Friendly Societies Bill
Order for Second Reading read.
I beg to move, That the Bill be now read a Second time.Friendly societies have a long and distinguished history of making mutual provision for their members and their relatives against loss of income through sickness or unemployment and for retirement. Most societies provide not only contractual benefits but discretionary benefits to members who find themselves in financial difficulties, and many societies are also engaged in more general benevolent activitis. The nature and range of friendly societies vary considerably, but all operate on the admirable principles of mutual self-help and the encouragement of thrift. They have played a particularly valuable role in providing protection and savings for people on modest incomes who might otherwise be unable to make provision for themselves. Friendly societies have been recognised in statute for nearly 200 years, although their origins date back to at least the middle ages. The Bill before the House today is the most far-reaching legislation on friendly societies for over 100 years, since the Friendly Societies Act 1875. There has been amending legislation since, but the fundamental structure of the 1875 Act has survived until now, and the consolidated Friendly Societies Act 1974—the current legislation governing the activities of friendly societies—still bears a clear similarity to it. Time has obviously moved on, as has the environment in which friendly societies operate. Since the late 1940s the state has provided many of the benefits for which friendly societies were originally formed and new financial products have become available. In recent years, the ability of societies to compete successfully with insurance companies and others has been increasingly hampered by the framework that governs them—particularly the limited range of business in which societies can engage. However, they are still significant financial institutions, with millions of members and assets of more than £5 billion, and they continue to perform an important function. The Government—and, I believe, Members in all parts of the House—recognise that the values friendly societies represent are well worth protecting and fostering. The Bill's main purpose is to enable societies to develop and prosper in the modern world, while ensuring sound standards of investor protection. The Government set out their proposals for the future of societies in a Green Paper, "Friendly Societies: A New Framework", published in January 1990, which was widely welcomed—not least by friendly societies themselves—and forms the basis of the legislation before the House today. We have, however, made various modifications to the proposals in the light of the comments that we have received. In particular, we sought wherever possible to meet the requests of the friendly societies for further refinements to the framework. Since the publication of the Green Paper there has been an extensive consultation process. We consulted interested parties on not only the draft instructions to parliamentary counsel for the preparation of the Bill but successive drafts of the Bill itself. The Bill has benefited greatly as a result, and I thank all those who took part, particularly the Friendly Societies Liaison Committee and representatives of the actuarial and accountancy professions. All their main concerns have been met, and the Bill therefore has the full endorsement of the friendly societies movement. One of the Bill's most important provisions is to allow friendly societies to incorporate. That is an essential prerequisite for their being able to provide a wider range of financial and other services. For prudential reasons, European Community insurance legislation prohibits an institution providing long-term life or general insurance from engaging directly in other activities. It follows that such other activities must be conducted through separately managed and financed subsidiaries. Friendly societies are currently unincorporated associations of individuals, and under the present law are effectively unable to own subsidiaries. The Bill therefore provides for societies to incorporate as a new category of friendly society, and to form and acquire subsidiaries. Although there will be no obligation—either legislative or otherwise—for existing friendly societies to incorporate, incorporation does offer advantages. In particular, it offers societies the ability to own their assets directly rather than through trustees and to have legal personality for contractual and other purposes. We therefore hope that, even where they do not intend to take up the new powers provided by the Bill, societies will take the opportunity to incorporate. We have made special provision to preserve the character of societies with a federal structure, such as the Independent Order of Oddfellows and the Ancient Order of Foresters, if they choose to incorporate—but the decision on whether or not to incorporate will be for the members of each society. Societies that incorporate will be able to establish subsidiaries or, together with other societies or other institutions, to establish the joint control over companies. Through those subsidiaries and jointly controlled bodies, they will be able to conduct a wide range of financial and other services. Those new activities are set out in schedule 7. They are mostly those put forward in the Green Paper, but, at the request of societies, we have added a number of additional activities. The services that societies will be able to offer through subsidiaries include the establishment and management of unit trusts and personal equity plans; arranging for the provision of credit; carrying on long-term or general insurance business; the provision of insurance intermediary services; the administration of estates and the execution of trusts and wills; and the establishment and management of sheltered housing, residential homes for the elderly, hospitals and nursing homes. Those services can be provided not only for members of the society, but for the public at large. All the activities listed in the Bill either relate closely to the existing businesses of friendly societies, or are natural areas into which they can diversify. However, the Bill provides for the list of activities conducted by subsidiaries and jointly-controlled bodies to be amended by secondary legislation. That means that, subject to the agreement of Parliament, additional services could be added as appropriate in the future by statutory instrument, without the need for fresh primary legislation. That flexible approach will allow the powers of friendly societies to be adapted to changing market conditions, and will ensure that their ability to compete is not unjustifiably restricted by their legislative framework. We are conscious, however, that the basic concept of a friendly society—existing to provide a service to its members and controlled by them—should not be compromised by the new powers. We would not want a society to diversify to the extent that its new activities became disproportionate to the traditional business of the society. The Bill therefore provides safeguards in that respect. The purposes of an incorporated friendly society must include the provision of traditional friendly society services to its members, and they are set out in an updated form in schedule 2.
I have been looking at schedule 3, which deals with the procedure of incorporation. Would it be sufficient for a society's members to vote for incorporation by means of a simple majority, or will there be some higher hurdle, as there is in the case of building societies? If members do vote for incorporation, who will be the members of the society when it is incorporated? Who will be the shareholders?
There will not be shareholders. Although the society will then be an incorporated body, it will not be a Companies Act company; it will be incorporated specifically under the Bill. A friendly society will need to amend its rules to bring them into line with the requirements for incorporation that are made in the Bill. The resolutions required for such amendments will be those that are required by the friendly society's rules. I understand that, on the whole, rules can be amended by a simple majority, but I shall check that and confirm the position when I reply to the debate. It will be for the friendly society to amend its rules in accordance with its own procedures for amending rules—if that is not tautological.There are powers to regulate the scale and nature of the activities of a society's subsidiaries if they are considerd to be unsuitable or disproportionate to the activities of the friendly society group as a whole. Societies will, as now, have the option of converting into companies if they wish to diversify further. That, I think, deals with the point made by my hon. Friend the Member for Beaconsfield (Mr. Smith): I was not talking about incorporation into a Companies Act company, but that further option is available to friendly societies now. If they find the legislation too constricting, either now or in the future, they can take such action; and, in such circumstances, they would be normal Companies Act companies with shareholders. The second major element of the Bill is the establishment of a regulatory framework for friendly societies, in line with the best current standards. The prime responsibility for protecting the reputation of friendly societies for soundness will continue to rest with the committees of management of the societies themselves. The Bill tightens the requirements in that regard, including the requirement for at least two members of the committee of management, and the requirement that the committee be subject to re-election at regular intervals. Clearly, however, we also need to strengthen and modernise the arrangements for the prudential supervision of societies as their business becomes less restricted, and to ensure that members of declining societies are protected appropriately. Although the problems that have arisen in relation to friendly societies in recent years have not been serious—indeed, the movement has a very good record—we must not neglect the need for their proper supervision. The supervisory system for friendly societies provided by the Bill therefore reflects and responds to the developments in regulation which have taken place elsewhere in the financial services sector. Accordingly, under this legislation we propose to establish a friendly societies commission, to exercise and extend the functions at present carried on by the Chief Registrar of Friendly Societies. The new commission will include people with suitable experience outside the public service and the supervisory staff dealing with friendly societies will be strengthened. In parallel with that, the commission will have new powers, based on a requirement for all active friendly societies to be authorised. The main power of the supervisor will rest in the granting or revocation of authorisation to carry on insurance or other contractual business, and in the imposition of conditions on it. A society carrying on such business without authorisation will be guilty of an offence. Authorisation is, of course, the standard procedure elsewhere in the financial services sector. The Bill also sets out criteria of prudent management, with which all friendly societies—regardless of whether they require authorisation or are closed societies not conducting new business—will have to comply. The main criteria include the maintenance of any required solvency margin and of requisite accounting records and systems of control; direction and management by sufficient fit and proper persons; and conduct of the society's business with adequate professional skills, and in relation to the insurance business, so as to meet the reasonable expectations of members. In addition, those incorporated societies with subsidiaries will be required to ensure that they supervise the activities of those subsidiaries with due care and diligence. If the commission considers that a society is failing to comply with the criteria of prudent management or if it thinks that action is needed to protect the interests of the members of a society for other reasons, it will be able to exercise a range of prudential powers. It can forbid a society to accept new members or withdraw or impose conditions on its authorisation. In addition, there will be a general power in relation to closed societies to direct a society to take such action as the commission considers appropriate. The commission will also be able to petition for the winding up of a society on a just and equitable ground, and to order a society to transfer its engagements. The commission will have accompanying powers to obtain from societies and their subsidiaries the information necessary for its supervisory functions and to conduct inspections and investigations into societies. The Bill therefore provides a flexible and wide-ranging regulatory structure to protect members' interests. That was the reason why we considered it appropriate to vest these powers in a commission, including independent members, rather than one person—the Chief Registrar of Friendly Societies—as at present. However, in line with building societies and banking legislation, the Bill also makes provision for an independent appeals procedure against the supervisor's decisions. The commission's prudential powers are not the only safeguard for friendly society members. The Bill also requires all societies carrying on long-term life insurance business to appoint an actuary for the society. And all societies transacting insurance business will be required to have regular actuarial valuations of their liabilities, with checks taking place in intervening years. In addition, new provisions relating to the preparation of the accounts of friendly societies and the duties of auditors are included in the Bill. The provisions reflect those in companies and building societies legislation. They require friendly societies to maintain proper accounting records and systems of control. Each year, the auditors of a society will have to make a report to the commission on whether the society has complied with the statutory requirements. The auditors are also empowered to furnish other information to the commission on the conduct of the activity of the society or the business of any subsidiaries. Effective management, subject to appropriate supervision, is the best means of providing for the integrity and soundness of friendly societies. But to underpin all that the Bill makes fresh provision for investor protection. There is currently a voluntary scheme to protect friendly society members. However, although all the large societies, which account for the vast proportion of friendly society business, belong to the scheme, a number of the smaller societies have not joined it. It is accordingly desirable—as with banks, building societies, insurance companies and other financial services institutions—that there should be a statutory scheme, which is mandatory on any society which gives its members contractual rights. Although it would have been possible to establish a statutory scheme just for friendly societies, it makes more sense to bring societies within the existing arrangements provided by the Policyholders Protection Act 1975, which covers the insurance industry. Accordingly the Bill provides for the amendment of that Act so that policyholders of friendly societies are brought within its scope on the same terms as those of insurance companies. Responsibility for the 1975 Act lies, of course, with my right hon. Friend the Secretary of State for Trade and Industry, and it is outwith the scope of the Friendly Societies Bill to make any more general amendments to that legislation. We are removing the responsibilities of the Registry of Friendly Societies for hearing disputes between friendly societies and their members. Very few such disputes have been referred to the registry in recent years. In future, if a dispute cannot be settled under the rules of a society, it may be referred to the courts. We consider that the role of arbitrator under the disputes provisions does not sit easily with that of being supervisor of the institution which is one of the parties involved. However, although the commission will have no formal responsibilities in this area, it will continue the registry's role of using its good offices to resolve complaints. Friendly societies will also be encouraged to join one of the existing voluntary complaints schemes which cover insurance companies such as the insurance ombudsman bureau. We are also taking the opportunity to rationalise the other disputes functions of the chief registrar. In particular, responsibility for determining disputes between the Department for National Savings and its investors will be transferred to an independent adjudicator. Although the independence and objectivity of the registry in handling these disputes has not been called into question, we have been conscious that it is rather anomalous for one of the Chancellor's Departments to determine disputes involving another. The Bill also makes fresh provision in relation to amalgamations, transfers of engagements by and to friendly societies and their conversion into companies. As I said, a number of declining societies have ceased to take on new business. If a society is in terminal decline or if a management void appears, the interests of its members may be better served by a transfer of its engagements to another society willing to accept them than by allowing the decline to continue or winding up the society. The Bill therefore contains measures to facilitate voluntary transfers while at the same time making provision to protect the interests of the members of the friendly society making or accepting the transfer. In particular, it introduces a conformation procedure so that the commission can be satisfied that the procedures for a transfer have been properly carried out. Where a friendly society proposes to transfer any of its insurance business to another society required to maintain a margin of solvency, the commission must be provided with an actuary's report on the ability of the receiving society to maintain the requisite solvency margin. The commission will also have the power to direct a society to transfer its engagements to another friendly society or other suitable body if it considers that the society is unable to manage these satisfactorily and that a transfer would be in the best interests of the members. A conformation procedure is also provided where societies wish to amalgamate or where a society wants to convert into a company. The Bill is a long and technical measure. That is inevitable as it is the first major overhaul of the law relating to friendly societies in more than a century. Besides providing new powers for societies, it thoroughly modernises their legislative framework and incorporates many of the provisions that have already been enacted for companies in the Companies and Insurance Companies Acts in recent years and for building societies in the 1986 Act. The Bill gives friendly societies important new opportunities to respond to the needs of their members and to plan for the future. Our purpose has been to provide a framework in which each society can develop in the way that it judges best, while always retaining the essential characteristics on which the reputation of friendly societies has been based. I am sure that there will still be room for societies of all sorts—large and small, national, regional and local—as long as they continue to provide the services that the public want. The Bill should not diminish but enhance the diversity of the friendly society movement. It gives those societies with the necessary will and ability the opportunity to move into new areas and to expand their services to their members. It also provides for a regulatory framework in line with the best current standards. Friendly societies have given outstanding services to the community for more than two centuries. This legislation will enable them to continue to do so for many years to come. I commend the Bill to the House.
A Bill to update the outmoded and antiquated legislative framework of friendly societies is hardly likely to excite the passions of the House. It is surprising, therefore, that the Bill should have taken so long to come here.There can seldom, if ever, have been a measure that has been so long awaited, so well trailed and so desperately needed by the group of organisations and people involved. Our regret is that it has been introduced so late in the day, at the eleventh hour. In their last moments, the Government have chosen to introduce a measure that it was open to them to introduce many months ago had they been so minded. Indeed, as long ago as June 1989, during a debate on the Finance Bill, my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) said that the Opposition would be only too willing to co-operate with the Government in identifying a time slot for such legislation and to give it a fair wind. My hon. Friend had been encouraged in saying that by the remarks of the then Economic Secretary to the Treasury during an Adjournment debate initiated—I want to give credit where credit is due—by no less a personage than the hon. Member for Wyre Forest (Mr. Coombs). He may remember it. At that time he had a slightly different role—a less distinguished role perhaps—but he was at least free to speak his mind. Now he is muted, at least on this topic. However, on that occasion, the hon. Member for Wyre Forest moved the Adjournment debate and received due credit—his picture was in no less a journal than The Times of Saturday 8 April 1989. The hon. Gentleman remembers it well. It is not often that he features in The Times in any capacity. The headline under his picture—
He looked younger.
Indeed, he did look younger—that is true. The headline was "Taken up the Cause". That was three years ago, which does not say much for the hon. Gentleman's persuasive powers. He is certainly older, but I am not sure that he is wiser. Three years later the measure has found its way to the House.At the time, the then Economic Secretary—the current Secretary of State for Trade and Industry—said:
He also said in the Finance Bill Committee:"Friendly societies are an important part of our social and economic fabric."—[Official Report, 4 April 1989; Vol. 150, c. 170.]
With such support, we might reasonably have believed that the Government would give the matter priority, but it was more than six months before they managed to arrange publication of the Green Paper entitled "Friendly Societies: A New Framework", to which the Economic Secretary referred. In view of that degree of diligence by the then Economic Secretary, it is no wonder that since he took over at the Department of Trade and Industry the Department has been renamed "The Department of Torpor and Indifference". I hesitate to introduce a rancorous note into what should be a happy debate, as this is a non-controversial and inoffensive measure. However, for those of us who follow these matters—there are not many of us, but we are nevertheless a dedicated band of observers—it is interesting to note that the process began with the then Economic Secretary, who is now Secretary of Trade and Industry, and continued to cover no less a personage than the Patronage Secretary. The post of Economic Secretary is interesting, because although it tends to paralyse those who hold it, at least in terms of friendly society legislation it does not subsequently impede their advance up the slippery pole. Sadly, the exception to that rule is the personage who now occupies the post of Economic Secretary. I fear, for his sake, that he does not have much further to go up the slippery pole and that he will shortly slip off it altogether."I welcome their work and wish them to continue to operate."—[Official Report, Standing Committee G, 29 June 1989: c. 707.]
In the hon. Gentleman's historical review, will he remind us why, when legislation on friendly societies was consolidated in 1974 and the possibility of new legislation was raised, the then Labour Government chose to do nothing? I, too, do not want to bring a note of rancour into the debate, but I must point out that friendly societies seem to have suffered under all parties in the House.
The Government have had 13 years in which to do something about friendly society legislation and they have chosen to do absolutely nothing. I am glad that the hon. Member for Northampton, South (Mr. Morris) does not want to introduce a note of rancour into the proceedings. He will understand, therefore, why I do not respond directly to his point.
I will not be provoked by the hon. Member for Beaconsfield (Mr. Smith). He has been trying to provoke me for years and, in my experience, the best course with him is not to be provoked. We shall come to the history of the matter in due course—and there is an awful lot of history.It is interesting that the Prime Minister, who was then in his incarnation as Chancellor of the Exchequer, was very free with his words of encouragement to the friendly society movement. He wrote:
The Economic Secretary, now the Patronage Secretary, echoed his master's voice, in no less a journal than The Daily Telegraph, with uncanny accuracy. He used the words:"The Government hopes the proposals in this Green Paper will provide the societies with firmer footing in the modern world and secure the future of the friendly societies into the next century."
If the proposals were allowed to continue at the rate at which the Government have dealt with them, it would be well into the next century before a Bill was passed. Mercifully, that will not happen, but not because the Bill has now been published and will be given a Second Reading today. With things as they are in the current political climate and with a general election just around the corner, this is a Second Reading into oblivion."secure the future of the friendly society movement into the next century".
The Whip, who should be silent bearing in mind his exalted position, asks, "Is it?" It would be interesting to explore that quesiton. The Bill, which has been introduced in these quiet and uncluttered hours of the day, is perhaps being introduced in the light of circumstances about which, until the intervention of the one who should not have spoken, we knew nothing. In 72 hours' time, or sooner, we may be told that the Government will not, after all, go to the polls because to do so would interfere with the passage of the long-awaited Friendly Societies Bill. It may be the secret weapon and it may be what the nation has been waiting for as the excuse for the reason why the Prime Minister, in a state of frit, declines to announce on Wednesday, as expected, that he is to go to the polls.
If the Bill is as important as the hon. Gentleman says it is, and if it is about to disappear into a black void, will he undertake that, if we have the misfortune to have a Labour Government, it will feature in their first Queen's Speech?
The pigmentation of the void is neither here not there; I am surprised that the hon. Gentleman should have introduced such a note. If the Bill were to disappear—as I fear it will—into a void, in the fullness of time, it would come out of the void under a Labour Government and find itself on the statute book in something approaching its present form.We have no quarrel with the content of the Bill. What we are concerned about—and what the friendly societies movement is concerned about—is the time that the Bill has taken to reach this place. It is an apt comment on the Government's priorities that, during this Session, they have preferred to introduce controversial, headline-grabbing legislation, which they hope may grub up a few votes in their hour of desperation—much of which they might have done well to abandon—than to introduce a solid proposal on the friendly societies which would have made a measurable contribution to the welfare of ordinary citizens and which could be secured with the support of hon. Members on both sides of the House. What a pity it is that the Government did not take that course. What we have here is yet another example of their willingness to render all assistance to the citizens in whose name they produce charters and to do everything for them that they can—except actually to deliver anything that seriously might help them. The Government have still not decided whether they really want the Bill. We understand—the Minister will have his opportunity to deny it if it is to be denied—that Treasury officials and parliamentary counsel worked weekends in January to bring the Bill, with its 126 clauses and 22 schedules, to its published state.
The Economic Secretary nods his head in confirmation of that. Parliamentary counsel and Treasury officials are to be congratulated on having sacrificed their weekends in so noble a cause. But why, then, did the Bill lie on the shelf for most of February? Why was it not introduced earlier, to beat the dissolution? The Opposition would have done all that we possibly could to ensure that it completed its Committee stage: we would have been prepared to sit until late into the night if necessary to do that.
Is not the Bill one of the few measures in respect of which the Government will not have introduced a guillotine? They have guillotined every single piece of controversial legislation that has come before the House. Every evening last week we had guillotined legislation which was controversial and which had no support from a large section of the House. In one case, legislation was guillotined through in a mere two hours. The present Bill has the support of the whole country, but the Government are not prepared to use the guillotine procedures to facilitate its passage before the calling of the general election.
As usual, my hon. Friend speaks good sense.
I am sure that the hon. Member for Brent, South (Mr. Boateng) will agree that, even by the standards observed by the right hon. Member for Blaenau Gwent (Mr. Foot) when he was Leader of the House, it would be unusual to guillotine a Bill before it had had its Second Reading.
The Minister is being somewhat flippant, given that the Leader of the House has already told us that, in his view, it should be our policy to timetable Bills on Second Reading. That procedure could be implemented for this Bill, and the Leader of the House could announce at the end of this debate—the Second Reading will be unopposed—that a timetable will be introduced to allow it to reach the statute book.
My hon. Friend makes a valid point which echoes a point that was made when the Leader of the House first started to impose guillotine motions. We asked why it was necessary to introduce a guillotine in relation to those measures, given that the Leader of the House had given the clearest and most unambiguous assurances that we would do all that we possibly could—
Will the hon. Gentleman give way?
No. I have already given way more than I should have done—not least to the Economic Secretary, whose last intervention shows what happens when one shows a generous nature and exhibits a generous heart: one is taken advantage of by Conservative Members.The need for the Bill is unquestioned. The Minister may recall that, back in 1987, the Friendly Societies Liaison Committee, to which he rightly paid tribute—the Opposition are happy to join him in that—argued that the friendly societies offered a unique combination of insurance business based on the principles of thrift and self-help, recognition of a responsibility to care for members going beyond contractual provision and a mutual constitution. The Opposition strongly support those qualities, especially as friendly societies are prepared to deal in smaller sums than conventional insurers and, hence, typically cater for the smaller saver. We support the principles on which the friendly societies movement is based. We can understand why many people may feel a renewed need for the services that they offer. Undoubtedly, the societies are unlikely ever again to achieve the prominence that they occupied in the last century, but, as job security worsens and as the need for social services and welfare provision increases, it is vital that there should be vehicles to facilitate mutual support in the community and that the regulatory regime under which they operate should permit them to offer their present and potential future customers an attractive service. That is not the case at present, and that is why the friendly societies movement has suffered a severe contraction in its numerical strength of late. There were some 8·7 million members in 1945. That number has fallen to about 3 million. Meanwhile, the number of societies has also declined—from 2,740 in 1945 to well under 500 now. More than 100 of the existing societies have ceased to take new business. In that context, it is hardly any wonder that there has been widespread concern in the industry about the Government's record. The societies speak for themselves when they say:
In the aftermath of the Government's last piece of procrastination, one commentator said:"The lack of any sense of urgency on the part of the Government is causing severe frustration."
That is the voice of the friendly societies movement and of the many millions who support it. To be fair, widespread concern has also been expressed in the House. A number of hon. Members present today signed an early-day motion urging the Government to bring forward the present Bill. The position has been made much worse by the Government's fiscal policy. In examining the history of the matter, we must consider the role of the right hon. Member for Blaby (Mr. Lawson). He is past history. Conservative Members would either seek to forget about him and his role or to paint him as the villain of the piece in the past 13 years of Conservative misrule. They are right to paint him as a villain, but he was not alone. Conservative Members were his accomplices in the same way that they have been the accomplices of his successor. The right hon. for Blaby had a pathological loathing—I use those words advisedly with no sense of exaggeration—"New legislation is not a vote catcher, nor does it serve political dogma, as do PEPS. Quite simply, the Government doesn't care about friendly societies."
On whose advice?
I need no advice to come to that conclusion.The right hon. Member for Blaby had a pathological loathing of the friendly society movement and, in 1984, he was largely responsible for the sharp drop in the number of new policies taken out with the societies. He cut the maximum tax-exempt monthly instalment from £20 to £9. What possible motive could he have had for that particular act of mean-mindedness? Every rise in the exemption limit since has had to be wrung out of the Treasury, which has been preoccupied either with creating tax shelters for the more affluent savers, who place deposits with banks or building societies, or pursuing its fantasy of popular capitalism through direct share ownership. That was one of the fetishes of the Conservative Government.
I hope that my hon. Friend will point out that the Chancellor and his Cabinet colleagues did not create a level playing field for the friendly societies. In their privatisation of the pension industry, they made it far easier for private pension plans to operate in the market-place, but friendly societies were not allowed to offer the same range of services. That caused the loss of £6 billion from public funds. By encouraging people to come out of the state earnings-related pension scheme and into pension plans operated in the private sector, the Government have handed over £6 billion of public assets. In their attempt to privatise pensions they have undermined the capability of the friendly societies to offer a package of arrangements to potential pensioners.
My hon. Friend makes an interesting point, and he is right. Conservative Members have not hesitated to tip the level playing field, when it suits the vested interests that they represent.The result of their attitude and of the malice of the right hon. Member for Blaby towards the friendly society movement was to create a strange anomaly. The societies are at a considerable disadvantage when their treatment is compared to that of the building societies and the banks. After all, what is a £200 tax exemption limit on a friendly society policy, if it is compared with £3,000 on a tax-exempt special savings account, or £6,000 on a personal equity plan—£9,000 if single company PEPs are included? Tax exemptions for friendly societies are as nothing when compared to those offered to the building societies and the banks. The squeeze of the friendly societies has occurred against the background of the destabilisation of the financial services market and as a result of Government policy on deregulation. In the Green Paper on friendly societies the Prime Minister said:
The friendly societies are indeed out of step and long may they remain so. Their traditions run deeper than the uncontrolled competition of the 1980s and those traditions should be highly valued in the light of the problems which deregulation has caused. I wonder whether, when the Prime Minister referred to the values of the friendly societies as being"The traditional values on which the friendly societies are based may seem to some people to be out of step with the current highly competitive financial services market."
he was referring to a particular legislative restriction on friendly societies the removal of which would be welcomed by many hon. Members from all sides. I refer to friendly societies' inability to issue life policies to couples "living in sin". That is a Victorian restraint on friendly societies, which clearly has no place in the light of modern thinking."to some people … out of step with the current highly competitive financial services market",
And modern practice.
Yes, and modern practice.I cannot help reflecting on what are, perhaps, the Prime Minister's ill-judged remarks in relation to the rake's progress and the issue of borrowing.
They were reported in The Daily Telegraph on 21 February.
That is the vehicle in which he shared his thoughts. His language was considerably more colourful than his words on any other subject that he cares to discuss. He may regret the use of the term rake's progress, because that is what we witnessed in the 1980s with the excesses that characterised that period.To the ordinary man or woman, his or her most important assets are likely to be the home, a pension and perhaps a life assurance policy. In all those cases, he or she will depend on the integrity of financial institutions and the soundness of the regulatory regime under which they operate. That is why we want to reflect upon the importance of the Bill and to examine it in more detail. If we consider the regulatory regime of the life assurance companies, many are competitors of the friendly societies. All too often, the life assurance companies are lax in terms of the methods of protection and the practices they adopt on the sale of life assurance policies. There has been grotesque over-selling. A Securities and Investments Board investigation into determinations published last year said that, on average, more than 30 per cent. of the long-term plans sold by the industry were terminated within two years. The situation is even worse if the sales made through tied agents are considered in isolation because the number of unit-linked insurance policies terminated within two years reaches an astonishing 45 per cent.
I am a member of the Select Committee on Social Security and we have, today, finished our inquiry into pension funds. There is overwhelming evidence of front loading to the detriment of the purchaser of the policy. The industry refused to give the Committee the information that passes between the companies on the payments and commissions paid out in the first three years of a policy. It is a complete fiddle by the industry and those who are most affected are those who purchase a policy. Will my hon. Friend give a commitment that the Labour Government will seriously consider examining the way in which companies front load policies to the detriment of their purchasers.
I assure my hon. Friend clearly and unequivocally that we shall look at that matter. A commitment to consider it seriously is not to be taken lightly. The difference between the Labour and Conservative parties on that issue is that we shall have an opportunity to do so, and the Minister should take that into account.
I am concerned about the flippant manner with which the Minister deals with the issue. Millions of pounds worth of assets are involved, paid for by people who expect a deal out of those companies. The Minister flippantly implies that he sees no problems, whereas a Select Committee has just reported to the House that serious problems exist. We expect a better response than that from the Minister.
We look forward to the Minister's response on that point when he sums up.Insurance companies are still encouraged to bombard the public with unsolicited mail and to use fat commissions to secure tied agents.
On a point of order, Madam Deputy Speaker.
The hon. Gentleman has no need to make false points of order. I would have given way to him.
The hon. Gentleman declined to give way to me earlier.Are the marketing practices of life assurance companies within the compass of the Bill? I understood that the Bill related to friendly societies, which are distinct from life assurance companies.
The Second Reading of a Bill of this nature is very wide. The hon. Member for Brent, South (Mr. Boateng) is in order in making that point, but he should now return to dealing with the Bill.
I am only too anxious to do so. I wish to draw a comparison between the Bill and the regulatory mechanisms that it contains and the current practices of life assurance companies and am compelled to point out the fat commissions that are used to secure tied agents such as banks and building societies, whose customers might reasonably expect to receive objective advice on matters such as life assurance.No wonder that, as a result, the leader of the Financial Times of 24 January stated that the
Nor is the customer told the cost. Only last month, from figures submitted to the Department of Trade and Industry by the life assurance companies but never before published, were we able to identify the true price tag attached to their products. The cost of selling a policy in 1990 typically amounted to the whole of the first year's premium payments, but it could be much more. In one case it amounted to more than 250 per cent. of the first year's premiums, which is precisely the point that is made by my hon. Friend the Member for Macclesfield—"quality of the product has never been as low as now, and the power of a well-organised sales force never as high."
The brief exchange with my hon. Friend the Member for Makerfield (Mr. McCartney) gives me a distinct sense of deja vu. It shows how long it is since we have had the pleasure of contributing together to such a debate. I have learnt a lesson at my hon. Friend's hand once again.The chief executive of the Life Assurance and Unit Trust Regulatory Organisation, Kit Jebens, said at the time—he was right—that
It may therefore take a policy holder seven to 10 years on average just to get back the premiums that he or she has paid. Meanwhile, according to LAUTRO's figures, the sales agent receives on average £570 for a typical sale, such as a mortgage-related endowment policy with premiums of £50 a month. In a working year of 48 weeks, therefore, he has to make only a couple of sales a week to earn a salary of well in excess of £50,000 per annum. Yet nothing in the law obliges a life assurance company to reveal the cost of the product to the customer at the point of sale. However, the Securities and Investments Board's review, to be published later this week, is simply a commitment to reveal an industry average, and even that will be expressed not in pounds sterling but as a reduction of percentage return over the life of a policy, if it runs to maturity. The practices of life assurance companies bear heavily on small savers. They show why a healthy friendly society movement based on self-help, mutuality and a sense of responsibility towards its members over and above its contractual obligations is so desperately needed and why we wish that the measure had been brought before the House earlier. My hon. Friend the Member for Makerfield raised a second matter relating to pension funds and their regulation. [Interruption.] I hear the Economic Secretary moaning and groaning about the time that consideration of this matter has taken. That is a bit rich considering the time that the Government have taken to bring the matter before the House. We shall take as long as we think necessary to consider the matter and no amount of harassment, muttering or fulminating by Conservative Members, who should be silent but who are incapable of being so, will change the time that we take to deal with this important issue. Despite warnings 10 years or more ago from the Wilson committee reviewing the functioning of financial markets and the Gower report into investor protection and the Occupational Pensions Board in 1982, the Government have done nothing to protect savings made through pension schemes from their hopelessly inadequate basis in trust law. The all-party Social Security Committee, reporting today on the operation of pension funds, says that the fact that there have not been scandals of an equal dimension to that perpetrated on Maxwell-owned pension funds owes more to the decency of employers and the integrity of trustees than it does to trust law. The fact that those matters have come to light calls attention to the undue reliance on the decency of employers and the integrity of trustees. That decency and integrity have been a greater protection than existing trust law. When that decency and integrity break down, the consequences are grave, as they have been for those who put their trust in the Mirror Group pension fund."On policies, the consumer eventually pays the acquisition cost, sometimes indirectly."
The hon. Gentleman mentions the Select Committee's report published today and points out the dangers and inadequacies of trust legislation. Does the Select Committee come up with examples other than that of a socialist newspaper proprietor—a long-term supporter of the Labour party and ex-Labour Member of Parliament—robbing his pensioners of £400 million or £500 million?
The Economic Secretary, even in his hour of need—we understand the problem that he faces in his constituency, although we do not sympathise with him —should not stoop so low as to suggest that the political philosophy espoused by the late proprietor of Mirror Group Newspapers had anything to do with his dishonesty. To suggest that there is a link between the two—bearing in mind the current funders of the Conservative party, such as Asil Nadir and the clutch of Greek and Hong Kong entrepreneurs to whom the Conservative party has been obliged to go to shore up its depleted electoral funds—is a bit rich.
The Minister—[Interruption.] Protect me from these hordes, Madam Deputy Speaker.
The hon. Gentleman needs little protection from me.
The Minister asked for other examples from the report—I can give him one. The Government sold Mr. Maxwell the privatised helicopter section of British Airways. Pensioners in that industry now face the loss of all their pensions—
Order. We are now straying some way from the Bill.
The recommendations of that report should certainly be taken seriously—
They were unanimous.
Indeed they were.On the role of the Investment Management Regulatory Organisation, the only part of the regulatory regime to have been significantly modified by the Government, the report has this to say:
So the regulatory regime provides no protection for pension scheme members, and does not protect the manner in which assets are managed. Now that the public are beginning to appreciate how exposed their pension rights are to malpractice, the matter is giving rise to great concern throughout the country. The consequences of deregulation are becoming all too clear in the context of a third matter, and here, too, the friendly societies movement shows the way. I refer to housing and owner occupancy. The Government want us to believe that this is one of their great triumphs, although that claim rings hollow now, with more than 150,000 households six months or more in arrears with their mortgages and with 80,000 homes repossessed last year. It is interesting to note that in 1980 fewer than 4,000 homes were repossessed—in the immediate aftermath of a Labour Government—yet after 12 years of Conservative rule, 80,000 are repossessed. I draw the attention of the Minister to the plight of up to 100,000 pensioner households who owned their homes outright until they fell foul of unscrupulous financial advisers. The advisers who sold them investment bond-related home income plans, aided and abetted by the building societies, robbed these pensioners just as surely as if they had backed a van up their drives and removed all the furnishings and fittings of their homes. I hope that, even at this late stage of a Parliament, Treasury Ministers will take the plight of these people seriously. The Government's only response so far has been to set up committees of regulators. The victims and the House are entitled to know from the Minister tonight whether he and his Treasury colleagues will do more. When will he put some political weight behind the victims' search for restitution? When will he make it his business to ensure that building societies do not repossess the homes of persons suffering from this fraud, at least until each case has been reviewed by a committee of regulators? Will he make it clear to the Building Societies Association that building societies are obliged to take account of the ability to repay of the people to whom they lend? This is a growing scandal and something must be done about it. Hitherto, there has been too much to-ing and fro-ing between the Treasury and the DTI about who should take responsibility for it. When will the Minister ask his DTI colleagues to do something about the sharks who sold these plans and who remain in business to this day? The slack regulation of financial services has not only hit consumers; it has also been reflected in the employment prospects of those who work in the sector. Service sector growth was meant to be an engine room for the economy but that engine room is decidedly debilitated now—"The way IMRO has gone about carrying out its duties suggests to the Committee that this aspect of the system of self-regulation is—when the chips are down—little short of a tragicomedy. What IMRO appeared to be telling the Committee was that their part of the self-regulatory system works well providing all the participants are honest. In other words, the system works in those circumstances where there is little need for a regulatory system at all."
I can understand my hon. Friend's frustration. He represents very well those of his constituents who work in the financial services sector. The many bank employees in Makerfield will be mightily relieved to know that my hon. Friend has their interests so closely at heart. The good folk of the building societies and banks of Makerfield will breathe a sigh of relief when they hear that my hon. Friend has made these remarks.There has been a dramatic fall in business confidence throughout the sector. Not only building societies but banks and fund managers are beginning to display their lack of faith in the policies of this Government. About 37 per cent. of them are less confident than before; the negative balance is a massive 27 per cent. There is a widespread lack of consumer confidence. The uncertainty of business prospects is holding back authorisation of investment in all areas except information technology. The only bright feature is the steadiness of overseas demand, which is a tribute to the competitiveness of British financial services—hardly an argument in support of the Government's contention that our economic problems are part of a world-wide recession. Employment in banking, finance and insurance has declined from a peak of 2·7 million in June 1990; it had fallen by 140,000 by September 1991, on the latest available figures. Under the Conservatives, 1992 can only bring more of the same. The signs are that losses will be even greater. The clear conclusion is that no sector is safe from the recession. Previously secure jobs are being considered for the knife, and a wave of fear spreads through the country, especially in London and the south-east where jobs in the financial sector are most concentrated. For the first time, thousands of people must ask themselves whether they will still be in a job by the end of the year. We welcome the Bill and the attention that it gives to friendly societies. Our three areas of concern may be summarised in the following way. First, the regulatory framework must be robust enough to cope with the problems of closed-down societies and possibly new ones, as well as allowing the smooth expansion of successful societies. The tax privileges accorded to friendly societies justify the new commission in closely supervising their activities. The commission should make it its business to ensure that each society operates as it should. We cannot afford the sort of laissez-faire approach which has so characterised other parts of the regulatory system. The commission must reassure itself that societies are at all times managed by people who are fit and proper to do the job. It must keep a particularly close watch on sales methods, especially as marketing is seen by many in the friendly societies movement as the key to future success. LAUTRO rules on the training of sales staff mean that traditional methods of selling have already had to be abandoned. The societies undoubtedly face a mountainous challenge, given the head start of their competitors who built up networks of tied agencies in the 1980s. So far the friendly societies have not been seen as perpetrators of overselling or misrepresentation, but they must avoid any future temptation to cut corners. Secondly, there must be suitably high barriers to demutualisation. Of course there are advantages in limited company status which gives access to outside capital. However, many other savings vehicles can fulfil that need. Only friendly societies recognise implicitly in their constitution that security for members cannot always be achieved by pursuing profit maximisation. Mutual status permits social, philanthropic and welfare activities to be pursued as well. The pursuit of those activities is important, because they are valuable and must be preserved in the friendly societies movement. We do not want to see them lost in the marketplace. That is not popular with the Government, but it is a popular idea with the public as a whole and it has found its time. The friendly societies commission should permit mergers in the movement, in preference to take-overs by insurance companies, which is the last thing we want to see as a consequence of the Bill. Thirdly, we require an appropriate compensation scheme because we have learnt from recent experience across the sector that sooner or later such a scheme is required. The present voluntary investor protection scheme is clearly unsatisfactory, and a move to join the policyholders' protection scheme with its more generous terms must be welcomed. It must be kept under review to ensure that it meets the needs of friendly society customers, even those whose savings are relatively small. Legislation on friendly societies dates back to before the 19th century, and it was in 1793 that the movement was truly born. The movement dates back to Roman times and must be allowed to continue to prosper well into and beyond the 21st century. The first friendly society in Roman times was known as the Hornblower society, a fact which will not have escaped the Economic Secretary to the Treasury. It was established by soldiers to provide for funeral expenses. We are about to witness the Government's funeral, mercifully the end of an era, and I suspect and hope that it will be the end of the Economic Secretary's career. No doubt he is a perfectly reasonable person.
The hon. Gentleman is not a disinterested party.
I am disinterested in the sense that I have no particular—I am not quite able to bring myself to say what I was about to say, but, while we are on the subject of Roman Britain, may I say that I have no specific or personal animus against the Economic Secretary. I regret that he is on that side of the House and the sooner that many Conservative Members are translated to the Opposition Benches or are out of the House altogether, the happier we shall all be and the more certain will be the future of friendly societies.
I shall be brief. I support the Bill. Since I entered the House in February 1974, I have watched what has been happening to friendly societies. I certainly recognise that nothing moves swiftly in the House on any front.I disagree with the hon. Member for Brent, South (Mr. Boateng) because, in the past couple of years, a great deal of time, patience and care have gone into the Green Paper. I pay tribute to the Economic Secretary who did so much of the groundwork in preparing the Bill. The size of the Bill is a credit to all those who were involved. A great deal of preparatory work by hon. Members from all parties and by the steering committee has gone into its production. I am no expert in financial law, but it seems to me that, unlike many Bills, amendments to this one would be superfluous. I wish it a fair passage. Society is changing. All hon. Members appreciate the role of preventive medicine and, in terms of social welfare, the role of the friendly society is to provide preventive medicine. The success of the societies is based on mutuality, the involvement of members and the societies' personal involvement with their members in terms of social and welfare need. That applies especially to death benefits, sickness and accident insurance. The friendly societies add a much-needed dimension to our society. As we approach the general election, it is important to give a common message to the British people, which is that there is a future role for friendly societies. I hope and pray that the Bill will be given the green light by all hon. Members.
I shall be brief, mainly because my hon. Friend the Member for Brent, South (Mr. Boateng) in his excellent speech spoke for me as well, so I do not want to repeat what he has said. Like the hon. Member for Northampton, South (Mr. Morris) but probably for different historical reasons, I am a firm supporter of the Bill. It is a tragedy that it will be stillborn because we shall run out of time. From the wide expanse of the Back Benches, I should like to pose a question to Front-Bench spokesmen. Irrespective of the result of the general election, will they make a commitment to reintroduce the Bill at the earliest opportunity?
The friendly societies have spent eight years campaigning for the Bill and I hope that we shall not have to wait another eight years for its proposals to reappear. If we are serious about the development and promotion of the friendly society movement, and are committed to its long-term future, we should not be prepared to wait another eight years for legislation on its relationship to other financial institutions. Warm words of support for friendly societies in the House and in the marketplace are not enough because, as a result of inactivity, friendly societies have been undermined. There must not be further diminution of their activities, to the point where they could be confined to the dustbin of history.I come from a mining community, and I am proud of it. I was brought up in that community which lived on five basic principles. They were: the church, the miners' welfare hall, the National Union of Mineworkers—before that the federation of mineworkers—the co-op and the friendly society. I do not put them in any particular order, but they formed the bedrock of the mining community into which I was born. My grandfather worked in it and my grandmother raised a family there, as did my parents. Therefore, friendly societies, and the concepts and principles of them, were an essential part of mining communities. I may represent a mining community in England rather than a mining community in Scotland, but those concepts are as relevant today as they were then. The priorities may be different because of the social changes brought about by campaigning—for example, the creation of the national health service—but, as the hon. Member for Northampton, South realises, friendly societies were set up to provide benefits in mining communities, such as sickness and accident benefits. Those who control the mining industry had no real interest in the protection and maintenance of the health and welfare of those in the mining communities. My constituency is suffering not just from the closures in the mining industry but from structural unemployment and structural poverty. Therefore, I shall base my remarks on clause 10 and I hope that the Minister will comment on this important clause. I shall deal with friendly societies as credit unions. Those of us who represent, on both sides of the House, both small and large pockets of poverty realise that those who live in them are at risk from loan sharks and the activities of those who prey on people with low incomes or no incomes, or people who, because of the circumstances in which they find themselves, are unable to secure loans from recognised financial institutions. They rely on people, either within the community or outside it, who prey on them—loan sharks. In my community, we have had serious difficulties with loan sharks. Three years ago, with a grant from the Department of the Environment, we developed a network of credit unions throughout the borough. Recently, the Department recognised it as one of the most successful stories of a self-help group involved in the community, handling its debt crises, evolving alternative ways to deal with debt and enabling people to save and to take out loans without the consequences that come about when racketeers prey on people desperate for additional financial resources. Clause 10 is a general clause. I hope that the Minister will tell us whether friendly societies will be able to maintain and develop in communities such as those that I have described the credit unions and the work that they do. Credit unions are the one way, in areas where there is desperate poverty, to prevent people falling into the debt trap or not being able to save because they have such a small income. When breakdown takes place, criminals move in. Not only are extortionate rates of interest charged but physical violence and intimidation are used on those individuals unfortunate enough to get into the clutches of loan sharks. Recently in my constituency a loan shark was taking from my constituents income support books and, in the case of those who were chronically sick and disabled, attendance allowance books. He was keeping them and cashing them until the loan had been paid off. He is now being sought by the police and the Department of Social Security on fraud charges, so I shall not name him, but that is an example of what can and does take place when poor people do not have an effective way to approach financial institutions to obtain financial advice and help, and loans and small saving schemes. Therefore, credit unions are a vital part of the development of the role of friendly societies. I would like the Minister to give a commitment that clause 10 is about developing a range of services, including, at a local level, activities such as credit unions. I also ask the Minister to look into the historical system of bereavement benefits in mining communities. Because of the major changes in the past three decades, with the splitting up of mining communities and diversification, many friendly societies are run by an aging population with a small number of beneficiaries, spread not only throughout the coalfield in which they joined the scheme but throughout Britain. In my area, there have been difficulties under current legislation. I do not say this to criticise the friendly society registrar—it is a complication of the rules which means that it is difficult to wind up these small and dying funds and to disburse what is left of them to those who still remain members of them. Irrespective of the passage of the Bill, will the Minister look at this issue? I am prepared to provide the Government with additional information about this problem in the mining communities. Sometimes bereavement schemes are 50, 60 or even 70 years old and the people running them are elderly pensioners with no resources, and they have great problems in administration. Because of the rules, they also have difficulty in winding up the schemes and disbursing the small amounts of cash left in them. It is ironic that this Bill, whose 126 clauses make it one of the largest Bills to be brought before the House during the five years that I have been here, has the unanimous support of the House. This is the only time I can remember a Bill this large having such support. Therefore, without making any party political or partisan points, I ask the Minister to ask the Leader of the House to organise discussions between both sides of the House to see whether there is some way in which the Bill can be granted a swift passage through the House. I can see no reason why not. Irrespective of the battle that will take place in the country at the general election, the last memory of this House could be one of unity in passing a Bill that has the full support not just of the House but of the country. That would be a fair epitaph to what has been one of the most turbulent parliamentary Sessions. I ask this genuinely because I am certain that the Bill could be through the House and on to the statute book within 48 hours.
The hon. Member for Makerfield (Mr. McCartney) is to be commended at least for addressing his remarks to the substance of the Bill, in stark contrast to the hon. Member for Brent, South (Mr. Boateng). We listened to a remarkable speech, which lasted for 55 minutes and seemed to take longer, and which included a 20 minute preamble in which he managed to make no reference to the content of the Bill. It is a tribute to his professional training as a barrister that he can speak for so long about nothing. In the remaining 35 minutes of his speech, while he took us into some interesting territory, its relevance to the contents of the Bill was, at best, minimal.The hon. Gentleman professed not to understand the connection between the criminal activities of Mr. Maxwell and the political philosophy of the party that he supports. Let me enlighten the hon. Gentleman. It is at the centre of socialism to take money away from the people to whom it belongs and to spend it. Admittedly, it is normally done by Governments, not by individuals spending as they would wish, but none the less that is the connection between criminal activity and the underlying political philosophy. The hon. Member for Makerfield introduced, in an intervention in the speech of the hon. Member for Brent, South that made his speech more interesting, the question of timetable motions. I deduced from the absence of substantial comment about the content of the Bill from the hon. Member for Brent, South that the Labour party does not oppose the Bill and does not wish to see it amended. If that is so, I am puzzled by the reference to timetable motions. If the Bill is agreed to by all parties, even if we were to hear an announcement later this week of an event that would bring this Parliament to a fairly speedy end, it might be possible still, with the good will of the business managers on both sides of the House, for the Bill to pass on to the statute book. I noted that when the hon. Member for Makerfield asked the hon. Member for Brent, South for an undertaking that, should there be a Labour Government after the election, they would bring forward a Bill on these lines at the earliest opportunity, although the hon. Member for Brent, South sat there "hear, hearing", he did not say yes. I do not know whether he would like to take the opportunity now of clarifying whether this Bill, which he has said is important, would be regarded as a high priority. I note that the hon. Gentleman still remains silent.
I do not understand what the mystery is all about. I can give a clear, unequivocal assurance, as I already have, that the Bill will be brought forward in substantially unchanged form as soon as parliamentary time can be found for it. We can be certain that the Bill will be dealt with more expeditiously by a Labour Government. About that there can be no doubt. What greater assurance could the House have from so humble a personage as myself?
I think that that counts as an assurance from the hon. Gentleman. I understand his reluctance to commit himself. I recall that he found himself in deep water earlier in the year over assurances about relief for those who incurred losses at Lloyd's. Against that background, I understand his reluctance to step out of line with his bosses.The House will know that I am the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. My hon. Friend the Economic Secretary referred—
What happened to the building society? Has the hon. Gentleman given it up?
The hon. Gentleman is referring to an organisation called the Kenton and Middlesex building society, which is dormant. It has never traded and therefore I have no financial interest to declare in it.My hon. Friend the Economic Secretary referred to the consultations that have been undertaken with accountancy bodies, which have been welcomed and valued. However, there are still three concerns that need to be resolved the first of which involves systems of internal control. My hon. Friend the Economic Secretary said that there would be a requirement that friendly societies should have adequate systems of internal control, and in general that would be welcomed by professional accountants. There is, however, a problem of scale. For a friendly society to operate a system of control as envisaged in the Bill, it would need to have at least three accounting staff involved in internal accounting procedures. The threshold at which the society would be required to meet these requirements is income or assets of only £5,000. It would clearly not be a practical proposition for a small friendly society to employ three accounting staff to operate an adequate system of internal control. Indeed, my institute doubts that even a society with a gross income of £100,000 a year would have the necessary resources to provide for that level of accounting staff, at least not without undue cost, which would be to the disbenefit of the members of the society. My hon. Friend the Economic Secretary explained that the Bill contains provisions to enable amendment by means of delegated legislation. It may be appropriate for thresholds to be raised by making use of such powers once the Bill reaches the statute book, if there is not time for amendments to be made at an earlier stage. Secondly, societies that carry on insurance business will be required to have a sure and fair opinion on their accounts. My hon. Friend the Economic Secretary will be aware that at present there is no agreement on how a true and fair requirement for companies conducting long-term business can be determined. As this is a problem for the life assurance industry generally, it will be a problem also for friendly societies conducting such business until such time as these matters are resolved. It seems likely that they will have to be resolved before the European Community's insurance accounts directive is implemented. Thirdly, it seems that the definition of subsidiary in the Bill differs from that which is used in the Companies Act. There seems to be no good reason why the wheel should be reinvented. Why is there a different definition of subsidiary in this Bill from that which has been used in Companies Acts or in building society legislation? I shall be grateful if my hon. Friend the Economic Secretary gives further consideration to these matters. If they are taken up, I think that they will enhance the Bill. They will make it more likely that friendly societies can continue to thrive.
I welcome the Bill. Before I say anything about it, however, I wish to comment on one or two matters raised by the hon. Member for Brent, South (Mr. Boateng). First, the hon. Gentleman seems to be unaware that in respect of home income plans the Securities and Investments Board has made an announcement that will make it much simpler for people to complain. Instead of there being a range of regulators to whom complaints can be made, there will be a simple channel. In other words, the process has been simplified. I am sorry if the hon. Gentleman does not know about that. As I have said, the announcement has been made. It includes a clear description of the compensation arrangements. The process has been considerably improved.The hon. Member for Brent, South referred to home repossessions and debt. Last week, I went to St. George's house, Windsor, to speak at a conference that was taking place over two or three days, at which were represented leading banks, building societies, other financial institutions, the Bank of England and the Director General of Fair Trading, who chaired the session which I attended. Also present were many people representing borrowers and others representing advice centres. Important discussions took place, yet there was nobody representing the Labour party. The organisers made a great effort to arrange for somebody from the Labour party to speak at the conference, but it seems that no one was available to do so. That shows how much the Labour party cares about these issues. It was an important conference at which we were able to discuss the measures that the Government have taken to help those who have had problems with home repossession. The hon. Member for Brent, South complained that the Government had delayed introducing the Bill. That is why I asked him to give a clear undertaking that the Bill would be reintroduced quickly if we had the misfortune to have a Labour Government. He has given no such undertaking. Instead, he has used the standard form of words about parliamentary time permitting. I remind the hon. Gentleman that in 1973 a companies Bill before the House fell because of a general election. One of the Bill's key provisions was designed to make insider trading a criminal offence. For five years the then Labour Government did nothing about it. We had to wait for a Conservative Government to reintroduce the measure. It did so and insider trading was made a criminal offence. Indeed, that Labour Government did nothing to improve things in the City. There was the short Companies Act 1976, which related solely to the books and accounts of companies. There was nothing else. Since then there has been a series of companies Acts, which have implemented European Community directives. We have had the Building Societies Act 1986, the Banking Act 1987, and the Financial Services Act 1986. A range of measures has improved regulation in the City. In my view, there are now only two important omissions, of which the Bill is one. It will fill a gap. I recognise that there is a need for it and that is why I welcome its introduction. Pensions legislation is another gap. The hon. Member for Brent, South should recognise that my view was not widely held. I have always believed trust law to be inadequate to monitor pensions. The hon. Gentleman referred to the Wilson Committee and the various reports of the Occupational Pensions Board. If he reads the OPB report of as late as 1988, the recommendations of which formed the basis of changes to occupational pensions legislation which appeared in the Social Security Act 1988, he will find that the OPB recommended—this was only four years ago—that there was no need to change the basis of the law on which pension scheme regulation is based. Those who say now that the law is inadequate are doing so entirely with the benefit of hindsight in the light of one major scandal in which a former Labour Member—a supporter of the Labour party—ran off with pension scheme money. Although it was a major incident, it was an extremely isolated one, fortunately. I have only one minor concern about the Bill, and that is about cost. As my hon. Friend the Member for Slough (Mr. Watts) said, some of the societies are very small. He made an important point about internal control costs and the number of staff that might be needed to implement an adequate system. I am concerned about the cost of regulation. My hon. Friend the Minister will be aware that all friendly societies —certainly those which do investment business—are already authorised under the Financial Services Act 1986 and are paying the costs of complying with that legislation. Now, we are told that the cost of this Bill will be £1 million a year, and a further levy will be made on friendly societies to meet that cost. It is important, especially for the small societies, that there are not excessive regulatory costs, otherwise the costs will exceed the benefits to the customers of such societies. I am sure that my hon. Friend is aware that one detailed point has been put to me by the Association of British Insurers—the question of the Policyholders Protection Act 1975. If that Act is extended to friendly societies, not only are the benefits extended, but the costs. The ABI says that because of the definitions in the existing legislation large partnerships in Canada and the United States are making claims under the Act, for which insurance companies—and, if the Bill is passed, the friendly societies—will have to pay. I should be grateful for my hon. Friend's response to that particular concern.
With the leave of the House, Madam Deputy Speaker. This has been a good debate, in which enthusiasts and hon. Members committed to the progress of the Bill have taken part. I hope that the Economic Secretary will give a clear undertaking, along the lines that we have given, that in the event of there not being time —and I fancy that there will not—for the Bill to complete its stages in this Parliament, in the next Parliament, when the Government will be the Opposition, they will do all that they can to give the Bill, as reintroduced by a Labour Government in substantially the same form, a fair wind. If the Economic Secretary can give that assurance clearly and unequivocally tonight, I have no doubt that, at an early date, the Labour Government will find the opportunity in the parliamentary timetable, which we all seek, to get this important and long-overdue Bill on the statute book.
With the leave of the House, Madam Deputy Speaker, may I say that I am surprised that this humble and uncontroversial Bill should have given rise to 55 minutes of coloratura oratory from the hon. Member for Brent, South (Mr. Boateng). At first, I felt that I should sympathise with him for having such a small audience, but I remembered from previous occasions that he does not really need an audience for his speeches—he enjoys listening to them himself.I wish quickly to deal with the points raised in the debate. The hon. Gentleman welcomed the Bill and, by and large, agreed with its provisions. We welcome that. The hon. Member for Makerfield (Mr. McCartney) suggested that the Bill might have been guillotined. I hope that that will not prove necessary. In the unlikely event of our proceedings being foreshortened by a general election being called, this is one of the Bills that will have to be discussed between the usual channels. My understanding is that there is very little, if anything, between the parties. I hope that the usual channels will be able to ensure that the Bill becomes law.
The hon. Gentleman spoke for a long time and I have dealt with his point.
There is no need for the Minister to be tetchy; we are trying to be helpful. If, last week, the Government could introduce guillotine measures a week from the election being called, why cannot they now give an assurance that they will introduce proposals to guarantee the Bill's passage through the House? That is all I am trying to say.
The hon. Gentleman invites me to repeat my joke, which was that even the right hon. Member for Blaenau Gwent (Mr. Foot), when he was Leader of the House, did not guillotine a Bill before its Second Reading. I have no reason to suspect that such action would be necessary. There is little of controversy between us on the content of the Bill. If time permits, I am sure that we can get through the remaining stages quickly. If time does not permit, I hope that the usual channels can arrange matters so that the Bill becomes law.The hon. Member for Brent, South criticised what he called the delay in introducing the Bill. He said that we could and should have introduced it earlier. We could not have done so. The Bill was presented to the House and printed within about two days of its drafting being completed. The final delay was just one week, when there were some points that needed clarification. The Green Paper was published in 1990 and there was an extensive period of consultation because it is a very long Bill. The result of all that consultation has been that not only the Opposition but the friendly societies are happy with the Bill. It is a long and complicated Bill which we believe is in as near a perfect form as we could get for a Bill this long. It should proceed through the House without amendment, so the delays in bringing it forward were worth while. The hon. Gentleman also criticised us for reducing the friendly societies tax exempt limit. That begged some interesting questions. It may be another uncosted Labour party promise, but to what level should it be raised, and would that privilege also be extended to the life insurance companies? If not, and if it began to overlap their business, they would claim that friendly societies had an unfair advantage. If the hon. Gentleman considers the issue, I am sure that he will agree that the tax exempt limit must be set at about the bottom of the limit for life insurance companies if it is not to create an unfair competitive advantage for friendly societies. If it were to be much higher than that, it would cost a great deal of money. As we know, the Opposition are pretty cavalier with the way that they spend £1 billion here and £1 billion there. Perhaps £50 million or so spent on such a provision would not really matter. The hon. Gentleman referred to home income schemes. My hon. Friend the Member for Beaconsfield (Mr. Smith) effectively answered that point. Action has been taken by the appropriate self-regulatory organisations on the marketing of home income schemes. The Building Societies Commission has tightened the capital adequacy requirements relating to mortgage lending associated with equity withdrawal and action is being taken to help those unfortunate investors—and I have some in my constituency—in the schemes. Last week, the SIB announced a one-stop complaints procedure to facilitate compensation claims, providing a free alternative to legal action and so simplifying the process for elderly investors. One substantial building society is effectively committed to making arrangements to ensure that those investors are not subject to repossession and, whatever happens, are able to stay in their homes. If the hon. Gentleman is aware of any facts or problems that contradict what I have said, I hope that he will bring them to my attention. I shall then ensure that they are brought to the attention of those who have the power to deal with these matters. I thank my hon. Friend the Member for Northampton, South (Mr. Morris) for welcoming the Bill. He was involved in its prehistory much longer than I have been involved with it. As he said, the friendly societies have looked forward to the Bill for a long time. We are grateful for the recognition that the Bill is in the form that the friendly societies can readily accept. I extend the same gratitude to the hon. Member for Makerfield. What he told us about friendly societies being the bedrock of welfare in mining communities was interesting. He asked me a couple of specific questions. Clause 10 allows friendly societies to engage in social and benevolent activities. They can make grants and gifts to people but they cannot make loans. The Bill does not affect credit unions. Obviously, friendly societies cannot be deposit-takers. Credit unions are regulated by their own legislation. Friendly societies, except to the extent of making benevolent payments to members, will not be able to help in the circumstances that the hon. Gentleman described. The hon. Gentleman asked about the few societies that are old and have few members for whom to provide bereavement benefits. Without further details, I cannot answer that point now. If he provides me with the details, I can give him the probable answers under the Bill. There is power for the commission to order the transfer of engagements from a friendly society which it feels cannot manage its own affairs properly to another friendly society. Those may be the sort of circumstances that the hon. Gentleman described. If there was a society of relatively few engagements, being run by a few elderly people who, perhaps, would prefer to have their responsibilities transferred, the commission could organise that. My hon. Friend the Member for Slough (Mr. Watts) raised three points. On the question of internal controls, the provisions will not necessarily require a particular number of staff, but they will require particular controls to be exerted. It certainly is not our intention to make life impossible for small friendly societies. However, it is a primary purpose and responsibility of the Government and of the Bill to ensure that the members of friendly societies are protected. A clear ingredient of all supervision of banks and building societies—and, in future, friendly societies—must be adequate systems of internal control. If societies are so small that they are not viable if they have to provide that control, they will have to transfer their engagements elsewhere. We hope very much that that will not force unnecessary changes. We recognise the problem of arriving at a true and fair view of companies that engage in long-term insurance business, but that must be resolved in an insurance rather than a friendly society context. Friendly society subsidiaries will be able to undertake only a limited range of activities, as set out in schedule 7. The subsidiaries of friendly societies will not themselves be able to have subsidiaries. They are in that respect different, but in other respects, and in the broader context, the Bill's provisions for subsidiaries correspond to those in the Companies Act 1989, and subsidiaries of friendly societies will often be Companies Acts companies. I checked to ensure that I answered correctly the earlier point raised by my hon. Friend the Member for Beaconsfield concerning the Association of British Insurers and the Policyholders Protection Act 1975. We are aware of the problem that in most circumstances that legislation extends only to individuals but that partnerships can involve large claims. That point must be resolved, but outside the context of friendly societies legislation. My hon. Friend asked about the cost of regulation. It is a principle in other areas legislation that those who are subject to regulation pay for it. Friendly societies already pay under the 1974 Act, though they will have to pay for more extensive regulations under the Bill. We and the commission will try to ensure that the cost of regulation will not exceed the benefits. However, I believe that it is a correct principle that organisations that are members of regulatory bodies should pay for their own regulation. I believe that I have dealt with all the points that were raised. I again commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 61 (Committal of Bills).
Friendly Societies Bill Money
Queen's Recommendation having been signified—
That, for the purposes of any Act resulting from the Friendly Societies Bill, it is expedient to authorize—
(1) the payment out of money provided by Parliament of— (a) any expenses incurred by the Friendly Societies Commission established by that Act which are attributable to that Act; (b) any expenses incurred by the Treasury— (i) for the purposes of tribunals established in pursuance of that Act to hear appeals against decisions of that Commission; or (ii) for the purposes of any person appointed under that Act to determine disputes under the National Savings Banks Act 1971 or the National Debt Act 1972; (c) any expenses incurred by the Chief Registrar of friendly societies which are attributable to any functions of his or of the central office under the Act; (2) any increase attributable to that Act in the sunas so payable under any other enactment.—[Mr. Maples.]