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European Community (Non-Life Assurance)

Volume 951: debated on Tuesday 13 June 1978

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7.16 p.m.

I beg to move,

That this House takes note of EEC Documents Nos. R/95/76 and R/467/78 on Non-Life Assurance.
I very much welcome the opportunity of debating Commission documents Nos. R/467/78 and R/95/76 which are now before the House. No one can doubt that insurance is a vital industry in this country. At home it provides a full range of services and abroad it makes a massive contribution to our export earnings. Without a doubt London is the prime insurance market of the world. I am sure that hon. Members will agree that any proposals emerging from the European Community which might affect this industry's ability to maintain its fine record are, therefore, of great concern to all of us.

There is another reason for welcoming a debate on this subject at this stage. That is that the directive is still in the process of detailed negotiation, and significant changes may still be proposed. Accordingly, the views which hon. Members express will be of extreme value in the development of the Government's policy over the coming months. I think it is right that the voice of the House of Commons should be heard. That is not without significance to the ability of our negotiators to proceed to the best possible advantage in improving these matters.

Before I go on to deal with the directive itself I should like to bring the House up to date with progress in Brussels on insurance generally. It is against that backcloth that one must view these Commission documents. I am happy to report that there has been some progress. Just 14 days ago, after difficult and protracted negotiations, the Community coinsurance directive was adopted. This represents the second major step towards a common market in European insurance. This opens up to competition the whole area of those very large commercial risks which, because of their size and nature, need to be shared among a number of insurers.

When this directive comes into operation, Lloyds and other companies in this country will be able to participate in covering such risks through their United Kingdom establishments. But the directive offers Europe much more. It will allow those among our partners who fear the effects of a more liberal insurance market to see how in reality such a market is able to operate to the benefit of Europe as a whole. Perhaps of still more relevance, it will pave the way for the increased freedom of insurance services envisaged by this directive.

The other main directive under discussion in Brussels is that covering establishment for life business. It will be recalled that it was debated in this House about a year ago and that a number of difficulties arising out of it were discussed. I do not think that I am being overoptimistic when I say that there is now some prospect of compromise being reached on the major outstanding issues. Our delegation at Brussels will be tabling proposals tomorrow leading, we hope, towards a solution, and our industry has accepted these after a considerable amount of heart searching. I pay tribute to those who have worked closely with my officials in trying to arrive at a solution.

Inevitably, it involves compromise, and our action on this life establishment directive should be regarded by our European partners as a sincere effort to solve certain difficult issues. Equally, it should help towards creating a good climate in which discussion of this non-life services directive may be pressed ahead in Brussels.

It remains true that progress on the insurance front has been slow, and it may be helpful if I outline some of the reasons for this. Enormous differences in current practices exist between different member States. It is not only a matter of what degree of protection the State should seek to provide for the insured or even of the extent to which protection should be provided to business men insuring their interests. It involves different philosophies of means of control. We seek to give consumers freedom of choice from a wide range of contracts offered by competing companies. We rely more on looking to the general financial strength of companies. This reflects substantially the fact that our industry plays a major part in international trade in insurance. Some other member States regulate the contents of policies and the premiums charged. Some also control in detail the investment of money by their insurance companies. The differences of approach inevitably make for difficult decisions for all.

The directive that the House is considering has been under discussion in a Council working party since the beginning of 1976 and it has reached the stage at which the major points of difficulty have emerged and had some detailed consideration.

It may be considered in two parts. First, it contains rules on the further coordination of certain aspects of non-life insurance operations and of insurance contracts generally. Amongst the most important of these are the calculation of technical reserves and the treatment for tax purposes of these reserves. It is our belief that some harmonisation is possible on the methods of reserving, but article 3 of the directive is unacceptable in its present form. We would wish to see a more flexible approach. On the taxation aspects in the same article, we consider that any proposals for harmonisation should properly form part of a tax directive rather than appear in an insurance directive.

Secondly, the main purpose of the directive is to settle the rules under which insurance companies may do business throughout the Community on a services basis without having to set up establishments in each member State and have the business regulated by that State. I might note here that we in the United Kingdom already freely allow such services business. The other members have regimes with varying degrees of liberality.

The key to the directive lies in Articles 4 and 6. The first paragraph of Article 4 says that, pending co-ordination of national provisions covering insurance contracts, they shall be governed by the law of the country in which the risk is situated. The second paragraph then provides the exception that the law chosen by the parties shall govern contracts covering a listed range of commercial risks. Article 6 then provides that each member State may continue to apply national rules relating to policy conditions and tariffs save for the range of commercial risks enumerated in the second paragraph of article 4 to which I have already referred.

The effect of these two articles taken together is that each State can ensure that the mass consumer and smaller business risks remain subject to its own national rules, but that free international competition will become possible for contracts covering, first, credit and surety ship risks; secondly, marine, aviation and transport risks where the insured is engaged in business and the risks resultant to his business activity; and, thirdly, commercial property, fire and damage risks of above the minimum sizes set out in the article, plus any associated liability risks.

We would have liked to see the directive providing freedom further down the line and will be pressing for further amendments, for example, for lower limits for the cut-off points in article 4 for industrial and commercal property risks. However, the present provision would open up to our industry major new opportunities in Europe. This is the nub of the whole directive.

The principles enunciated in article 4 concerning freedom of choice of contract law, are of fundamental legal importance. At the instance of my right hon. Friend the Secretary of State, therefore, the Lord Chancellor has referred this matter to the Law Commission and to the Scottish Law Commission because we need their advice on the exact effect of current proposals and on how they will affect other aspects of the law. There is a more general implication, and it is right that the Law Commission should examine the position. We shall need to hear the opinion of these bodies before we make any decision on the final line we are to pursue in Brussels. Moreover, I should add that it is possible that all the provisions relating to choice of law and applicable law may well be transferred to the Private International Law Convention, which is also under negotiation in Brussels.

Article 8 of the directive provides that any company wishing to do business on a services basis in another member State should seek separate authorisation for this from its own national supervisory authority. We consider this to be unnecessary.

We are also opposed strongly to the principle enunciated in article 13.2 that underwriting liabilities expressed in a particular currency must be matched strictly by assets expressed or realisable in the same currency. It is our opinion that insurance companies need flexibility in applying such a rule. There is, I should add, a working party of experts examining this whole question, following agreement on the coinsurance directive, and the final text in the non-life services directive is likely to reflect very closely its eventual conclusions.

Finally, we are examining the Commission's latest proposals, which follow closely the views expressed by the European Parliament, that companies whose head offices are situated outside the Community should benefit from the directive on an equal footing only where the third countries concerned have concluded a reciprocal agreement with the Community. I should welcome the views of the House on this point in particular.

In introducing this debate, I have sought to keep any remarks uncharacteristically short. I have not entered into detail on many points. There are good reasons for that, I am sure. In particular, I have not described all our detailed points of difficulty on the directive.

If I am pressed on any point I shall try to elaborate, assuming that the House gives me leave to speak again. I am not sure that I would welcome that, but I am prepared, if requested, to make yet another appearance.

In conclusion, I emphasise the importance of the directive for this country's insurance industry. I know that it does not cover all the types of risk that we would have wished to see covered, but we welcome it as marking a further major step towards a true common market in insurance, which is the wish of us all.

The directive provides the way ahead for an opportunity, which will be seized by our industry. The industry has been yearning for that opportunity, and I hope that it will not be denied it for much longer.

7.21 p.m.

I thank the Minister for the way in which he introduced the subject of these very complex and important documents. I welcome the progress that has been made recently on the co-insurance directive, and I hope that the directive on establishments for life assurance also will make progress in the near future.

Many of us recognised when we joined the EEC that some of our industries would find themselves facing very keen competition. However, we had confidence that overall, once they had adjusted to the keener competition with the EEC, they stood to gain. We recognised that some industries would find it more difficult to compete than others.

One of the industries for which we had great hopes was insurance. We have a highly developed, sophisticated insurance industry, as the Minister pointed out, and London is the leading insurance market in the world. We felt that insurance would be one area in which we stood to gain substantially from our membership.

Since 1973, when we joined the EEC, we have opened our market to a whole range of products produced by our EEC partners—particularly cars. It is rather ironic that one of the results of the agreement that we reached with the Japanese on their voluntary restriction of car exports is that French, German and Italian cars have been coming into Britain in increasing numbers.

I shall give one example of the dangers of protectionism. It is a fact that because we are importing fewer Japanese cars the Australians are exporting fewer raw material to Japan. Because of that, the Australians are buying fewer goods from the United Kingdom. Therefore, as a result of Japan's voluntary limitation on the export of cars to us, our European partners are selling more cars to us and the Japanese are buying less from the Australians, who in turn buy less from us. In this instance, far from gaining we are losing out.

This is an example of European manufacturers gaining enormously from our membership of the EEC. They have access to our markets and are selling more cars as a result. It was inevitable that as a consequence of joining the Common Market some of our weaker industries would find the keener competition difficult to cope with.

Equally, our more innovative and competitive industries stood to gain. We had hoped, and still hope, that insurance would be one of these industries. Many of us have viewed with some concern the growing protectionism within the EEC. We joined the EEC and supported our membership in the hope that the Community would be committed to a growing and free market within itself and at the same time be an outward-looking body. Some of the trends revealed in the past few months have caused concern to those of us who are enthusiastic supporters of our membership of the Community.

Britain has a highly competitive insurance industry. As the Minister and I both agree, it is second to none in the world. But, of the non-life assurance business written in Britain at present, the EEC represents far too small a part. We write twice as much non-life business in the United States as is written in the EEC and nearly three times as much as in the rest of the world.

One reason for this is that the French and Germans are very protectionist about insurance. However, this stems not altogether from a dog-in-the-manger attitude but from a different philosophy of insurance. We believe that the insurance market should not be too tightly controlled or directed. We believe that it should be supervised and regulated but at the same time should be allowed a fair degree of freedom to show its ability to introduce new policies and search out new business. Our Continental friends take a much stricter, more dirigiste approach to insurance, and, therefore, it has been very difficult to find common ground. We have a basically different approach to the problems of the industry from that of the French and Germans.

Therefore, one must accept in these circumstances that the evolution of common principles will take time. I was interested to read an article in the Financial Times of 22nd March last year in which Mr. Eric Short, writing about the slowness of members to unify their policy, said that if we were to make progress
"this will involve breaking down some very rigid traditional barriers and over-riding some very entrenched positions."
One accepts that this is right and that it is not because people are being bloody-minded. It stems from a basically different approach to the insurance industry.

Having said that, I pay tribute to Christopher Tugendhat, our Commis- sioner, who is trying to put zip into this process. However, one must express the feeling that progress has been too slow and the hope that our Continental friends will recognise this and try to reach agreement with us with a greater sense of urgency.

I was interested to read Mr. Tugendhat's remarks in the debate in the European Parliament earlier this year in which he said this about the directive:
"The implementation of this directive will constitute an important step towards the effective exercise of freedom to provide services in the area of insurance to the greater benefit of policyholders, insurers and the Community as a whole."
He believes that these directives are very important and that their implementation and agreement by the Council of Ministers will represent a major step towards producing a European common market in insurance, which I am sure we all want.

I was also interested to read in the Sunday Telegraph last week that these directives were described as
"the jewel in the Crown".
It was said that the EEC's non-life service directive, if approved by Ministers
"would at one stroke open up the entire community market for indemnity insurance to all-corners."
Therefore, we are discussing tonight documents which, if implemented, would have a major impact on the European insurance market. The report goes on to refer to the string of technical questions to be hammered out—a list which, frankly, is awesome. I share that view.

Nevertheless, we have the directive in front of us, and, thanks to the efforts of Mr. Tugendhat, among others, there appears to be more and more of a sense of urgency and a desire to get something done. We must support that effort and build on it in every way we can.

It is very difficult for the nine Member countries to harmonise their insurance. If they find this difficult, how are we to tackle the problems of economic and monetary union? This is a tiny foothill compared with the mountain represented by EMU. There are two ways in which an insurer can increase his business and operate within the EEC. The first is by freedom of establishment, the second is by freedom of service. The latter already exists in the United Kingdom. If we are to achieve a common market in insurance, we believe that it is essential that this freedom should be extended throughout the EEC.

It is a matter of regret that the directive effectively limits this vital freedom to the large marine, aviation and transport risks and to large industrial and commercial risks. We welcome it as a first step. In particular, we support the concept of the directive under which the services provided are governed by legislation of the country from which the service is provided—the concept of head office control as opposed to the country-of-risk control, which some of our friends would have preferred. This principle of head office control is very important indeed to Lloyd's, which operates only through brokers, but it would also bring benefit to the United Kingdom insurance market as a whole.

I turn to three major points of detail. The first relates to article 4. It must be a matter for regret that the country-of-risk principle is stated first in article 4(1), with the free choice of law—the head office control principle—for the larger risk being allowed as a derogation in article 4(2). British insurers have indicated to me that they are prepared to go along with this approach, although they would have preferred the emphasis to be the other way round.

The key is the thresholds at which the freedom to derogate is to be allowed. May I urge the Minister to resist in every way open to him any attempt to raise this threshold? If there is any movement at all in the thresholds, I believe that they must be lowered. Indeed, I urge the Minister to press for a lower threshold. There is a suspicion that the threshold may be raised rather than lowered, thus effectively entrenching the country-of-risk control as a basic principle of Community law while paying lip service to the principle of head office control. It is the duty of the Minister and of the Government to ensure that that does not happen. I assure the Minister that, however robust he chooses to be in pressing that point of view on our Community partners, he will have our backing.

I wish now to deal with the problem of liability insurance. In terms of the directive, this relates to class 13 business. As currently worded, it would appear that freedom for liability insurance arrives only when the sum insured for the insured's other business exceeds the 7 million units of account threshold. British insurers feel that there should be no threshold for liability business, and the simple solution may be to move class 13 business from article 4(2)(c) to article 4(2)(a) and (b). They feel that this would achieve their objectiveI urge that point on the Minister.

I wish now to deal with article 13, which deals with technical reserves of insurance, the unexpired premiums and claims for which insurers have to provide before they can declare their profit or loss for the year. The importance of this topic is obvious. For the most part, article 13 makes common sense provision for it. There is, however, a problem lurking in the last sentence of the article:
"This requires the reserves to be covered by matching assets."
In terms of the 1973 EEC directive on insurance, matching assets are defined to mean assets
"expressed or realisable in the same currency as the liability,".
Some people have suggested that article 13 owes more to the fears of the French for their balance of payments if we have a free insurance market than it does to the needs of policyholders. Obviously, an insurer who writes a portfolio of international business with contracts in a variety of currencies has to make suitable arrangements to protect himself against exchange fluctuations. As a matter of prudence, he will usually provide for reserves in a currency in which he has a substantial volume of business. This is a problem of which the larger British insurance undertakings have had many years of experience. They are well able to make their own arrangements, and hitherto the Department of Trade has not found it necessary to lay down any detailed rules.

The problem is that, if we are to have a rigid application of the rule laid down in article 13, it could lead to insurers being compelled to keep small amounts in all sorts of different currencies—a procedure which would do nothing for policyholders and would create many administrative problems.

Let me give an example which has been put to me. Let us take the case of a marine insurer who hitherto has carried out all his business in sterling and who, for the first time, seeks to insure an Italian ship and receives a premium of 1 million lire. Either that one ship will sink, in which case he would need to pay out a great deal more than 1 million lire, or it will not, in which case he would not have to pay out any Italian lire. Therefore, there will be no point in that insurer keeping 1 million lire in Italian currency against an eventuality which he would not be equipped to deal with and which the 1 million lire would do nothing towards solving.

In that instance, no purpose would be served by keeping such a small fraction of reserves in Italian currency. Indeed, much inconvenience could be caused administratively if one had to do it. It seems that that is not a sensible feature of article 13. I hope that the Minister will press for the proposed rule to be relaxed. It is not in the interests of policyholders and it does little to protect them. It could cause additional expense and much unnecessary administration.

As originally drafted, article 15 would have provided for the directive to apply to agencies and branches established within the Community and belonging to undertakings whose head offices are outside the Community. As now amended, in accordance with the recommendations of the European Parliament, the article makes the application of the directive to the branches of third country undertakings conditional upon the existence of a reciprocal agreement with the third country concerned.

I pay tribute to the work of the European Parliament on the draft directives. The debate in the European Parliament was extremely interesting. As a result of that debate, some major amendments have been made to the draft. It is a better document as a result of the work of Members of the European Parliament, especially the British Members.

The law applying to agencies and branches is of great importance to the London market, in which branches of numerous American, Japanese, Swiss and other foreign insurers are functioning. There is a danger that if we discriminate against non-EEC insurers we may invite retaliation against ourselves. Under the old version of article 15, such branches would have obtained the right to business originating in other EEC countries. They will now not obtain that right.

The change seems objectionable on various grounds. First, it is objectionable because it is at variance with the basic principle of a common market in insurance. There are already standard EEC conditions laid down in the first co-ordination directive of 1973 for the admission of branches of external insurance companies to any EEC country. The branches that are functioning in London have satisfied conditions that may be taken to be adequate in the eyes of all EEC Governments. They have been admitted to the market already. If it is a single market, they should be admitted to the whole of it. To provide otherwise is to say that we shall have one common insurance market for enterprises with head offices in the Community but we still have nine separate national markets for those which have head offices outside the Community but have satisfied Community requirements for the setting up of branches within it.

The second objection to the proposal is that it draws an artificial distinction between the branches and subsidiaries of external companies. For example, if an external company forms a subsidiary here, the subsidiary is liable to one set of regulations. However, if a company forms a branch it is liable to another set of regulations. We feel that the real and practical differences between a branch and a subsidiary do not justify that discrimination. We believe that it would be far better to revert to the original draft of article 15. If that cannot be negotiated with the other member States, the second-best option might be to delete article 15 altogether, so that member States which wish to take a more liberal attitude towards branches of third country insurers will remain free to do so while leaving other member States which feel unable to take a liberal attitude free to exclude such branches from writing business emanating from their own countries.

I can well understand that the House found the important and exciting issue of Tuvalu independence far more riveting than the directives. They seem fairly technical and it is easy to underestimate their importance. However, we are talking about gaining freer access for one of our major and most successful service industries—the insurance industry—to the greatest insurance market in the world. It is important that our insurers have the opportunity to trade and to succeed in that large market. I hope that as a result the of debate the Minister will go to the next European meeting with his colleagues determined to back up Mr. Tugendhat in pressing hard for real progress on insurance harmonisation. That is vital to Britain.

When we think that we have only 11 per cent. of the market and that that represents £654 million worth of business, it is easily recognised that we are talking about large and important sums. I wish the Minister every success in pressuring his colleagues to get a move on with the implementation of the directives. In particular, I wish him every success in pressing for the modification of articles 4, 13 and 15 on the grounds that I have suggested.

7.57 p.m.

I take up the final remarks of the hon. Member for Hertfordshire, South (Mr. Parkinson) by saying how pleased I am that on this occasion when debating a directive it seems that for a change we shall have no one in the House saying what damage it will do to British industry. I hope that those protectionist noises will not be present in the debate. That is a good change and one that some of us who were much in favour of going into Europe expected to see. That is because we thought that many of our service and manufacturing industries were well able to compete with industries of the other members of the Community. It is a pleasure to have an instrument before us that will be of benefit to Britain and to the insurance industry.

I congratulate my hon. Friend the Under-Secretary of State on the way in which he has been of such great assistance in pursuing the directive. I am grateful to him and the Department in seeking to help the interests of the insurance industry not only during recent times but over a long period during which the directive has been discussed.

As has been said, these are enormously complex matters. When we consider the different attitudes and the different laws and regulations applying to the insurance industries in the different countries of the Nine, we realise what a problem it is to achieve harmonisation. The Department deserves our congratulations for the way in which it has pursued with vigour the interests of the industry, to the benefit of both the industry and the whole country.

As we all realise and hope, the coming into operation of the directive could be of enormous benefit to the insurance industry. It could lead to economic benefits, financial benefits and, we hope, employment benefits, as a result of any growth in business that comes from our access to the European market. I think that sonic of the insurance industry in Europe is worried about Britain having access to the market. There is concern that we shall go in and soak it all up, or swamp it. We are asking for a fair competitive opportunity to go in on a freedom of services basis and take a share of what is a growing market without taking away vast amounts of business from European companies.

It is particularly important, as the hon. Member for Hertfordshire South said, to Lloyds which is restricted to operations in the City of London. It can operate only through brokers. It cannot operate under the freedom of establishment it can operate only under the freedom of services. That remarkable institution is of enormous benefit to the insurance industry in this country. It attracts a great deal of insurance business and benefit to our economy in invisible exports and has a high reputation for its services to the rest of the world. The benefits which will accrue to that organisation from having the freedom of services are welcome and we look forward to Lloyds benefiting from them.

There is only one point in general terms which I wish to make. The Minister has already assured the House that he will fight on this matter. In addition to the points referred to by the hon. Member for Hertfordshire, South, I want to refer to one matter before going on to a point which I made in our previous debate on insurance and the EEC. I refer to article 8. The Minister said that this was totally unnecessary. I support him in that view. It seems silly, when providing freedom of access in this way and throwing off the shackles, that article 8 should seek to impose upon insurance companies the necessity to gain authorisation from the national regulatory body before going into the European market. Indeed, in some ways it seems to negate the whole objective of the directive. I hope that the House will support me in saying more power to the Minister's elbow in fighting this point with his colleagues in Europe.

As the House knows, I am a Labour and Co-operative Member. The Co-operative movement has a successful and large insurance society. I do not have any direct connection with it. Most nonlife insurance in this country is transacted by companies which also transact life insurance.

When we last considered insurance in the EEC, which was on 27th April last year, some hon. Members were concerned about the possibility that an EEC directive would require British composite insurance companies to be split into separate companies transacting life and nonlife business separately, to conform with the practice in some, but not all, EEC countries.

At that time, the Government considered the argument against composites to be invalid, but they were prepared, in the interests of obtaining agreement, to accept a compromise that the formation of further composites should not be permitted, on the clear understanding that existing composites would not he touched in respect of their business within the United Kingdom. The Minister gave a specific assurance on that point during that debate.

It now appears that despite the assurance given last year, proposals have been made that the British Government should agree to a ban on new composites without the quid pro quo of an assurance that existing composites would not be attacked. Indeed, I understand that the proposals go even further and include provision for a review of existing composites, and envisage the possibility that they may be required to be broken up by a subsequent EEC directive. Clearly, it would be a serious matter if all composite insurance companies were required to be split into separate companies for life and non-life insurance. I see hon. Members nodding in agreement. I might add that there would not be any compensatory benefit for policyholders.

It would be especially serious for the Co-operative Insurance Society because, as a co-operative society, it cannot raise equity capital. It is a mutual body and it cannot go to the market to raise equity capital. It provides the necessary capital backing for its substantial non-life business by holding its free reserves in common between its life and non-life business. A requirement for it to be split into separate corporate bodies transacting life and non-life insurance might make it impossible for the society to continue to transact non-life business on a co-operative basis. That would be a most unfortunate result. I am sure that would be agreed by all my colleagues in the Co-operative Group and, I hope, by other hon. Members on both sides of the House.

I raised this matter last April and was glad to receive the assurances that the Minister gave. I hope that he will now confirm these assurances and, in particular, tell the House that the British Government will not agree to a ban on new composites being included in an EEC insurance directive, except as part of a package under which it is agreed that existing composites can continue, or to any requirement for a review of existing composites being included in any directive.

8.5 p.m.

As is usual in debates on insurance, I start by declaring an interest as the parliamentary consultant to the British Insurance Brokers' Association. Perhaps a little unusually, I should explain that among the membership of that organisation are both the largest brokers at Lloyds and the largest non-Lloyds brokers in the country, whose responsibility stretches to the placing of international risks throughout the world and who therefore have more than a passing interest in what is likely to happen to this draft directive.

Mention has been made both of Lloyds and of the insurance companies. I should like to pay my tribute to the major progress made by insurance companies and Lloyds in maintaining our reputation as the insurance capital of the world. However, like my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson), I should like to indicate a note of regret. Whereas in the United States of America our proportion of business is sizeable to the point of being more impressive than that of any other insurer outside the United States, the same cannot yet be said of our involvement in Europe. Therefore, any opportunity which appears to be developing to increase our insurance business in Europe to the benefit of this country is to be welcomed.

I welcome the draft directive as perhaps the first strong indication that at long last we are on the move towards a liberalisation of insurance within the EEC. I have no doubt that although we shall meet competition from insurers in other leading EEC countries we have nothing to fear, because, traditionally, we have been competitive and prepared to travel the world to introduce our expertise in this sphere. I look forward to the day when we are able to compete within Europe on equal terms with, for example, France and Germany.

It may be a little unusual, but I should like at this stage to pay tribute to the Commission—a body which is not used to frequent congratulations from hon. Members. It appears that it has at long last introduced a note of urgency into the liberalisation of insurance within Europe. For that we are entitled to congratulate the Commission.

It will come as a surprise to the Minister but we are also entitled to congratulate the Government for bringing forward with considerable speed this debate on the draft directive. There may be reasons for doing this which are not related to the European Community. Perhaps the Government are a little short of business to bring before the Commons for discussion. Perish the thought, but perhaps the Government see this as a relatively harmless debate to fill in the time between now and a General Election. For whatever reason, we are pleased that the Government have seen fit to allow a debate on the directive as quickly as they have.

I hope that the hon. Member has concluded his observations on that matter. Clearly this is a matter of significant importance. That is why the Government thought it right that it should be debated. I am sure that it is a matter that is on the lips of every constituent in Brentwood and Ongar.

I would not for a moment deny the Minister's last observation, because it is self-evident that this is the only topic of conversation in my constituency.

I am particularly pleased because not only have the Government provided time to debate the draft directive but the Minister was at some pains to emphasise that what we say tonight not merely involves comments on an event which has passed but provides an opportunity to influence the Government reaction to the draft directive. I welcome that. It also allows me to deliver a general welcome to the directive.

I should like to give voice to a few cautionary words. Like my hon. Friend the Member for Hertfordshire, South, I shall begin with a reference to article 4. This is a lawyer's paradise. As a non-lawyer, I do not pretend wholly to understand the ramifications of the article. There is no doubt that the long controversy which developed before the present compromise was reached was largely as a result of the powerful resistance of certain of our EEC partners, particularly Germany and France, who were obdurate that no compromise was possible in the choice of the law under which a contract would be written when the directive is in operation.

It is, therefore, all the more surprising and commendable that a compromise has been reached against such tough opposition. But I must express concern because the freedom to choose the law under which the contract would be written now appears to be dependent upon the size of the risk.

I echo what my hon. Friend the Member for Hertfordshire, South said. British insurers feel obliged to accept this as the best compromise available, but they are anxious that the threshold above which alone a choice can be exercised should not go on being increased during the remaining stages of discussion on the directive. Ideally, the insurers' interests in this country would like to see the threshold reduced. We should be opposed to raising the threshold further.

I am not clear about one matter. The directive refers to marine, aviation, transport, commercial and industrial insurance. On the face of it that is clear. That allows us to understand the types of insurance to which the threshold will apply. In the draft directive little reference appears to be made to what I shall call the liabilities. Perhaps the greatest opportunity for British insurance to develop within the EEC lies in that sphere. I hope that the Minister will make clear where the liabilities fall within article 4 and whether the threshold conditions to which I have referred apply to liability insurances as well as to those to which more specific reference is made.

I turn to article 13. By hon. Friend the Member for Hertfordshire, South did the same, and I could not help feeling that we had seen the same brief from the insurance interests in this country. It does no harm to repeat the fear of British insurance interests about article 13. This involves our old friend—matching reserves to liabilities in the country in which the risk is written. It is difficult for the British to understand the almost paranoic insistence of some of our partners in the EEC on this matter. In further discussions on the directive, the Minister would be well advised to accept that strict and absolute matching of reserves to liabilities is neither desirable nor essential.

For example, the question of the management of investments within an area in which a risk is written is a qualifying feature. I believe that a relaxation of the strict rules that the Germans and French would like is something that the Minister should be pressing upon our EEC colleagues.

I turn to article 15. I understand the difficulty that hon. Members and the public have in understanding this article, with its references to branches and agencies and third country insurers writing business within the EEC. But certain principles are involved. A brief produced by the insurance industry on the article states that
"if a third country insurer is good enough to have a branch or agency in the U.K., then surely it should be allowed to operate in the other E.E.C. States. Thus we would prefer to go back to the previous text, but if this is not possible then we feel the Article 15 could best be deleted altogether, as this would leave individual Member States free to decide upon the attitude they would wish to adopt to the agencies and branches of third country insurers wishing to transact services business into their countries from another E.E.C. Member State."
I do not imagine that by reading that extract I have cast great additional light on an inevitably abstruse subject. I hope that the Minister will take on board the fact that the insurance industry feels sufficiently strongly about article 15 to make either an amendment going back to the status quo ante or a deletion preferable to the proposal that we are discussing.

I warmly welcome the liberalisation that is implicit in the draft directive. I warmly welcome, too, the breaking of the log-jam which, for far too long, has prevented the British insurance industry from increasingly turning to Europe.

I echo the congratulations that have been offered to Mr. Christopher Tugendhat. There is no doubt that since he became a Commissioner the impetus behind getting insurance moving in the EEC has been considerable. I noticed that in a newspaper interview the other day he said that he would be very disappointed if we did not have a complete Common Market in insurance by 1980. I cannot help feeling that in view of what has happened in the past, that is a little optimistic, but I imagine that most hon. Members will join me in hoping that at the earliest possible moment we can create a truly free market for insurance in Europe.

8.21 p.m.

It gives me great pleasure this evening to join hon. Members on both sides of the House in welcoming to some extent the directive. I suppose that the insurance officials of the Department of Trade have put a great deal of work into trying to iron out any difficulties that exist over differences between the way that we conduct insurance in this country and the way it is conducted on the Continent. I, too, believe that we owe a debt of gratitude to the officials in the Department who have negotiated these terms. We are particularly grateful to Mr. Christopher Tugendhat, who has represented this country in the Commission.

In insurance Britain is pre-eminent in the world. We have something to offer Europe, and that is why so many countries in Europe are trying to impose restrictions through the terms of the directive. The insurance expertise and knowledge of this country has been built up over hundreds of years. If by 1980 these regulations have become effective, the British insurance industry will render to Europe the finest insurance service any country can give.

There are a number of points about which we should be most careful, and one concerns article 4 and the threshold. In future negotiations we must keep this threshold at least as low as it is now. At no time must we agree to an increase.

Article 8 requires special authority or authorisation from the Government of the country in which an insurance company intends to operate. If there is to be unanimity in the Common Market, I do not see why there should be the need for special authorisation. Plain authorisation is all that should be required.

On article 13, I believe that the matching resources and the establishment of huge funds in every country in Europe should no longer be required. We should stick our necks out on this matter and tell the Community that this is just not on.

The British Insurance Association, which represents all the insurance companies and pension societies in the country, is the expert body to which we should all look. We expect from the association guidance on what is best for our industry. In 1980, when I shall no longer be in this place, I hope that the House will ensure that our industry gets its full shale of opportunities to develop in Europe.

I regret that my hon. Friend the Member for Thornaby (Mr. Wrigglesworth) is no longer present. He is, I know, serving on the Finance Bill Committee and he is having to be in two places at once. He has asked me to apologise on his behalf to the House for his absence. I wish to reiterate what he said. I am worried about what may be proposed for the big British insurance societies and companies which operate in practically every sphere of insurance, from the general to the life business. We are concerned in this directive with non-life business. If there is ever any attempt to try to break up our enormous insurance companies—I am thinking of the Prudential, the Pearl, the Co-operative, the London and Manchester and all the large companies which transact all types of business—into a large number of separate companies each to conduct one aspect of insurance, we should resist that to the utmost.

Our insurance companies, which have been transacting every type of business for 150 years, should not have to change their style of business in order to fit in with some countries which, to put it bluntly, do not understand the world insurance industry as the British insurance industry does.

We all welcome this directive. It is most agreeable this evening to have something from the Community on which there is unanimity in the House and on which the serried ranks of the anti-Marketeers, who will oppose anything because it comes from Europe, are not present. The directive is the greatest fillip that the British insurance industry has had for a long time. I only hope that we may take full advantage of it in order to show Europe that we have the finest insurance industry in the world.

8.28 p.m.

I agree very much with what has just been said by the hon. Member for Battersea, South (Mr. Perry) about the insurance industry and the directive. I am bound to say that I had forgotten that the hon. Member intended to retire at the end of this Parliament. We shall all miss his contributions on insurance and other matters and, indeed, his friendship in the House.

Like my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle), I declare an interest in insurance matters, and I add my qualified welcome to the directive. It is a qualified welcome for a number of reasons, the most important of which is that, in spite of efforts on the part of the Government and many other people, progress has been painfully slow. In many areas of the EEC in which our competition is somewhat weak, we have seen things being introduced much more quickly. Here is an area in which the British insurance industry is in the forefront of the world, but it is an area in which one cannot disguise the suspicion that some of our partners within the EEC, knowing the effective competition that would come from a common market in insurance, are dragging their feet.

One of the messages which I certainly suggest should go out from the House tonight is that we are dissatisfied with the progress that is being made. One of the intentions of the debate is to strengthen the hand of Her Majesty's Government in trying to ensure that progress in the future should be quicker.

In the explanatory memorandum from the Secretary of State for Trade, I notice that it is said of the text of the directive:
"It may be submitted to the Council of Ministers for adoption in the latter part of 1979."
That simply is not good enough. One of the things that the House of Commons—in every speech that has been made so far this evening, I think—is saying to the Minister is that this progress is not satisfactory, and we hope that the House of Commons is strengthening the Government's hand to try to ensure that speedier progress is made.

My other main general criticism concerns the growing fear in the industry, a fear which I certainly share, that we are going in for far too much detail in this and other directives and that we are beginning to depart from the essential element of flexibility and freedom which has characterised legislation on insurance matters in this country and is one of the reasons why British insurance has made such an effective mark throughout the world.

I beg the Government—I was glad to hear the Minister making this point—to go all out to retain that element of flexibility which has stood our insurance industry in such good stead in the past. I fear that there are some indications from this directive and others that the Continental tradition, which is for much more detailed regulation, is beginning to creep into this and other directives. I hope that this tendency can be resisted.

Those are my two main regrets about the general approach and the timing of the directive. Having said that, however, I welcome it, as other hon. Members have done, as a step towards a common market in insurance, albeit a modest step. I particularly welcome the principle, which appears to be enshrined here, that insurance services provided should be governed by the legislation of the country from which the service is provided. As I understand it, this means that a United Kingdom insurer will be able to cover a risk in any EEC country from London and be subject to United Kingdom legislation. This is a very important principle to get established. To use the jargon in the trade, it is the concept of head office control.

Having given that welcome and expressed those qualifications, perhaps I may very briefly underline some of the particular criticisms made by my hon. Friends the Members for Hertfordshire, South (Mr. Parkinson) and Brentwood and Ongar and by Labour Members. I want to refer briefly to two articles—articles 13 and 15.

I was very glad to hear the Minister refer, when he was making some critical remarks about article 13, to the importance of retaining flexibility. I entirely support what he said about that. Article 13(2) refers to the technical reserves being covered by equivalent matching assets. Many criticisms have been made about this from both sides of the House. A recent experience with another directive which was recently passed by the Council of Ministers gives concern that this article will cause the introduction of strict and absolute matching requirements. That would be quite unacceptable to British insurance. The rules relating to the matching of assets must take proper account of all practical considerations, including the need for efficient management of investments and the true significance of exchange risks.

Rightly, British insurers would like to see article 13(2) amended to indicate that, while technical reserves shall be represented by matching assets, relaxations to this rule should be granted by the supervising authorities in the individual member State. That seems to me to be a reasonable element of flexibility on which the Government would be on very sound ground in taking a strong stand.

On Article 15 I merely reiterate the points already made. I believe that the insurance industry is right in saying that the present text is a step backward and that it is not as good as the original text. If it is not possible to go back to the original text, I agree that it would be much better to delete this article altogether and to leave the matter in the hands of the individual States.

I hope that the debate has strengthened the hand of the Government as regards timing and in trying to preserve the essential flexibility which has been one of the strengths of the British insurance industry. I hope that it will also strengthen their hand in the specific but very important detailed points which have come in unison from both sides of the House.

8.38 p.m.

It will not come as a surprise to the House if I introduce a dissenting note into the debate. I have been rather surprised by the immense amount of gratitude bestowed on a variety of people. It has been expressed to the Commission, to Mr. Christopher Tugendhat and even to the Minister—for what? I do not believe that the British people, either today or in the future, will really feel any great benefit from this directive.

My dissenting note is one not of opposition but of total scepticism to the directive. I think that many hon. Members have been guilty of slight exaggeration in describing it as a great step forward, or in seeing it as a great opportunity to create a common market in European insurance. Listening carefully to the debate, one has detected in almost every speech criticisms of the directive that undermine the very case that hon. Members were welcoming. The criticisms that the Minister made, rightly, of the directive have been reinforced by almost every other speaker, and they are at total variance with the desire to have a free market in insurance. If some of these articles go through in their present form, the status quo will continue to prevail and we will not have taken a step forward.

My criticism is on a much broader base than that. When we were arguing about membership of the EEC, it was said by many people in the insurance profession that there were great opportunities in Europe for British insurance. I was sceptical of that claim, and I think that the lack of progress of British insurance in Europe so far—although the time scale has not been long—has borne me out.

Nevertheless, one of the features of our membership that I welcome is the freedom of provision of services, the free movement of capital and the free trading elements that, certainly in financial matters, come through.

If one were talking simply about a genuine common market in insurance, in principle I would welcome that. The London insurance market has become the in- surance capital of the world because of our free trading approach to insurance. Paradoxically, that supremacy in world insurance has arisen because of the protectionist nature of other countries. It is because France, Germany and other great industrial nations have had such a restrictive and narrow approach to their insurance business that they have not offered us competition around the world. It is because of that that London has been able to secure an immense amount of the reinsurance business that is derived from those fairly small national businesses.

If one succeeded in breaking down the restrictive approach of such countries, it would not necessarily work to our benefit. It could work to our detriment. We have benefited from the narrow-minded attitude of some of our Common Market partners. I am more concerned to ensure that London remains the insurance capital of the world than that we manage to put up our share of the European market from 11 per cent. to 15 per cent. or 20 per cent. We must be sure that we do not jeopardise our position in world trade terms for the sake of improving to a small degree our share of the market in Europe.

I thought that I heard my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) agree.

I shall return to that point. There is ample evidence to show that it is unlikely to be a great amount, judging simply by the attitudes adopted by other members of the Common Market. I cannot see that they will allow great inroads to be made into their domestic markets.

If article 13 were accepted in its present form it could damage our position with third countries who are not members of the Community. It could result in restrictions being imposed upon British insurance in the United States or in other countries. We must avoid that danger. There has been total unanimity on that point.

My scepticism is on a broader basis. A case has not been made out for saying that we will gain enormous benefits from membership of the Common Market in terms of the London insurance market. The principles enunciated in the preamble to the 1976 directive are fundamentally wrong. On page 15 it says that
"Whereas it is necessary to develop a European insurance market …"
—it is not necessary, though it might be desirable—
"due in particular to the steady increase in the size of risks to be covered."
That is not true, because we do not need to have an insurance common market simply to cater for the increase in size of industrial risks. London has always managed to provide remarkably fine facilities for other nations which have not got sufficiently large insurance markets. This is where London has scored handsomely by being able to create international facilities here that could cover ever-increasing industrial risks. The size of the risks does not justify this directive. The fundamental reasons for it are not evident.

The directive is pretty unsound. It will not achieve very much. However, it might not do too much damage as long as we can have the amendments to which the Minister referred.

Article 13, requiring that
"These reserves may be located in the Community without territorial restriction. They must in all cases be covered by equivalent and matching assets"
is a dangerous proposition. I was glad to hear the Minister state that the Government will oppose it. I hope that he realises that he has the backing of the House in his efforts in that direction.

The provisions of article 15 concerning the way in which we deal with third countries could be very damaging to our position in the world insurance market. People often fail to understand how significant is the London insurance market, not just as a powerful base for British insurance companies but as a genuine international market. There is no other place in the world with such a concentration of large commercial institutions, from almost every other nation. An insurance broker in London could walk around the City and, within hours, get hundreds of names of different insurance companies from all over the world that have come to London because of the immense commercial advantages. We must not jeopardise that.

I agree with the Minister that if Britain, as the authorising authority, has authorised those companies to trade in London, it should be adequate for them to be authorised to trade throughout the EEC. I hope that we can have that established as a principle and I trust that the directive would not be approved unless such a concession could be secured.

The Minister referred to article 3 and said that the Government were opposed to its implications for taxation. I had not noticed those implications, so I looked quickly at the article. I presume that the Minister was referring to paragraph 4, which contains the only reference to tax. It says that
"The reserves referred to in this Article shall be disregarded for purposes of calculating the solvency margin and shall be under exemption from any liability to tax."
The House should be cautious about allowing the EEC to dictate taxation provisions to our insurance companies. I hope that the Minister will resist any such intrusion on the taxation powers of this country.

Article 14 also deals with taxation and imples that there is a commitment to harmonisation of indirect taxation on insurance. Are we simply to accept that proposition without debating it further? Are we committed to it? We should have an explanation from the Minister. The article says that
"Without prejudice to subsequent harmonisation of indirect taxes on insurance, all insurance contracts concluded by way of the exercise of freedom to provide services shall be subject solely to the relevant taxation in force in the Member State in which the risk is situated."
For the time being, the position is satisfactory, but alongside article 14 are the words:
"Pending the subsequent harmonisation of indirect taxes on insurance".
This trespasses on the whole question of powers of taxation between this country and the EEC, and we must have an explanation on the point.

I welcome the Minister's powerful reservations. There has been general agreement that he is right and the House is behind him in the negotiations. Contrary to the general, almost enthusiastic, welcome that has been given by other hon. Members, I regard the directive as being more in the realm of pious hopes conceived out of the Brussels bureaucracy and being almost incomprehensible gobbledegook in its 50 pages of paperwork. However, no harm will be done if we can secure the amendments to which the Minister referred.

8.49 p.m.

My hon. Friend the Member for Faversham (Mr. Moate) and other hon. Members are right to raise the objections which they have raised. Where my hon. Friend is wrong, but where we have long since abandoned all hope, is in his practice of transmuting those detailed objections, on which I share his anxieties, into a generalised objection to the document because it is an EEC instrument. That is because of his usual opposition to our membership. It is a continuing mistake, but he is entitled to make it and his views are well known. Those views are not shared by most hon. Members, as repeated votes have shown. What is unanimous in this debate, even grudgingly from my hon. Friend, is support for the draft directive.

Most of the detailed of objections have related to article 13. I share the substantial concern expressed about the excessively rigid approach, which is often seen among Continental authorities governing insurance functions, to the need for an excessive reserve stipulation. It is unnecessary. It perhaps reflects the precarious position of insurance companies in those countries many years ago but it is no longer realistic, even for them, and certainly not for the British insurance companies with their long history of safety, experience, investment sagacity and insurance risk-writing wisdom in general.

I hope that the Minister will be armed to the teeth with all these objections and will return to the negotiations on this document—it has taken a long time, but this is a complicated business—with a strong negotiating position, seeking to get full justice for the British industry. I am sure that the House welcomes the directive as a practical example of the Community working positively and sensibly, despite some enormous difficulties and differences, for the good of the Community itself and for that of each member State.

Some of the media in this country have indulged in familiar anti-EEC noises. The Daily Express at the beginning of the week ran a feature saying that the housewife wanted to come out of the Community. I do not believe that there is evidence of that. When the British public is fairly presented with concrete examples of the Community's sensible working and of the progress that it makes, even if it is as slow as with this directive, the housewives and their husbands will see that there is much in the Community to commend it and to give greater prosperity in the long term to all its citizens.

As the months pass, general attacks on the EEC will be applied to the particular and to everything which comes from the Community, including this directive—if the Daily Express thought that enough of its readers would read about it. That is unlikely; it must stick to the emotional material and not get into the technical stuff, which might bore its readers. That is the general attitude of newspapers like the Daily Express. I recall with affection an emotional headline in the mid-fifties—it will be claimed that it is apocryphal, but I am sure it is true—which read:
"English student killed by German thunderstorm".
We see now a recrudescence of that attitude not only to the EEC but to all foreigners.

So far as correspondents of the Daily Express have the courage tomorrow to read a debate like this, which will show them what the EEC means more than will the emotional anti-foreigner tirades in which that paper will indulge in the coming months, I welcome not only the particularities of this debate but its generality as well.

8.55 p.m.

The caution that I would utter to the hon. Member for Harrow, East (Mr. Dykes) is that he tended to be a little too euphoric about the benefits of the Common Market. It is that euphoria which perhaps made a little disreputable some of the arguments in the membership debate. However, my view about that at that time is fairly well known.

It is interesting that people who were such worthy protagonists of the Common Market are urging me to take a very tough line about our Community partners. I welcome that. Indeed, that was the purpose of the debate, and I anticipated that they would be wanting to urge that course upon me.

The hon. Member for Faversham (Mr. Moate) has, perhaps, been dealt with a little unjustly by some if his hon. Friends. He is quite capable of defending himself and he does not need me to do that for him. I know that he has no intention of being killed by an EEC thunderstorm. If he is to be killed in that way, he will be killed by a British or Commonwealth thunderstorm. That is for sure.

The interesting feature about the debate is that, whatever one's basic views have been about the Community, the history of entry and so on, there has been very strong advice—advice which I sought—given to the Government by both sides of the House on a number of important issues.

The hon. Member for Hertfordshire, South (Mr. Parkinson) made an extremely thoughtful speech in going through a number of anxieties that he had. He made the point—I also referred to it, although not in quite as much detail—that it was regrettable that our insurance industry, which is a worthy, highly competitive and efficient industry, had, for reasons that were not within its control, not been able to break into Europe to the degree that was desirable.

The industry does not seek in any way to get any unfair competitive advantages. It is not seeking to take a sort of Eastern bloc or Russian shipping approach in this matter. I say that because I have spent hours in Luxembourg discussing that question, and it is still residing with me. That is not the approach of the insurance industry. It wants to compete on totally fair terms. So far, that opportunity has been denied to it, at least in part, and it is regrettable.

It is against that background that the progress which has been made in the directive is significant. That is why it is welcome. But there is much negotiation still to be undertaken before we can view the position with complete satisfaction.

The hon. Member for Hertfordshire, South echoed many of the criticisms that I had made in my earlier speech. He said in particular, in relation to article 4, that the thresholds should in no circumstances be raised. That view was also mirrored in a number of other speeches that we heard. The hon. Member argued also for an extension of the principle of freedom of choice in law.

The argument about thresholds is very important indeed, and I take very strongly into account the advice which has been proffered today. I think that it would be deleterious to the interests of our industry if there were any question of raising the thresholds. We are not happy about the present level, and we are arguing, therefore, for a reduction.

I think that the fact that it seems to be common ground on both sides of the House that the Government should continue to negotiate along those lines is bound to be positively helpful. I cannot, of course, guarantee the success of the negotiations. However, I hope that those voices will be listened to where it matters—where the negotiations are undertaken. I believe that the voice of the House of Commons is, in fact, paid attention to by those on the other side of the argument.

Another point mentioned by the hon. Member for Hertfordshire, South and by a number of other hon. Members related to the doubts about the question of liability insurance and how this featured in the whole argument. One of the questions which was basically being asked—here I am trying to summarise the points made by a number of hon. Members—was as follows. Should liability insurance be given the same degree of freedom of choice in contract law as marine aviation and transport insurance? That was one of the underlying questions that was posed. We certainly take the view that it should. Liability insurance shares the international character of these other classes of insurance. Our partners are currently examining a paper, which we put round, suggesting that liability insurance should be given the same freedom. Logic points wholly in that direction, but logic does not necessarily dictate the result of negotiations.

Or, again, should freedom of choice of law provided in article 4 be limited only to policyholders with the status of a trader? That is not a point which was made, but it is a fair point which we ought to pose. As it stands, this limitation is not satisfactory because it excludes policyholders who are engaged in professional activities. We are confident that we have a reasonable chance of being able to negotiate a satisfactory definition so that such people will also benefit from these provisions.

The hon. Member for Hertfordshire, South, together with others, went on to take up the remarks that I had made about the inadequacies—indeed, the undesirability—of the rigidities set out in article 13. He said, as did others, that reserves to be covered by matching assets injected what amounted to an unrealistic position. I think that it is unrealistic. It is much too inflexible. For that reason, we are opposed in principle to article 13(2).

Following his earlier remarks, does the Minister agree that since the industry itself in this country has, we understand, proposed a very pragmatic and gentle compromise—namely, that discretionary authority by the national governing authority to relax the rule, even for temporary periods, is quite adequate in this context—outright opposition to this article is not in that sense necessary?

To use the expression of the hon. Member for Faversham, I am a little sceptical about that. Anyway, I do not think that it would be very helpful from the point of view of negotiating posture if I were to agree with the hon. Gentleman, which I do not. He says that the industry has taken that view. Perhaps he is aware of evidence of which I am not. I think that it is an illogical state of affairs and one to which we should object in principle. The hon. Gentleman and I may choose to differ, but that is my point of view.

Perhaps I ought to say a little more about this because I think that the hon. Member for Hertfordshire, South really put his finger on it. The example that he cited was very pertinent. It can get insurance companies into all sorts of difficulties if we pursue that sort of line. The sort of difficulty in the application of the matching rule without any degree of flexibility is that the practicalities of the operations of an insurance undertaking are necessarily ignored. They are not ignored in every respect, but they are in major and fundamental respects.

Amongst the most specific reasons why we have opposed this absolute rule are, first, that it is impossible to operate for classes such as marine, aviation and transport and liability insurance where the eventual claim may occur in any currency; secondly, if any small amounts of business are written by a company, it may be very difficult administratively and may be unwise financially to hold small packets of currency; and, thirdly, a company must have an opportunity not to speculate but to invest its funds wisely from the point of view of investment income. For those three reasons alone, the arguments which have been adduced by hon. Members are right.

The hon. Member for Hertfordshire, South went on to refer, as did others, to article 15. He and virtually everyone else who referred to its had the strongest reservations. He referred to the artificial distinction between branches and subsidiaries in third countries, and so on. I do not wish to go further than to take note of that. I invited hon. Members to comment on the matter. We have not made any final judgment, and the comments made tonight have been of considerable help to us and will be taken into account.

My hon. Friend the Member for Thornaby (Mr. Wrigglesworth) raised a number of matters. Unfortunately, as he said, he is engaged in the Finance Bill Committee, and we understand why he cannot be in the Chamber to hear my reply. He was concerned primarily about the position of the composite company, and I know that representations have been made to him by the CIS. He was good enough to refer to the correspondence I had with him. On 16th May last year I wrote to him on this very matter. I know that he is concerned about this and asked me to give him certain definite assurances. However, it is not directly relevant to the matter that we are immediately discussing although I understand why, since we are referring to some extent to composites, he thought it right to present a marker to the House about the matter.

We are undertaking a review, and I think that it would be wrong at this stage to prejudice the results of that review. I recognise, however, that any changes from the present system could have very serious and important implications for the CIS. My officials and the Registrar of Friendly Societies will consider carefully any problems which may arise from this position. I am in no way making concessions, but obviously we have to take account of possibilities and consider future options. Any problems which may arise will be considered carefully, and I suggest that the CIS discusses with my officials the issues involved.

However, perhaps my hon. Friend will be able to take some comfort from the fact that the matter is not likely to be finalised for several years, during which time I hope that a satisfactory formula can be found for erasing the anxieties which he indicated. I do not accept the point that my hon. Friend has sought to make that the review itself admits of the possibility of destruction of composites. That is going too far.

The hon. Member for Brentwood and Ongar (Mr. McCrindle) made a number of points to which I have already referred. He referred to article 4 as a lawyer's paradise. I can think of better lawyers' paradises than that. However, I see his point in trying to comprehend article 4 myself, as a layman to some extent in this field.

The hon. Member reiterated the point about thresholds, to which I have referred. He also referred more specifically to the question of liability risks and the freedom for transport liability where the insured is a business man and the risk arises from the business. In those circumstances I understand that no threshold limit applies. That refers to Article 4(2)(b). In article 4(2)(c) there is freedom for liability associated with a general, commercial or industrial fire or accident risk where this is above the threshold limits

I know that the Minister is trying to be helpful in response to my inquiry. I do not expect him to respond to my point straight away, but perhaps he will write to me. I am especially anxious to know the position of a British insurer wishing to transact a liability business where there is no associated marine, industrial or commercial risk. What is his position under article 4 of the draft directive? If the Minister cannot answer now, I understand, but I hope that he will take account of the point. I was trying to separate the situation which he has just described from the situation in which only liability insurance is involved.

I am glad that the hon. Member has offered me an avenue of escape from answering such a complex question now. I do not think I can do it justice at present, so I shall avail myself of this escape route, take advice and write to him as soon as possible.

The point was made by the hon. Member for Hertfordshire, South and was reiterated by other hon. Members about article 15 who claimed that it would be better, if one could not go back to the original text, to scrap the whole thing altogether. I listened to their arguments, I have taken note of them, but I cannot go beyond that now.

My hon. Friend the Member for Battersea, South (Mr. Perry) has made many contributions to debates about insurance over the years—long before I became a Minister. During the time I have been a Minister, I pay tribute to his constructive role in insurance debates, except for those on the Policyholders Protection Bill. I think on that occasion I was proved right. I should like to take up the comments of the hon. Member for Somerset, North (Mr. Dean) about my hon. Friend the Member for Battersea, South. We shall miss him from our councils on this matter and on many others, both inside and outside the Chamber. He has been a good friend to many of us, and particularly to me as a fellow London Member. I have had a lot of advice, help and guidance from my hon. Friend and I am still relatively youthful in this House.

No, he will not be going for another 18 months.

The hon. Member for Somerset, North speaks with great knowledge about these matters and made a fair point, but I think he did not answer the matter in his arguments and did not apply his mind to answering it. He said that the influence of some of the directives was aimed at increasing rigidity whereas in the United Kingdom we wanted to retain flexibility. I agree with that principle absolutely. However, we are living not in an ideal world but in a world where, if progress is to be made, one has to compromise between different philosophies.

I do not speak from the same standpoint on the EEC as do a number of hon. Gentlemen who have contributed to this debate, but if we apply this argument pragmatically I believe that it is to the advantage of the insurance industry to achieve a common market in insurance as quickly as possible. In order to do that, compromises have to be achieved. Although I accept the point in principle, I believe that it would not be possible to retain to the full the degree of flexibility which we should all like to see.

The hon. Member for Faversham expressed scepticism about the directive and the thinking behind it although, having given vent to his views, he gave the directive a sort of welcome. I do not complain about a degree of scepticism when one is negotiating. If one goes into negotiations without a fair degree of scepticism, as I learned as a solicitor, one's client has not a chance. It is right that such an attitude should be displayed, and I take many of the hon. Gentleman's points. However, ultimately he came round to many of the same conclusions as were reached by other hon. Members.

The hon. Gentleman asked a very important question on article 3 and also on article 14, concerning taxation. Article 14 reads:
"Without prejudice to subsequent harmonisation of indirect taxes on insurance, all insurance contracts concluded by way of the exercise of freedom to provide services shall be subject solely to the relevant taxation in force in the Member State in which the risk is situated."
I am advised that there are no discussions or proposals about harmonisation in this respect. It is a phrase which has been imported into the article with a sort of reservation. It is without prejudice to the possibility of the situation arising, but as yet there has been no discussion about it. I hope that the hon. Gentleman will accept that point.

Would the directive lose anything at all if article 14 were omitted? Judging by the way the Minister has described the matter, and if there is no commitment to subsequent harmonisation, if there were no article presumably the present position would remain and all contracts would be subject solely to the relevant taxation in force in the member State.

The hon. Gentleman makes a fair point. I do not know what has gone into the discussions behind this article in detail, and I am merely responding to a point he made in the debate. I took specific advice about whether there had been any commitment. I am assured by those who have been involved in the negotiations that there is not. Perhaps the article is fairly meaningless, and maybe it is as well to leave it in that way.

The hon. Gentleman made one point with which I disagree. He said that he could not see how our partners in Europe—I know that he does not like that term, but I use it—will allow great inroads into their markets. The directive as drafted gives freedom for a whole range of risks that I listed in my opening remarks. The directive would be a major opportunity for our industry. Other States have made concessions and we have had to make some. In fairness, the action of other States should be recognised. The proof of the pudding will be in the eating.

My point was on taxation. The hon. Gentleman referred to his own reservations on article 3, which is a different aspect of taxation. The hon. Gentleman has not commented on my point, which I imagine to be a fairly important negotiating matter.

I dealt with that matter at some length in my opening remarks. Repetition does not improve the argument. I have already indicated my feelings on the matter to which the hon. Gentleman refers.

I know that my hon. Friend the Member for Grimsby (Mr. Mitchell) has been waiting in the Chamber for the opportunity to address a full House on the Adjournment. I thank hon. Members for their participation in the debate. It has been a wholly helpful debate, and I hope that it will give great encouragement to those of my officials who will now embark once again upon difficult and delicate negotiations.

Question put and agreed to.


That this House takes note of EEC Documents Nos. R/95/76 and R/467/78 on Non-Life Assurance.