to speak, because much has been said already.
The other issue is the balance of control. How much control should there be and where should it rest? Should there be State control or market control by self-regulation? 1002 One can examine the two extremes, one in the United States and one in the Euromarkets. In the United States under the Securities and Exchange Commission, there is relatively tight control.
Some have urged that we should have a Securities and Exchange Commission here. I ask those who do so to think of several factors. The United States' markets are different from the British markets and have a different origin. I worked on the New York stock exchange for about three years. The 1933 and 1935 Acts and the Glass-Steagil Act of 1933 have resulted in much higher costs in the market—there is no question about the enormous legal costs and the many delays. They have also led to two essential ingredients—a relatively clear market where everybody can see what is going on, and a relatively clean market. Those factors have added greatly to the size and liquidity of the United States market.
On the other hand, we have a much freer market in the Euromarkets. For an investor in Eurobonds and securities, there are two hidden securities. All the main issues of securities in the Euromarkets are subject to the United States Security and Exchange Commission because, although the issues are made in the Euromarkets, their main market is the American one. The issuers know that if they conunit a crime in a Euromarket, they would be out of issues in the United States. Therefore, the SEC has a hidden effect in the Euromarkets. The second control is the central bank regulations.
The United Kingdom has an immensely important series of markets, which make an enormous contribution to the country in terms both of earnings and of generating business. This allows small companies to grow. Our markets have a different character from those of the United States. There is a need for action because of the advent of the big bang, the resulting growth in size in the markets and the internationalisation of those markets. We are in a good position because we have seen how world markets in currency, bonds, securities and so on have evolved. We are in 1986, not 1936, so we do not have to face the uncertainties that faced the Americans in the early 1930s. We can learn lessons from the SEC and from other markets that may have been over or under-regulated.
We must look first at the essential ingredients of a market for securities, which would include the following factors. First, the market must remain creative and responsive to market needs. Secondly, it must be clear and open. Thirdly, it must be clean—in other words, well-policed. Fourthly, it must be efficient in terms of both execution and cost for the issuer and the investor. Fifthly, it must be liquid—in other words it must be large. Markets become large only if the small investor is adequately protected. Therefore, the Bill should be guided towards ensuring that those factors are kept paramount.
There are two points of difference between the two sides of the House. The Socialist party wrongly believes in control—in other words, a political response to the market—as opposed to our belief in enterprise in responding to the market place and market response. Secondly, it believes in policing by politicians and civil servants, both of whom are amateurs within financial business. We believe in policing by professionals, by people who understand the market. In other words, we believe in self-regulation subject to the Secretary of State.
I urge on my hon. and learned Friend the Under-Secretary three additions to the Bill. One is the protection of the members of the boards. As my hon. Friend the 1003 Member for Croydon, South (Sir W. Clark) has already said, it is vital if they are to do their job properly that they should have protection from libel and so on. Much more emphasis must be placed on the conflict of interest between the issuing or underwriting of securities and the management of assets—fund management. Thirdly, there must be greater emphasis on a complete and full disclosure of all the facets of a trade or bargain, including the volume of securities. It should not be an enormous task, with computerisation, even with the British way of trading. The sterling value of negotiated commissions must be disclosed to the purchaser.
I support the Bill because it is timely and good. It is self-regulation with teeth and that will allow creative professionals to operate and build up the market even more strongly. That will happen when the market is policed by professionals and not amateurs.
§ 9.5 pm
§ Mr. John Butterfill (Bournemouth, West)
I congratulate my right hon. and learned Friend the Secretary of State, the other Ministers in the Department and their predecessors on introducing the Bill, which is a most imaginative measure. We have denigrated the service industries too much and we have not appreciated the extent to which they contribute to our national life and are likely to do in the future. As many of the Third world countries develop their own manufacturing capability, so it becomes more important for us to rely on added value and on the specialist services that many of the companies in the City provide. It is, therefore, particularly important that we create an environment in which they can operate efficiently, and where the small and unsophisticated investor is protected. The Bill goes a long way towards that.
I have no personal interest in Lloyd's or any other aspect of the Bill, but it would be wrong to bring Lloyd's into the scope of the Bill. If we are to deal with Lloyd's it must be done in the context of insurance as a whole in a way that will not inhibit British insurers, which face increasingly agressive overseas competition.
I welcome the conditions in the Bill concerning disclosure and support the comments made by my hon. Friend the Member for Winchester (Mr. Browne). I have a deep suspicion of the principle of Chinese walls and I believe that that can be overcome only by the fullest possible disclosure. I am concerned that many of the major investment transactions that the Bill deals with relate to the process of house purchase and the purchase of insurance policies or packages related to house purchase. I hope that the Minister can give some assurance that there will be no conflict between what we impose in the Bill on those who are related to financial services and what is likely to happen in the Building Societies Bill. Many of the activities of building societies impinge absolutely and directly on what is proposed in the Bill.
There are many other areas in the Bill where problems remain unsolved. In particular, there is the conflict between insurance brokers and employed agents. I do not think that the Bill contains the necessary measures to protect the public in that area. I hope that some consistency will be imposed upon the self-regulating organisations in terms of their disciplinary procedures or there will be problems of unfair competition. I hope that the Minister 1004 can reassure us that the Securities and Investments Board will have a responsibility to ensure consistency of disciplinary procedures.
There are many other areas in the Bill where too much is left to regulations. On that matter I agree with my hon. Friend the Member for Chichester (Mr. Nelson). It would be much better if the Bill could spell out exactly what we wish to achieve in those areas. I am particularly concerned about clause 50 which deals with the matter of interest on clients' funds and whether those who are operating in that area will be required to account for interest. The Bill says that at the moment that will be left to regulation. I do not think that that is good enough. We should spell it out that all those who hold clients' funds should account for the interest. That was done in the Estate Agents Act 1979, subject to a de minimis rule. That is right and it should apply to everybody including solicitors, to whom it does not apply now.
§ Mr. Butterfill
There are many areas where we need to ensure that the regulations are absolutely clear. For example, the fact that we are proposing that an advertisement can be free from regulation, provided that it calls for a prospectus to be available, is open to considerable abuse because the advertisement could be extremely misleading, and then present the would-be investor with a confusing prospectus.
In general, I congratulate my hon. Friends on producing the Bill. I wish it well and hope very much that I shall be able to make a contribution in Committee.
§ Mr. Bryan Gould (Dagenham)
This long-heralded Bill is handicapped by the fact that it is required to meet a purpose that is far wider and more complicated than the one for which it was originally intended. As many hon. Members have reminded us, the genesis of the Bill was a series of scandals six or seven years ago that led to the report prepared by Professor Gower, which led to the White Paper, which has now produced the Bill.
While the Government were taking that leisurely course over getting to grips with City fraud, the City for which Professor Gower had written his report and for which the Bill is intended has, particularly over the past two years, changed almost beyond recognition. The starting point for that process of change—the City revolution, as some would call it—was, again, as many hon. Members reminded us, a deal struck between the then Secretary of State, the right hon. Member for Hertsmere (Mr. Parkinson), and the stock exchange. The deal arose out of the litigation proposed in the restrictive trade practices court, which was almost certain to produce substantial changes in the stock exchange rule book.
Despite all ministerial assurances to the contrary, that deal is universally seen as having been intended to stabilise the situation to buy some time. All that one can say is that rarely can such a step have so directly produced an outcome that was so much the opposite of what was intended. In fact, it launched the City into the big bang and ushered in a period of frenetic change. Far from slowing down the pace of that change, the Government found that they had a tiger by the tail.
As the hon. Member for Stockton, South (Mr. Wrigglesworth) said, it is doubtful whether even the City 1005 itself fully recognises what that revolution will mean. On the evidence of the Bill, it is clear that the Government do not fully recognise that. The City of the future will be dominated by huge international financial conglomerates in which the international giants—Merrill Lynch from New York and Nomura Securities from Tokyo—will play a dominant part. The securities market will no longer be a cosy club; it will be open to all corners. The old clubby atmosphere will have gone. The old institutional safeguards will be swept away. The process will be spurred on by technological change, and the ease of electronic communication. The City will become just one part of a 24-hour international capital market.
The City itself will change in the business of what it sells. It will no longer sell little bits of expert information picked up on the wind, and little bits of gossip. It will find that it has to compete in a way which, up to now, has been unfamiliar to it—in speed, comprehensiveness, accuracy, reliability and price competitiveness, as well as, significantly, the amount of investor protection that is offered. It is worrying that, as a consequence of those changes, the City will be opened up to the full blast of international competition, which manufacturing industry has already had to endure ahead of the City. It will be interesting to see whether the Government adopt the same cavalier attitude towards the fortunes of the City as towards the fortunes of manufacturing industry.
As the hon. Member for Chichester (Mr. Nelson) said, once that process is fully launched, once the huge international firms are shouldering aside smaller domestic enterprises, there will be blood on the carpet. The smaller firms will go to the wall because the volume of business will not expand fast enough to accommodate all those who want to get in on the act.
The gilts market is a good example. No longer will it be a market that is dominated by two major jobbers that have a cosy relationship with the Bank of England. It will be a market in which 29 market makers will be scrambling for position. Not all of them will survive. There will be a premium on those with the largest resources: those who are prepared to sit out losses over a very long period. In that game the foreign giants will have all the cards in their hands. It will create major problems, not least for the Government. I cannot believe that even this Conservative Government will be content if the business of funding its borrowing requirements is in the hands of foreign institutions that have little or no loyalty to the British economy.
In this context there is much more of a problem for the investor. It is inevitable that, as the competition intensifies, corners will be cut and that rules will be bent. As the old safeguards—the institutional divisions between jobbing and broking—go, no longer will there be shared assumptions about the way in which business should be done. In the new international conglomerates, conflicts of interest will inevitably be built in. I agree with the comment of the hon. Member for Winchester (Mr. Browne) that Chinese walls are flimsy structures upon which to place much reliance. With many newcomers, intensified competition and many people scrambling for business, the investor may be at the bottom of the pile. The problems will be compounded when, as was pointed out by the hon. Member for Chichester, the inevitable bear market arrives. There will be a shake-out and the survival of some firms will be in question. At that stage consumer interest will be put under the greatest pressure.
1006 All these developments are taking place against the background of great concern about the level of City fraud. In the five years since Gower was commissioned, the Government have pursued a somewhat leisurely course. Apparently they are in no hurry to put an end to these malpractices or to bring the wrongdoer to book. As some of my hon. Friends have already pointed out, that is in marked contrast to the alacrity and zeal and the tremendous resources that have been devoted to tracking down low level, social security fraud.
During this five-year period, City fraud has grown apace. Scandals have proliferated. An atmosphere akin to a casino has developed, in which huge rewards have been paid to the winners without making too much of a distinction between those winners who abide by the rules and those who do not. We have seen criminals fleeing the jurisdiction of this country and cocking a snook at the authorities from the decks of their yachts. Insider dealing is still rife. If one looks at the Arthur Bell share price before the Guinness bid, one sees a very good illustration of that.
Unfortunately, London is acquiring the reputation of a financial centre that is soft on fraud, where anything goes, where the chances of getting caught are remote, where the police resources that are provided are inadequate to detect fraud and where the prevailing ethos—this is most damaging—fails to distinguish clearly between what is right and what is wrong.
All of these problems are epitomised not just by Johnson Matthey and Lloyd's, although they are important and where everybody can see that things went badly wrong, but, more worryingly, by episodes such as the British Telecom launch. Neither the Government nor the City firms that were involved seem to understand that what happened was unacceptable. May I remind the House that the City firms that were involved professionally in that launch and that were already charging unusually high commissions and fees for their professional services also dealt in the shares. They used their privileged access to the shares, by virtue of their professional capacity, to make huge capital gains for themselves, thereby blurring the essential distinction between acting for others and acting for themselves in the same market.
The reason why I regard this with such seriousness is that it is exactly the kind of practice that can no longer be tolerated in a modern City. Yet that is exactly the sort of practice that will be difficult to control, given the new structures in the Bill. In a situation of revolutionary change, uncertainty and frantic competition, we must ask how the Bill matches up to those responsibilities.
There is much in the Bill that the Opposition can support. We welcome the general structure of authorisation. Contrary to what has been said in wilful obtuseness by alliance Members, we welcome the combination of self-regulation and statutory regulation that is provided in the Bill. Any hon. Member who has taken part or listened for a moment to any of the debates on this subject over the past two or three years, would know that that was the case.
The Government believe that the structure provided in broad terms in the Bill matches up to the general recognition on the part of all but a few backwoodsmen, that the City depends for its survival and future prosperity on effective regulation. If the City will not provide the investor protection that is available elsewhere, investors will take their business elsewhere. There is a clear lesson to be learned from the market in commodities. Ten years 1007 ago Chicago introduced very strict regulations and London dealers thought that that was marvellous as business would come to London because the market would not tolerate the strict regulations in Chicago. Experience has shown that the reverse was true: people like to deal in a situation where they know how they stand and that they are properly protected by the rules.
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
I would like the hon. Gentleman to comment on one point. Too often it is said that the City and the Government are soft on fraud. We all accept that some of the goings on at Lloyd's were not just unacceptable but disgraceful. However, big changes have been made. The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) made great play within the privilege of the House about the Johnson Matthey affair. Does the hon. Member for Dagenham (Mr. Gould) agree that it is unfair to suggest that nearly all the merchant banks and brokers and the City are soft on fraud, when 98 per cent of the City is highly reputable, is jealous of its reputation and works hard to make a great living for this country's balance of payments?
§ Mr. Gould
I am surprised that the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) should think it necessary to make that point, since it has been made repeatedly throughout the debate and is, I believe, common ground. The Opposition, and I believe the Government, are rightly concerned about the hon. Gentleman's own assessment of the 2 per cent.—if he wants to place that figure so high; that is a very high volume of money and business—which is not acceptable. We should concentrate our attention upon that 2 per cent.
Although the Opposition endorse the general approach, we find that the real problem with the Bill is not what it contains but what it leaves out. The missed opportunities and the omissions mean that the Bill is simply inadequate to carry the heavy burden that it is required to bear.
The first problem in assessing the likely efficacy of what is proposed is that so much of what is proposed is not in the Bill. So much depends on orders yet to be made by the Secretary of State and on rules yet to be made by the SIB and the SROs, five of which do not yet exist. The rules on how conflicts of interest are to be avoided have yet to be established. The Opposition share the anxieties expressed in some quarters about the proposals for rules concerning the licensing of insurance salesmen as expressed by MIBOC. The rules on the disclosure of commissions are not yet available. Of the seven SROs likely to be recognised, only two have been in existence for any length of time and only one, the stock exchange, has any record of capacity to provide effective regulation. We are left in the dark as to how effective the structure will be in regulating the City.
The second problem is the sheer complexity of what is proposed. There will immediately be an unnecessarily complicated structure arising from the fact that the Secretary of State intends to delegate his powers to an SIB. The SIB in turn will supervise SROs which will then regulate their members. Bearing in mind that five of those SROs do not yet exist, one can see straightaway that there is an inbuilt uncertainty and complexity about that point.
1008 Added to the already complex structure is the possibility that many people will seek direct authorisation. The SIB will, in a sense, act as an SRO bypassing other SROs. In addition, many of the new financial conglomerates will have to belong to several SROs which will, in many cases, have overlapping jurisdictions. For example, investment managers may choose to belong either to NASDIM or to the as yet non-existent investment management regulatory organisation.
Added to that, some institutions, such as banks, building societies and insurance companies would also be subject to a different system of regulation. Banks will be regulated by the Bank of England, insurance companies by the Department of Trade and Industry and building societies by provisions in the new Building Societies Bill. That will create awkward problems of competing jurisdictions and the SROs will have difficult demarcation questions to resolve for themselves.
The stock exchange and the new international securities regulatory organisation have yet to resolve who is to take the lead in regulating the hitherto unregulated market in international securities. And all that is to say nothing of the professionals—solicitors, accountants and others—who, because they offer investment advice, will also have to be brought within the provisions of the Bill and will have to become authorised persons, presumably by virtue of their membership of a recognised professional body.
This whole ramshackle, unwieldy structure might just have a chance of working if there were a clear statutory framework, established by the Bill, to provide us with much-needed coherence. But much of the complexity and uncertainty that is inherent in the Bill arises from the fact that there is a gaping hole at the heart of it.
When one asks the simple question, "Who is to be at the apex of the pyramid to control the structure of statutory rules under which the SROs will regulate themselves from day to day?", one sees that the Bill is strangely silent or gives only a partial and coy answer. We have to wait until clause 96 before there is a glancing reference to a body corporate. It is not identified; one imagines that it will be a group of chaps on whom the Secretary of State's eye might happen to alight. In other words, what is missing is the keystone of the arch of regulations: a body with its own statutory identity, its own powers and, above all, independence from the City.
The problem with the SIB is not only its uncertain status but the fact that it will be financed by, and largely staffed from, the City. It is hard to see how it can be relied upon to regulate effectively those on whom it is financially dependent.
§ Mr. Gould
No. I am sorry, but I have very little time.
The failure to put in place a self-standing commission, independent of the City, with its own statutory identity and powers, is in marked contrast to the position in virtually every other capital market in the advanced world. Efforts are made to allude to an SEC on the American model, but we do not necessarily want a lawyer-ridden and bureaucratic institution of that type, although we must admit that the SEC has improved its operations considerably in recent years. There are in other jurisdictions many statutory models working well and with 1009 the warm endorsement of the practitioners involved. Ontario is an excellent example which I commend to the Government.
The pity is that, in this respect, the Government have allowed themselves to be overtaken by City opinion. The structure proposed by the Bill—the unsatisfactory compromise contained in it—would probably be rejected by a majority in the City which recognises the desirability, or perhaps only the inevitability, of some form of statutory commission. It is interesting that one of the Secretary of State's predecessors, Sir John Nott, is on record to that effect, and I was much taken by the argument of the hon. Member for Chichester in support of that view.
The problems and uncertainties that will be faced are so great that there must surely be a premium on the simplest, clearest and most direct form of regulation that is available. The Bill is weak-kneed and pussy-footing on that central question. It leaves the whole structure broken-backed and we shall table amendments to remedy that central defect.
Further deficiencies arise out of that central problem surrounding the powers that the SIB is to be granted. The Bill fails to give the SIB the power to enforce changes in the rules of SROs quickly and directly. It also fails to provide the SIB with powers to initiate prosecutions. That is probably explained by the fact that it would be inappropriate to give such powers to a non-statutory body.
Lloyd's is the most startling omission from the Bill. Clause 40 specifically excludes Lloyd's because the Government argue that Lloyd's is primarily an insurance business rather than an investment business. Lloyd's is an insurance business regulated by the DTI, but that should not matter, because it would not be the only body subjected under the Bill to two different systems of regulation. For those who are names in Lloyd's and invest in Lloyd's there can be no doubt that it is an investment business. That investment business has caused all the problems. As an investment business, Lloyd's should be regulated under the Bill.
Clause 40 concedes my point, because it takes the trouble to exclude the investment side of Lloyd's operations. If it were not for clause 40, that investment business would be included in the Bill. We oppose that specific exclusion.
It is difficult to accept the omission of Lloyd's, because Lloyd's has given rise to more anxiety than any other City institution. It almost beggars belief that the main cause of worry has been omitted from a Bill that is designed to regulate the City.
Lloyd's maintains that we have nothing to fear because the scandals occurred before 1982. That may be true, but there is good reason for doubt. There is little in Lloyd's recent history to inspire confidence. There have been the problems with the Inland Revenue that necessitated the huge inquiry, the resignation of the Bank of England appointed chief executive following a row about his independence, the difficulty in prosecuting admitted criminals at Lloyd's and the failure to compensate investors in the PCW and other syndicates for their losses. It could be said that Lloyd's role in that affair was to obstruct rather than to help investors.
Let us consider the case of the then Minister for Trade, the hon. Member for Edinburgh, Central (Mr. Fletcher) who was misled about how many members of the syndicate had passed the insolvency test, which led to the 1010 Minister making a misleading statement to the House. As my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) pointed out, to protect a former chairman of Lloyd's there was an attempt to prevent the disclosure of his involvement in some of the recent difficulties. Those factors mean that we cannot allow Lloyd's to be left to its own devices.
Lloyd's is important as a body but also because it is the best illustration of what can go wrong and of what has gone wrong when there is self-regulation and no effective element of outside supervision. What went wrong at Lloyd's was not caused by a few crooks at the margin. Those at the heart of the Lloyd's establishment embraced the baby syndicates and the reinsurance arrangements that were the vehicle for fraud. The regulators at Lloyd's lost sight of the distinction between what was acceptable and what was not. The City cannot afford the luxury of that introspection. We shall do all that we can to prevent the Bill from allowing Lloyd's to continue on that course.
The announcement made last week of an inquiry is a transparent tactic to head off an all-party campaign to ensure that Lloyd's is brought within proper control. If the hon. Member for Chichester wishes statutory provisions to define the role of the chief executive, the Bill will he his best opportunity for a long time. The problem is not only that some elements in the City are too close to the subject to make proper judgments. The Government have found it difficult to disentangle themselves from the interests of that dwindling minority in the City who continue to oppose effective regulation. The Bill is a product of a Government who have listened too attentively to the siren voices. They have been too cautious, too timid and too reluctant to face down those who would oppose regulation, and they have been too short-sighted to face up to their responsibilities. The Bill is a disappointment. It does not measure up to the problems that the City of the future will face.
If the Bill passes into law in its present form, it will fail to resolve the problems faced by the City, and, what is more, it will guarantee that further and more far-reaching legislation will shortly be required.
§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard)
Before I address some of the numerous issues which have been raised in this debate may I, for the benefit of those few right hon. and hon. Members present who were not in the House at 3.16 am on 19 December, when I replied to a debate on the Consolidated Fund Bill, repeat what I said then about my own position in relation to Lloyd's?
I ceased all underwriting at Lloyd's on 2 September, the day on which I was appointed to the Government, in accordance with the conventions applying to Ministers in my position. I accordingly ceased on that day to be a member of any of the syndicates in which I had previously participated.
I remain a non-underwriting member of Lloyd's, but I have no further business there save for that arising out of my pre-existing contracts before they expire.
§ Mr. Gould
As the Minister said, so few people were present when he last made his statement that it may be desirable to amplify it somewhat. Will he confirm that he remains a member of Lloyd's and is entitled, for example, to go into the room? If he cannot, for any reason, 1011 disentangle himself from his involvement with Lloyd's as Peter Cameron-Webb seemed able quickly and successfully to do, does he not regard that as a reason for withdrawing his supervision of the Bill and handing it to another Minister?
§ Mr. Howard
The answer to that is no.
When my right hon. and learned Friend opened this debate, he began by referring to the importance and success of the financial services sector of our economy. Those remarks have been echoed by several right hon. and hon. Members on both sides of the House who have contributed to the debate. It is a sector that has proved itself capable of responding to the needs of the marketplace and the challenge of overseas competition. The City of London has become established as an essential leg of the world financial tripod competing effectively with New York and Tokyo.
§ Mr. Austin Mitchell
On a point of order, Mr. Speaker. I was unable to hear the Minister's declaration of his interest in Lloyd's.
§ Mr. Howard
The City of London has become established as an essential leg of the world financial tripod competing effectively with New York and Tokyo and taking full advantage of its pivotal position in relation to time zones.
§ Mr. Mitchell
On a point of order, Mr. Speaker. The Minister has told us that he no longer deals at Lloyd's. He has not told us what is his financial interest in Lloyd's.
§ Mr. Howard
That is what I said earlier, and the record will show that. I have no continuing interest in Lloyd's save for the pre-existing contracts into which I entered, until they expire. Those are the words which I read at the beginning of my speech.
§ Mr. Mark Fisher (Stoke-on-Trent, Central)
Will the Minister explain when those contracts expire and what they are worth?
§ Mr. Howard
There is no requirement for me do that. I have no idea what the contracts are worth. It means that I cannot renege on any debts that arise or bring those liabilities to an end in any other way.
I should now like to deal with some of the issues raised in the debate. I should like to express my gratitude to those of my right hon. and hon. Friends who have expressed support for the principles enshrined in the Bill. I will confine myself to singling out for particular mention my hon. Friend the Member for Edinburgh, Central (Mr. Fletcher), who, together with my right hon. Friend the Member for Chingford (Mr. Tebbit), made such an 1012 enormously distinguished contribution to the preparation of this legislation. I am happy to have this opportunity to acknowledge that.
I have no doubt that the principle of the concept of self-regulation or regulation by practitioners within a statutory framework is the right basis on which to build. When it comes to the daily regulation of the way business is done in the market place and the application to those who transact investment business of the principles governing the conduct of that business which are set out in the Bill, there is no alternative to regulation in that market place by those who know how it works, who understand the complexities that often arise—
and who are organisationally equipped to take quick and effective action and to make that action stick.
To suggest that in some way this process could be carried out more effectively on the basis of an exclusively statutory system of law, enforced by the courts at the behest of lawyers, reveals a complete failure to understand the nature of the exercise which is necessary and with which we are concerned.
§ Mr. Campbell-Savours
On a point of order, Mr. Speaker. On a point of order raised by my hon. Friend the Member for Great Grimsby (Mr. Mitchell), the Minister was asked a specific question. He was also asked the question by a number of my hon. Friends. The Minister has not been forthcoming in his declaration. Is it not true that the Minister is in a position to divest himself totally of his interest in Lloyd's? Would he care to deny that that is the case?
§ Mr. Speaker
The point of order should have been addressed to me and not to the Minister. I cannot answer for him.
§ Mr. Austin Mitchell
Further to that point of order, Mr. Speaker. In his declaration of interest the Minister told us that he has a continuing income from contracts agreed at Lloyd's before he became a Minister. We need to know whether the continuation of that income depends on the regulation or the non-regulation of Lloyd's under this Bill.
§ Mrs. Kellett-Bowman
Further to that point of order, Mr. Speaker. Would it not be helpful if Opposition Members understood how Lloyd's liability actually works before they start criticising people who cannot divest themselves of possible losses?
§ Mr. Speaker
Points of order are a matter for me. I cannot answer for the Minister. What I can say is that the Minister has made a declaration of his interests and has divested himself of that interest, as I understand all Ministers are required to do.
§ Mr. Foulkes
Further to that point of order, Mr. Speaker. I understood that it was the case that Ministers should divest themselves of all pecuniary interests, all outside interests, that conflict with ministerial responsibility and matters about which they are meant to speak to this House. In your view, Mr. Speaker, would it not be more appropriate for another Minister from this Department who does not have an interest to deal with this Bill?
§ Mr. Speaker
The hon. Gentleman is now seeking to draw me into the argument. I am not prepared to be drawn into the argument.
§ Mr. Jack Straw (Blackburn)
Further to that point of order, Mr. Speaker. Page 411 of "Erskine May" says:No Member who has a direct pecuniary interest in a question is allowed to vote upon it; but, in order to operate as a disqualification, this interest must be immediate and personal,".My point of order relates to the vote which is due at Ten o'clock. Will you confirm, Mr. Speaker, that it is within the knowledge of this House that your predecessor, Mr. Speaker Thomas, when he had this point raised by me and many of my hon. Friends on the Second Reading of the Lloyd's Bill some three years ago, advised people in exactly the same position as the Minister who were members of Lloyd's, including all those who declared any kind of interest as members of Lloyd's, and those who declared the kind of interest declared this evening by the Minister, not to vote on the Bill? If Mr. Speaker Thomas so advised, why should this Minister be allowed to vote on this Bill?
§ Mr. Speaker
Perhaps I could clear up that issue immediately. There is a distinction between a private Bill and a public Bill. In matters of public policy, it has been the long-standing practice of the House—originally formulated as far back as 1811 by Mr. Speaker Abbot—that there is no obligation on an hon. Member to refrain from voting on a matter of public policy.
§ Mr. Straw
Further to the point of order, Mr. Speaker. Page 411 of "Erskine May" directly quotes Mr. Speaker Abbot. The passage which I read out does not relate solely to private Bills; it relates to all Bills. Mr. Speaker Abbot said:This interest must be a direct pecuniary interest, and separately belonging to the persons whose votes were questioned, and not in common with the rest of his Majesty's subjects, or on a matter of state policy.State policy, not public policy. We are discussing a Bill that directly relates to a society of Lloyd's of which the Minister is a member and in which he has admitted that he has a direct financial and continuing interest. Surely that comes within what is said on page 411 of "Erskine May".
§ Mr. Speaker
I do not need any help on this matter because I have carried out my research on it, as the House would expect. I am in no doubt that on matters of public policy—this is a matter of public policy—it has always been the practice for hon. Members to be able to vote. There is a clear distinction between matters of public policy and private Bills.
§ Mr. Straw
Further to the point of order, Mr. Speaker. If what you are saying is exactly correct, will you explain why there is a separate section in "Erskine May" on page 413 on personal interests and votes on private Bills, while the section I have quoted on page 411 plainly relates to Divisions on public Bills? I have now read the whole section. If this is not a direct pecuniary interest which would disqualify an hon. Member from voting on it, what is?
§ Mr. Gould
Further to the point of order, Mr. Speaker. It may be helpful if we make it clear that the point that is exercising the minds of Opposition Members is not that the Minister failed to make a declaration. We accept that he has made an accurate declaration. We are prepared to accept also that, for one reason or another, he cannot divest himself of his interest. The point that concerns us is whether, in those circumstances, he should present himself at the Dispatch Box to pilot this measure through the House and vote on it at the end of the debate and throughout the Committee. It is on that point that we seek your ruling.
§ Mr. Speaker
I give my ruling. On matters of public policy, it is in order for an hon. Member to cast his vote.
§ Mr. Howard
I was dealing with the question that my right hon. and learned Friend the Secretary of State raised—
§ Mr. Spearing
On a point of order, Mr. Speaker. I seek your assistance on the distinction between making a declaration and voting, on which you have ruled, and the question whether a Minister of the Crown who is introducing a Bill may have a direct pecuniary interest in a matter on which he seeks legislation or a potential matter which it can cover. Is not the Minister's interest a separate and different matter from the issue of voting and declaration by an hon. Member on a private Bill?
§ Mr. Speaker
The Minister, like all Ministers, is subject to the ministerial regulations concerning private interest, and he has so declared.
§ Mr. Howard
I was dealing with the question some time ago which my right hon. and learned Friend had posed earlier on. He said that it was no use talking about "fully statutory systems" or comparable phrases as if the phrase were a label which could be pinned on a regulatory system as some mark of approval. To discuss the question in that way is to avoid the need to give any real thought to the practicalities of the system and how it would actually work. No one was more guilty of the label-pinning approach to the kind of legislation with which the House is concerned tonight than the right hon. and learned Member for Monklands, East (Mr. J. Smith) who, I am sorry to see, is not in his place at this stage—although there is, no doubt, an excellent reason for that.
The right hon. and learned Gentleman said that he wanted an independent, self-standing commission. He prayed in aid of his case—it was a measure of the weakness of the case— a leading article from the Financial Times of 18 October 1984. In order to bolster his case, the right hon. and learned Gentleman had to go back to an issue of the Financial Times which was published three months before the publication of the White Paper on which this legislation is based and 14 months before the Bill itself was published. If the right hon. and learned Gentleman had been a little more up to date he would have found rather different statements in leading articles of the Financial Times.
No doubt the reason that he did not use the leading article which greeted the White Paper in January of this 1015 year was that that article said that, although there were reservations about the structures proposed by the Government, there were no quarrels with the guiding principles. He could have quoted from the leading article published on the day after the Bill itself was published, but no doubt he chose not to quote from that because it said that the framework set out in the Bill deserved the strongest support. Rather inconvenient for his argument as those leading articles were, therefore, he went back to one published in October 1984 in order to summon up some scant support for the proposition that he was advancing.
The fact is that Opposition Members who have sought to put forward differences between what they want and what is set out in the Bill, have totally failed to identify with any clarity whatever, precisely what it is that they see as the advantage in some artificial hypothetical system which they choose not to identify but which they apparently commend to the House.
The hon. Member for Yeovil (Mr. Ashdown), who spoke on behalf of the Liberal party, put forward a number of detailed points, assuring the House that they represented not the first and perhaps not the second reaction of his party to the proposals in the Bill but either the third or the fourth, I was not quite sure which.
§ Mr. Howard
He says that they are well thought out.
I do not complain about the fact that he and his party were in a state of doubt about the Bill. What is interesting is the way in which they seek to implement that state of doubt. The way in which they do it, as the hon. Gentleman assured us when he came to tell us how his party would vote, is that they will vote against the Bill tonight. He sought refuge in the reflex which always governs the Liberal party's actions in these matters: when in doubt vote with Labour. He and his colleagues are in doubt about this Bill and they propose to manifest that doubt by going into the Lobby with Labour Members when it comes to the vote tonight.
I turn now to Lloyd's and why it is excluded from the Bill. The reason why Lloyd's is not covered by the Bill is simple. The main business of Lloyd's is insurance, insurance that is written purely to provide protection and which is not the kind of long-term investment insurance which is covered by the Bill. [Interruption.]
§ Mr. Howard
The way in which Lloyd's is organised means that carrying on that insurance business necessarily implies that some investment business is carried out—for example, the investment management of insurance premiums received by members of Lloyd's before claims are paid—but the essence of Lloyd's is insurance business, which is therefore significantly different from the investment business which is the concern of the Bill.
There are considerable advantages in regulating all Lloyd's activities and protecting fully the policyholders and names in a single piece of legislation and within a single, comprehensive framework. Such a piece of legislation exists. It is the Lloyd's Act 1982, giving the council of Lloyd's very wide-ranging powers. Hon. Members must recognise that it is the protection of the 1016 policyholders which is paramount and that Lloyd's has an enviable record of success in this area: no valid claim from a policyholder has ever failed to be met.
We recognise the anxiety that exists in many quarters about the adequacy of the 1982 Act, and the working of the regulatory system set up under it in terms of the protection which is afforded to names. That is why my right hon. and learned Friend set up an inquiry into the matter. That inquiry will be full, vigorous and independent, and I am grateful to right hon. and hon. Gentlemen who have welcomed it.
My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) gave the House in measured tones his doubts about the exclusion of Lloyd's from the Bill, and dealt with those reasons which he had not found persuasive, but recognised that in the light of the inquiry there were advantages in waiting for its recommendations and conclusions before taking any decision. Clearly, some people have not been satisfied by that action, and have called for the inclusion of Lloyd's in the Bill in advance of the outcome of the inquiry. They seek to deny the House the advantage of the inquiry's examination of the problem, and its conclusions and recommendations before deciding what action should be taken.
To bring Lloyd's within the scope of the Bill would involve forfeiting those advantages, introducing the extremely difficult practical problems of marrying two different systems of regulations contained in two different sets of legislation, and imposing substantial and unnecessary burdens on both Lloyd's and the regulation of financial services envisaged by the Bill. None of those who have complained about the omission of Lloyd's from the Bill have dealt adequately with those difficulties.
Some right hon. and hon. Gentlemen have raised questions about the extent to which the Bill provides powers for dealing with enforcement. The Government's position is clear. We have repeatedly made clear our determination to tackle fraud, but it is also important to tackle less serious malpractice which results in investors getting a raw deal. The Bill will help to do both. The requirement to be authorised will help to keep potential fraudsters out of investment businesses. Contravention of the requirement will be a criminal offence, and relatively easy to prove. The Bill will make it easier to detect fraud and malpractice. There will be extensive powers to monitor and investigate authorised businesses. The combined investigation resources of the Department of Trade and Industry, the designated agency and the SROs will make it more difficult for wrongdoers to escape detection. Problems once discovered must be effectively dealt with. We are strengthening the criminal law and increasing the resources devoted to enforcement. Criminal law is only part of the solution. Disciplinary action and remedies to recover investors' losses from misconduct are equally important.
The Bill extends the existing rights of an investor to sue a business. That may be expensive, so the Bill enables the Secretary of State or the agency to go to court on an investor's behalf. It is even better to resolve disputes without having to go to court, and I welcome the proposal of the Securities and Investments Board to set up an ombudsman scheme.
The Bill provides tough powers against offenders. The Secretary of State or the agency can withdraw or suspend authorisation, and can use a wide range of intervention powers to protect investors. Those measures will not only 1017 catch misbehaviour, but will deter it, which is even more important. I am confident that the Bill will provide all the powers necessary to investigate and act on all sorts of fraud and malpractice. By harnessing the expertise and resources of the City with those of the Government we should be able to secure better protection for investors.
Shortly after I was appointed, I wrote to many right hon. and hon. Members who had expressed an interest in the subject, including Labour Members, saying that I hoped that we could approach this important legislative measure in a constructive and non-partisan spirit so as to ensure that we ended up with the best possible solutions to the problems with which the Bill seeks to deal. That is my objective, and I am confident that we can achieve it. In that spirit I commend the Bill to the House.
§ Mr. Speaker
The original Question was, That the Bill be now read a Second time, since when an amendment has been moved—
§ Mr. John Cope (Treasurer of Her Majesty's Household)
rose in his place and claimed to move, That the Question be now put.
§ Question, That the Question be now put, put and agreed to.
§ Question accordingly put, That the amendment be made:—
§ The House divided: Ayes 184, Noes 359.1020
|Division No. 35]||[10 pm|
|Abse, Leo||Cunliffe, Lawrence|
|Adams, Allen (Paisley N)||Cunningham, Dr John|
|Anderson, Donald||Dalyell, Tam|
|Archer, Rt Hon Peter||Davies, Rt Hon Denzil (L'lli)|
|Ashton, Joe||Davies, Ronald (Caerphilly)|
|Atkinson, N. (Tottenham)||Davis, Terry (B'ham, H'ge H'l)|
|Bagier, Gordon A. T.||Deakins, Eric|
|Banks, Tony (Newham NW)||Dewar, Donald|
|Barnett, Guy||Dixon, Donald|
|Barron, Kevin||Dobson, Frank|
|Bell, Stuart||Dormand, Jack|
|Benn, Rt Hon Tony||Douglas, Dick|
|Bennett, A. (Dent'n & Red'sh)||Dubs, Alfred|
|Bermingham, Gerald||Dunwoody, Hon Mrs G.|
|Bidwell, Sydney||Eadie, Alex|
|Blair, Anthony||Eastham, Ken|
|Boyes, Roland||Edwards, Bob (W'h'mpt'n SE)|
|Brown, Gordon (D'f'mline E)||Evans, John (St. Helens N)|
|Brown, N. (N'c'tle-u-Tyne E)||Ewing, Harry|
|Brown, R. (N'c'tle-u-Tyne N)||Fatchett, Derek|
|Brown, Ron (E'burgh, Leith)||Faulds, Andrew|
|Buchan, Norman||Fields, T. (L'pool Broad Gn)|
|Caborn, Richard||Fisher, Mark|
|Callaghan, Rt Hon J.||Flannery, Martin|
|Callaghan, Jim (Heyw'd & M)||Foot, Rt Hon Michael|
|Campbell-Savours, Dale||Forrester, John|
|Clark, Dr David (S Shields)||Foster, Derek|
|Clarke, Thomas||Foulkes, George|
|Clay, Robert||Fraser, J. (Norwood)|
|Clelland, David Gordon||Freeson, Rt Hon Reginald|
|Clwyd, Mrs Ann||Garrett, W. E.|
|Cocks, Rt Hon M. (Bristol S.)||George, Bruce|
|Cohen, Harry||Gilbert, Rt Hon Dr John|
|Coleman, Donald||Godman, Dr Norman|
|Concannon, Rt Hon J. D.||Gould, Bryan|
|Conlan, Bernard||Gourlay, Harry|
|Cook, Frank (Stockton North)||Hamilton, James (M'well N)|
|Cook, Robin F. (Livingston)||Hamilton, W. W. (Fife Central)|
|Corbett, Robin||Hardy, Peter|
|Cox, Thomas (Tooting)||Harman, Ms Harriet|
|Craigen, J. M.||Harrison, Rt Hon Walter|
|Crowther, Stan||Hart, Rt Hon Dame Judith|
|Heffer, Eric S.||Patchett, Terry|
|Hogg, N. (C'nauld & Kilsyth)||Pendry, Tom|
|Holland, Stuart (Vauxhall)||Pike, Peter|
|Home Robertson, John||Powell, Raymond (Ogmore)|
|Howell, Rt Hon D. (S'heath)||Prescott, John|
|Hoyle, Douglas||Radice, Giles|
|Hughes, Robert (Aberdeen N)||Randall, Stuart|
|Hughes, Roy (Newport East)||Redmond, M.|
|Hughes, Sean (Knowsley S)||Rees, Rt Hon M. (Leeds S)|
|Janner, Hon Greville||Richardson, Ms Jo|
|John, Brynmor||Roberts, Ernest (Hackney N)|
|Jones, Barry (Alyn & Deeside)||Robertson, George|
|Kaufman, Rt Hon Gerald||Robinson, G. (Coventry NW)|
|Kilroy-Silk, Robert||Rogers, Allan|
|Kinnock, Rt Hon Neil||Rooker, J. W.|
|Lambie, David||Rowlands, Ted|
|Lamond, James||Ryman, John|
|Leadbitter, Ted||Sedgemore, Brian|
|Leighton, Ronald||Sheerman, Barry|
|Lewis, Ron (Carlisle)||Sheldon, Rt Hon R.|
|Lewis, Terence (Worsley)||Shore, Rt Hon Peter|
|Litherland, Robert||Short, Ms Clare (Ladywood)|
|Lloyd, Tony (Stretford)||Silkin, Rt Hon J.|
|Lofthouse, Geoffrey||Skinner, Dennis|
|Loyden, Edward||Smith, C. (Isl'ton S & F'bury)|
|McCartney, Hugh||Smith, Rt Hon J, (M'ds E)|
|McDonald, Dr Oonagh||Snape, Peter|
|McGuire, Michael||Soley, Clive|
|McKay, Allen (Penistone)||Spearing, Nigel|
|McNamara, Kevin||Stott, Roger|
|McTaggart, Robert||Strang, Gavin|
|Madden, Max||Straw, Jack|
|Marek, Dr John||Thomas, Dafydd (Merioneth)|
|Marshall, David (Shettleston)||Thomas, Dr R. (Carmarthen)|
|Martin, Michael||Thompson, J. (Wansbeck)|
|Mason, Rt Hon Roy||Thorne, Stan (Preston)|
|Maxton, John||Torney, Tom|
|Maynard, Miss Joan||Wardell, Gareth (Gower)|
|Meacher, Michael||Wareing, Robert|
|Michie, William||Weetch, Ken|
|Mikardo, Ian||Welsh, Michael|
|Millan, Rt Hon Bruce||White, James|
|Mitchell, Austin (G't Grimsby)||Wigley, Dafydd|
|Morris, Rt Hon A. (W'shawe)||Williams, Rt Hon A.|
|Morris, Rt Hon J. (Aberavon)||Wilson, Gordon|
|Nellist, David||Winnick, David|
|Oakes, Rt Hon Gordon||Woodall, Alec|
|O'Brien, William||Young, David (Bolton SE)|
|Orme, Rt Hon Stanley||Tellers for the Ayes:|
|Park, George||Mr. John McWilliam and|
|Parry, Robert||Mr. Frank Haynes.|
|Adley, Robert||Blackburn, John|
|Alexander, Richard||Blaker, Rt Hon Sir Peter|
|Alison, Rt Hon Michael||Body, Sir Richard|
|Alton, David||Bonsor, Sir Nicholas|
|Amess, David||Bottomley, Peter|
|Ancram, Michael||Bottomley, Mrs Virginia|
|Ashby, David||Bowden, A. (Brighton K'to'n)|
|Ashdown, Paddy||Bowden, Gerald (Dulwich)|
|Aspinwall, Jack||Braine, Rt Hon Sir Bernard|
|Atkins, Rt Hon Sir H.||Brandon-Bravo, Martin|
|Atkins, Robert (South Ribble)||Bright, Graham|
|Atkinson, David (B'm'th E)||Brinton, Tim|
|Baker, Rt Hon K. (Mole Vall'y)||Brittan, Rt Hon Leon|
|Baker, Nicholas (Dorset N)||Brooke, Hon Peter|
|Baldry, Tony||Brown, M. (Brigg & Cl'thpes)|
|Banks, Robert (Harrogate)||Browne, John|
|Batiste, Spencer||Bruce, Malcolm|
|Beaumont-Dark, Anthony||Bruinvels, Peter|
|Beith, A. J.||Bryan, Sir Paul|
|Bellingham, Henry||Buchanan-Smith, Rt Hon A.|
|Bendall, Vivian||Buck, Sir Antony|
|Benyon, William||Budgen, Nick|
|Best, Keith||Bulmer, Esmond|
|Bevan, David Gilroy||Burt, Alistair|
|Biffen, Rt Hon John||Butcher, John|
|Biggs-Davison, Sir John||Butler, Rt Hon Sir Adam|
|Butterfill, John||Harvey, Robert|
|Carlile, Alexander (Montg'y)||Haselhurst, Alan|
|Carlisle, John (Luton N)||Hawkins, C. (High Peak)|
|Carlisle, Kenneth (Lincoln)||Hawkins, Sir Paul (N'folk SW)|
|Carlisle, Rt Hon M. (W'ton S)||Hawksley, Warren|
|Carttiss, Michael||Hayes, J.|
|Cartwright, John||Hayhoe, Rt Hon Barney|
|Cash, William||Hayward, Robert|
|Chalker, Mrs Lynda||Heathcoat-Amory, David|
|Channon, Rt Hon Paul||Heddle, John|
|Chapman, Sydney||Henderson, Barry|
|Chope, Christopher||Heseltine, Rt Hon Michael|
|Churchill, W. S.||Hickmet, Richard|
|Clark, Hon A. (Plym'th S'n)||Hicks, Robert|
|Clark, Dr Michael (Rochford)||Higgins, Rt Hon Terence L.|
|Clark, Sir W. (Croydon S)||Hind, Kenneth|
|Clarke, Rt Hon K. (Rushcliffe)||Hirst, Michael|
|Clegg, Sir Walter||Holland, Sir Philip (Gedling)|
|Cockeram, Eric||Holt, Richard|
|Colvin, Michael||Hordern, Sir Peter|
|Conway, Derek||Howard, Michael|
|Coombs, Simon||Howarth, Alan (Stratf'd-on-A)|
|Cope, John||Howarth, Gerald (Cannock)|
|Corrie, John||Howell, Rt Hon D. (G'ldford)|
|Couchman, James||Howell, Ralph (Norfolk, N)|
|Cranborne, Viscount||Howells, Geraint|
|Crouch, David||Hubbard-Miles, Peter|
|Currie, Mrs Edwina||Hughes, Simon (Southwark)|
|Dickens, Geoffrey||Hunt, David (Wirral)|
|Dicks, Terry||Hunt, John (Ravensbourne)|
|Dorrell, Stephen||Hunter, Andrew|
|Douglas-Hamilton, Lord J.||Hurd, Rt Hon Douglas|
|Dover, Den||Irving, Charles|
|du Cann, Rt Hon Sir Edward||Jenkin, Rt Hon Patrick|
|Dunn, Robert||Jessel, Toby|
|Durant, Tony||Johnson Smith, Sir Geoffrey|
|Dykes, Hugh||Jones, Gwilym (Cardiff N)|
|Edwards, Rt Hon N. (P'broke)||Jopling, Rt Hon Michael|
|Evennett, David||Joseph, Rt Hon Sir Keith|
|Eyre, Sir Reginald||Kellett-Bowman, Mrs Elaine|
|Fallon, Michael||Kennedy, Charles|
|Farr, Sir John||Key, Robert|
|Favell, Anthony||King, Roger (B'ham N'field)|
|Fenner, Mrs Peggy||Kirkwood, Archy|
|Finsberg, Sir Geoffrey||Knight, Greg (Derby N)|
|Fletcher, Alexander||Knowles, Michael|
|Fookes, Miss Janet||Knox, David|
|Forman, Nigel||Lamont, Norman|
|Forsyth, Michael (Stirling)||Lang, Ian|
|Forth, Eric||Latham, Michael|
|Fowler, Rt Hon Norman||Lawler, Geoffrey|
|Fox, Marcus||Lawrence, Ivan|
|Franks, Cecil||Lawson, Rt Hon Nigel|
|Fraser, Peter (Angus East)||Lee, John (Pendle)|
|Freeman, Roger||Leigh, Edward (Gainsbor'gh)|
|Freud, Clement||Lennox-Boyd, Hon Mark|
|Gale, Roger||Lewis, Sir Kenneth (Stamf'd)|
|Galley, Roy||Lightbown, David|
|Gardiner, George (Reigate)||Lilley, Peter|
|Garel-Jones, Tristan||Livsey, Richard|
|Gilmour, Rt Hon Sir Ian||Lloyd, Ian (Havant)|
|Goodhart, Sir Philip||Lloyd, Peter, (Fareham)|
|Goodlad, Alastair||Lord, Michael|
|Gorst, John||Lyell, Nicholas|
|Gow, Ian||McCrindle, Robert|
|Gower, Sir Raymond||McCurley, Mrs Anna|
|Grant, Sir Anthony||Macfarlane, Neil|
|Greenway, Harry||MacGregor, Rt Hon John|
|Gregory, Conal||MacKay, Andrew (Berkshire)|
|Griffiths, Peter (Portsm'th N)||MacKay, John (Argyll & Bute)|
|Grist, Ian||Maclean, David John|
|Ground, Patrick||Maclennan, Robert|
|Grylls, Michael||McNair-Wilson, M. (N'bury)|
|Hamilton, Hon A. (Epsom)||McNair-Wilson, P. (New F'st)|
|Hampson, Dr Keith||McQuarrie, Albert|
|Hancock, Mr. Michael||Madel, David|
|Hanley, Jeremy||Major, John|
|Hargreaves, Kenneth||Malone, Gerald|
|Harris, David||Maples, John|
|Marlow, Antony||Skeet, Sir Trevor|
|Marshall, Michael (Arundel)||Smith, Sir Dudley (Warwick)|
|Mates, Michael||Smith, Tim (Beaconsfield)|
|Maude, Hon Francis||Soames, Hon Nicholas|
|Mawhinney, Dr Brian||Speed, Keith|
|Maxwell-Hyslop, Robin||Speller, Tony|
|Mayhew, Sir Patrick||Spence, John|
|Meadowcroft, Michael||Spencer, Derek|
|Mellor, David||Spicer, Jim (Dorset W)|
|Merchant, Piers||Spicer, Michael (S Worcs)|
|Meyer, Sir Anthony||Squire, Robin|
|Miller, Hal (B'grove)||Stanbrook, Ivor|
|Mills, lain (Meriden)||Stanley, John|
|Miscampbell, Norman||Steel, Rt Hon David|
|Monro, Sir Hector||Steen, Anthony|
|Montgomery, Sir Fergus||Stern, Michael|
|Moore, Rt Hon John||Stevens, Lewis (Nuneaton)|
|Morrison, Hon P. (Chester)||Stewart, Allan (Eastwood)|
|Moynihan, Hon C.||Stewart, Andrew (Sherwood)|
|Mudd, David||Stewart, Ian (Hertf'dshire N)|
|Murphy, Christopher||Stokes, John|
|Neale, Gerrard||Stradling Thomas, Sir John|
|Nelson, Anthony||Sumberg, David|
|Neubert, Michael||Tapsell, Sir Peter|
|Newton, Tony||Taylor, John (Solihull)|
|Nicholls, Patrick||Taylor, Teddy (S'end E)|
|Norris, Steven||Temple-Morris, Peter|
|Onslow, Cranley||Terlezki, Stefan|
|Oppenheim, Phillip||Thomas, Rt Hon Peter|
|Ottaway, Richard||Thompson, Donald (Calder V)|
|Page, Sir John (Harrow W)||Thompson, Patrick (N'ich N)|
|Page, Richard (Herts SW)||Thorne, Neil (Ilford S)|
|Parris, Matthew||Thornton, Malcolm|
|Patten, Christopher (Bath)||Thurnham, Peter|
|Patten, J. (Oxf W & Abdgn)||Townend, John (Bridlington)|
|Pattie, Geoffrey||Townsend, Cyril D. (B'heath)|
|Pawsey, James||Tracey, Richard|
|Peacock, Mrs Elizabeth||Trippier, David|
|Penhaligon, David||Trotter, Neville|
|Pollock, Alexander||Twinn, Dr Ian|
|Porter, Barry||van Straubenzee, Sir W.|
|Portillo, Michael||Vaughan, Sir Gerard|
|Powell, William (Corby)||Viggers, Peter|
|Powley, John||Waddington, David|
|Prentice, Rt Hon Reg||Wainwright, R.|
|Price, Sir David||Waldegrave, Hon William|
|Proctor, K. Harvey||Walden, George|
|Pym, Rt Hon Francis||Walker, Rt Hon P. (W'cester)|
|Raffan, Keith||Wallace, James|
|Raison, Rt Hon Timothy||Waller, Gary|
|Rathbone, Tim||Walters, Dennis|
|Renton, Tim||Ward, John|
|Rhys Williams, Sir Brandon||Wardle, C. (Bexhill)|
|Ridley, Rt Hon Nicholas||Warren, Kenneth|
|Ridsdale, Sir Julian||Watson, John|
|Rifkind, Rt Hon Malcolm||Watts, John|
|Roberts, Wyn (Conwy)||Wells, Bowen (Hertford)|
|Robinson, Mark (N'port W)||Wells, Sir John (Maidstone)|
|Roe, Mrs Marion||Wheeler, John|
|Ross, Stephen (Isle of Wight)||Whitfield, John|
|Rost, Peter||Whitney, Raymond|
|Rowe, Andrew||Wiggin, Jerry|
|Rumbold, Mrs Angela||Wilkinson, John|
|Ryder, Richard||Winterton, Mrs Ann|
|Sackville, Hon Thomas||Wolfson, Mark|
|Sainsbury, Hon Timothy||Wood, Timothy|
|St. John-Stevas, Rt Hon N.||Woodcock, Michael|
|Sayeed, Jonathan||Wrigglesworth, Ian|
|Scott, Nicholas||Yeo, Tim|
|Shaw, Giles (Pudsey)||Young, Sir George (Acton)|
|Shaw, Sir Michael (Scarb')||Younger, Rt Hon George|
|Shelton, William (Streatham)|
|Shepherd, Richard (Aldridge)||Tellers for the Noes:|
|Shersby, Michael||Mr. Carol Mather and|
|Silvester, Fred||Mr. Robert Boscawen.|
§ Main Question put forthwith, pursuant to Standing Order No. 41 (Amendment on second or third reading.)1021
§ The House divided: Ayes 335, Noes 205.1024
|Division No. 36]||[10.15pm|
|Adley, Robert||du Cann, Rt Hon Sir Edward|
|Alexander, Richard||Dunn, Robert|
|Alison, Rt Hon Michael||Durant, Tony|
|Amess, David||Dykes, Hugh|
|Ancram, Michael||Edwards, Rt Hon N. (P'broke)|
|Ashby, David||Evennett, David|
|Aspinwall, Jack||Eyre, Sir Reginald|
|Atkins, Rt Hon Sir H.||Fallon, Michael|
|Atkins, Robert (South Ribble)||Farr, Sir John|
|Atkinson, David (B'm'th E)||Favell, Anthony|
|Baker. Rt Hon K. (Mole Vall'y,)||Fenner, Mrs Peggy|
|Baker, Nicholas (Dorset N)||Finsberg, Sir Geoffrey|
|Baldry, Tony||Fletcher, Alexander|
|Banks, Robert (Harrogate)||Fookes, Miss Janet|
|Batiste, Spencer||Forman, Nigel|
|Beaumont-Dark, Anthony||Forsyth, Michael (Stirling)|
|Bellingham, Henry||Forth, Eric|
|Bendall, Vivian||Fowler, Rt Hon Norman|
|Benyon, William||Fox, Marcus|
|Best, Keith||Franks, Cecil|
|Bevan, David Gilroy||Fraser, Peter (Angus East)|
|Biffen, Rt Hon John||Freeman, Roger|
|Biggs-Davison, Sir John||Gale, Roger|
|Blackburn, John||Galley, Roy|
|Blaker, Rt Hon Sir Peter||Gardiner, George (Reigate)|
|Body, Sir Richard||Garel-Jones, Tristan|
|Bonsor, Sir Nicholas||Gilmour, Rt Hon Sir Ian|
|Bottomley, Peter||Goodhart, Sir Philip|
|Bottomley, Mrs Virginia||Goodlad, Alastair|
|Bowden, A. (Brighton K'to'n)||Gorst, John|
|Bowden, Gerald (Dulwich)||Gow, Ian|
|Braine, Rt Hon Sir Bernard||Gower, Sir Raymond|
|Brandon-Bravo, Martin||Grant, Sir Anthony|
|Bright, Graham||Greenway, Harry|
|Brinton, Tim||Gregory, Conal|
|Brittan, Rt Hon Leon||Griffiths, Peter (Portsm'th N)|
|Brooke, Hon Peter||Grist, Ian|
|Brown, M. (Brigg & Cl'thpes)||Ground, Patrick|
|Browne, John||Grylls, Michael|
|Bruinvels, Peter||Hamilton, Hon A. (Epsom)|
|Bryan, Sir Paul||Hampson, Dr Keith|
|Buchanan-Smith, Rt Hon A.||Hanley, Jeremy|
|Buck, Sir Antony||Hannam,John|
|Budgen, Nick||Hargreaves, Kenneth|
|Bulmer, Esmond||Harris, David|
|Burt, Alistair||Harvey, Robert|
|Butcher, John||Haselhurst, Alan|
|Butler, Rt Hon Sir Adam||Hawkins, C. (High Peak)|
|Butterfill, John||Hawkins, Sir Paul (N'folk SW)|
|Carlisle, John (Luton N)||Hawksley, Warren|
|Carlisle, Kenneth (Lincoln)||Hayes, J.|
|Carlisle, Rt Hon M. (W'ton S)||Hayhoe, Rt Hon Barney|
|Carttiss, Michael||Hayward, Robert|
|Cash, William||Heathcoat-Amory, David|
|Chalker, Mrs Lynda||Heddle, John|
|Channon, Rt Hon Paul||Henderson, Barry|
|Chapman, Sydney||Heseltine, Rt Hon Michael|
|Chope, Christopher||Hickmet, Richard|
|Churchill, W. S.||Hicks, Robert|
|Clark, Dr Michael (Rochford)||Higgins, Rt Hon Terence L.|
|Clark, Sir W. (Croydon S)||Hind, Kenneth|
|Clegg, Sir Walter||Hirst, Michael|
|Cockeram, Eric||Holland, Sir Philip (Gedling)|
|Colvin, Michael||Holt, Richard|
|Conway, Derek||Hordern, Sir Peter|
|Coombs, Simon||Howard, Michael|
|Cope, John||Howarth, Alan (Stratf'd-on-A)|
|Corrie, John||Howarth, Gerald (Cannock)|
|Couchman, James||Howell, Rt Hon D. (G'ldford)|
|Cranborne, Viscount||Howell, Ralph (Norfolk, N)|
|Crouch, David||Hubbard-Miles, Peter|
|Currie, Mrs Edwina||Hunt, David (Wirral)|
|Dickens, Geoffrey||Hunt, John (Ravensbourne)|
|Dicks, Terry||Hunter, Andrew|
|Dorrell, Stephen||Hurd, Rt Hon Douglas|
|Douglas-Hamilton, Lord J.||Irving, Charles|
|Dover, Den||Jenkin, Rt Hon Patrick|
|Jessel, Toby||Porter, Barry|
|Johnson Smith, Sir Geoffrey||Portillo, Michael|
|Jones, Gwilym (Cardiff N)||Powell, William (Corby)|
|Jopling, Rt Hon Michael||Powley, John|
|Joseph, Rt Hon Sir Keith||Prentice, Rt Hon Reg|
|Kellett-Bowman, Mrs Elaine||Price, Sir David|
|Key, Robert||Proctor, K. Harvey|
|King, Roger (B'ham N'field)||Pym, Rt Hon Francis|
|Knight, Greg (Derby N)||Raffan, Keith|
|Knowles, Michael||Raison, Rt Hon Timothy|
|Knox, David||Rathbone, Tim|
|Lamont, Norman||Renton, Tim|
|Lang, Ian||Rhys Williams, Sir Brandon|
|Latham, Michael||Ridley, Rt Hon Nicholas|
|Lawler, Geoffrey||Ridsdale, Sir Julian|
|Lawrence, Ivan||Rifkind, Rt Hon Malcolm|
|Lawson, Rt Hon Nigel||Roberts, Wyn (Conwy)|
|Lee, John (Pendle)||Robinson, Mark (N'port W)|
|Leigh, Edward (Gainsbor'gh)||Roe, Mrs Marion|
|Lennox-Boyd, Hon Mark||Rost, Peter|
|Lewis, Sir Kenneth (Stamf'd)||Rowe, Andrew|
|Lightbown, David||Rumbold, Mrs Angela|
|Lilley, Peter||Ryder, Richard|
|Lloyd, Ian (Havant)||Sackville, Hon Thomas|
|Lloyd, Peter, (Fareham)||Sainsbury, Hon Timothy|
|Lord, Michael||Sayeed, Jonathan|
|Lyell, Nicholas||Scott, Nicholas|
|McCrindle, Robert||Shaw, Giles (Pudsey)|
|McCurley, Mrs Anna||Shaw, Sir Michael (Scarb')|
|Macfarlane, Neil||Shelton, William (Streatham)|
|MacGregor, Rt Hon John||Shepherd, Richard (Aldridge)|
|MacKay, Andrew (Berkshire)||Shersby, Michael|
|MacKay, John (Argyll & Bute)||Silvester, Fred|
|Maclean, David John||Sims, Roger|
|McNair-Wilson, M. (N'bury)||Skeet, Sir Trevor|
|McNair-Wilson, P. (New F'st)||Smith, Sir Dudley (Warwick)|
|McQuarrie, Albert||Smith, Tim (Beaconsfield)|
|Madel, David||Soames, Hon Nicholas|
|Major, John||Speed, Keith|
|Malins, Humfrey||Speller, Tony|
|Malone, Gerald||Spence, John|
|Maples, John||Spencer, Derek|
|Marlow, Antony||Spicer, Jim (Dorset W)|
|Marshall, Michael (Arundel)||Spicer, Michael (S Worcs)|
|Mates, Michael||Squire, Robin|
|Maude, Hon Francis||Stanbrook, Ivor|
|Mawhinney, Dr Brian||Stanley, John|
|Maxwell-Hyslop, Robin||Steen, Anthony|
|Mayhew, Sir Patrick||Stern, Michael|
|Mellor, David||Stevens, Lewis (Nuneaton)|
|Merchant, Piers||Stewart, Allan (Eastwood)|
|Meyer, Sir Anthony||Stewart, Andrew (Sherwood)|
|Miller, Hal (B'grove)||Stewart, Ian (Hertf'dshire N)|
|Mills, Iain (Meriden)||Stokes, John|
|Miscampbell, Norman||Stradling Thomas, Sir John|
|Monro, Sir Hector||Sumberg, David|
|Montgomery, Sir Fergus||Tapsell, Sir Peter|
|Moore, Rt Hon John||Taylor, John (Solihull)|
|Morrison, Hon P. (Chester)||Taylor, Teddy (S'end E)|
|Moynihan, Hon C.||Temple-Morris, Peter|
|Mudd, David||Terlezki, Stefan|
|Murphy, Christopher||Thomas, Rt Hon Peter|
|Neale, Gerrard||Thompson, Donald (Calder V)|
|Nelson, Anthony||Thompson, Patrick (N'ich N)|
|Neubert, Michael||Thorne, Neil (Ilford S)|
|Newton, Tony||Thornton, Malcolm|
|Nicholls, Patrick||Thurnham, Peter|
|Norris, Steven||Townend, John (Bridlington)|
|Onslow, Cranley||Townsend, Cyril D. (B'heath)|
|Oppenheim, Phillip||Tracey, Richard|
|Ottaway, Richard||Trippier, David|
|Page, Sir John (Harrow W)||Trotter, Neville|
|Page, Richard (Herts SW)||Twinn, Dr Ian|
|Parris, Matthew||van Straubenzee, Sir W.|
|Patten, Christopher (Bath)||Vaughan, Sir Gerard|
|Patten, J. (Oxf W & Abdgn)||Viggers, Peter|
|Pattie, Geoffrey||Waddington, David|
|Pawsey, James||Waldegrave, Hon William|
|Peacock, Mrs Elizabeth||Walden, George|
|Pollock, Alexander||Walker, Rt Hon P. (W'cester)|
|Waller, Gary||Wilkinson, John|
|Walters, Dennis||Winterton, Mrs Ann|
|Ward, John||Wolfson, Mark|
|Wardle, C. (Bexhill)||Wood, Timothy|
|Warren, Kenneth||Woodcock, Michael|
|Watson, John||Yeo, Tim|
|Watts, John||Young, Sir George (Acton)|
|Wells, Bowen (Hertford)||Younger, Rt Hon George|
|Wells, Sir John (Maidstone)|
|Wheeler, John||Tellers for the Ayes:|
|Whitfield, John||Mr. Carol Mather and|
|Whitney, Raymond||Mr. Robert Boscawen.|
|Abse, Leo||Cunliffe, Lawrence|
|Adams, Allen (Paisley N)||Cunningham, Dr John|
|Alton, David||Dalyell, Tam|
|Anderson, Donald||Davies, Rt Hon Denzil (L'lli)|
|Archer, Rt Hon Peter||Davies, Ronald (Caerphilly)|
|Ashdown, Paddy||Davis, Terry (B'ham, H'ge H'l)|
|Ashton, Joe||Deakins, Eric|
|Atkinson, N. (Tottenham)||Dewar, Donald|
|Bagier, Gordon A. T.||Dixon, Donald|
|Banks, Tony (Newham NW)||Dobson, Frank|
|Barnett, Guy||Dormand, Jack|
|Barron, Kevin||Douglas, Dick|
|Beith, A. J.||Dubs, Alfred|
|Bell, Stuart||Dunwoody, Hon Mrs G.|
|Benn, Rt Hon Tony||Eadie, Alex|
|Bennett, A. (Dent'n & Red'sh)||Eastham, Ken|
|Bermingham, Gerald||Edwards, Bob (W'h'mpt'n SE)|
|Bidwell, Sydney||Evans, John (St. Helens N)|
|Blair, Anthony||Ewing, Harry|
|Boyes, Roland||Fatchett, Derek|
|Brown, Gordon (D'f'mline E)||Faulds, Andrew|
|Brown, N. (N'c'tle-u-Tyne E)||Fields, T. (L 'pool Broad Gn)|
|Brown, R. (N'c'tle-u-Tyne N)||Fisher, Mark|
|Brown, Ron (E'burgh, Leith)||Flannery, Martin|
|Bruce, Malcolm||Foot, Rt Hon Michael|
|Buchan, Norman||Forrester, John|
|Caborn, Richard||Foster, Derek|
|Callaghan, Rt Hon J.||Foulkes, George|
|Callaghan, Jim (Heyw'd & M)||Fraser, J. (Norwood)|
|Campbell-Savours, Dale||Freeson, Rt Hon Reginald|
|Carlile, Alexander (Montg'y)||Freud, Clement|
|Cartwright, John||Garrett, W. E.|
|Clark, Dr David (S Shields)||George, Bruce|
|Clarke, Thomas||Gilbert, Rt Hon Dr John|
|Clay, Robert||Godman, Dr Norman|
|Clelland, David Gordon||Gould, Bryan|
|Clwyd, Mrs Ann||Gourlay, Harry|
|Cocks, Rt Hon M. (Bristol S.)||Hamilton, James (M'well N)|
|Cohen, Harry||Hamilton, W. W. (Fife Central)|
|Coleman, Donald||Hancock, Mr. Michael|
|Concannon, Rt Hon J. D.||Hardy, Peter|
|Conlan, Bernard||Harman, Ms Harriet|
|Cook, Frank (Stockton North)||Harrison, Rt Hon Walter|
|Cook, Robin F. (Livingston)||Hart, Rt Hon Dame Judith|
|Corbett, Robin||Hattersley, Rt Hon Roy|
|Cox, Thomas (Tooting)||Heffer, Eric S.|
|Craigen, J. M.||Hogg, N. (C'nauld & Kilsyth)|
|Crowther, Stan||Holland, Stuart (Vauxhall)|
|Home Robertson, John||Pendry, Tom|
|Howell, Rt Hon D. (S'heath)||Penhaligon, David|
|Howells, Geraint||Pike, Peter|
|Hoyle, Douglas||Powell, Raymond (Ogmore)|
|Hughes, Robert (Aberdeen N)||Prescott, John|
|Hughes, Roy (Newport East)||Radice, Giles|
|Hughes, Sean (Knowsley S)||Randall, Stuart|
|Hughes, Simon (Southwark)||Rees, Rt Hon M. (Leeds S)|
|Janner, Hon Greville||Richardson, Ms Jo|
|John, Brynmor||Roberts, Ernest (Hackney N)|
|Jones, Barry (Alyn & Deeside)||Robertson, George|
|Kaufman, Rt Hon Gerald||Robinson, G. (Coventry NW)|
|Kennedy, Charles||Rogers, Allan|
|Kilroy-Silk, Robert||Rooker, J. W.|
|Kinnock, Rt Hon Neil||Ross, Stephen (Isle of Wight)|
|Kirkwood, Archy||Rowlands, Ted|
|Lambie, David||Ryman, John|
|Lamond, James||Sedgemore, Brian|
|Leadbitter, Ted||Sheerman, Barry|
|Leighton, Ronald||Sheldon, Rt Hon R.|
|Lewis, Ron (Carlisle)||Shore, Rt Hon Peter|
|Lewis, Terence (Worsley)||Short, Ms Clare (Ladywood)|
|Litherland, Robert||Silkin, Rt Hon J.|
|Livsey, Richard||Skinner, Dennis|
|Lloyd, Tony (Stretford)||Smith, C. (Isl'ton S & F'bury)|
|Lofthouse, Geoffrey||Smith, Rt Hon J. (M'ds e)|
|Loyden, Edward||Snape, Peter|
|McCartney, Hugh||Soley, Clive|
|McDonald, Dr Oonagh||Spearing, Nigel|
|McGuire, Michael||Steel, Rt Hon David|
|McKay, Allen (Penistone)||Stott, Roger|
|Maclennan, Robert||Strang, Gavin|
|McNamara, Kevin||Straw, Jack|
|McTaggart, Robert||Thomas, Dafydd (Merioneth)|
|Madden, Max||Thomas, Dr R. (Carmarthen)|
|Marek, Dr John||Thompson, J. (Wansbeck)|
|Marshall, David (Shettleston)||Thorne, Stan (Preston)|
|Martin, Michael||Torney, Tom|
|Mason, Rt Hon Roy||Wainwright, R.|
|Maxton, John||Wallace, James|
|Maynard, Miss Joan||Wardell, Gareth (Gower)|
|Meacher, Michael||Wareing, Robert|
|Meadowcroft, Michael||Weetch, Ken|
|Michie, William||Welsh, Michael|
|Mikardo, Ian||White, James|
|Millan, Rt Hon Bruce||Wigley, Dafydd|
|Mitchell, Austin (G't Grimsby)||Williams, Rt Hon A.|
|Morris, Rt Hon A. (W'shawe)||Wilson, Gordon|
|Morris, Rt Hon J. (Aberavon)||Winnick, David|
|Nellist, David||Woodall, Alec|
|Oakes, Rt Hon Gordon||Wrigglesworth, Ian|
|O'Brien, William||Young, David (Bolton SE)|
|Orme, Rt Hon Stanley||Tellers for the Noes:|
|Park, George||Mr. John McWilliam and|
|Parry, Robert||Mr. Frank Haynes.|
§ Question accordingly agreed to.
§ Bill read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 42 (Committal of Bills).