House Of Commons
Thursday 30 October 1986
The House met at half-past Two o'clock
Prayers
[MR. SPEAKER in the Chair]
Private Business
TEIGNMOUTH QUAY COMPANY BILL (By Order)
BEXLEY LONDON BOROUGH COUNCIL BILL (By Order)
SHOREHAM PORT AUTHORITY BILL (By Order)
Orders for Second Reading read.
To he read the Second time upon Tuesday 4 November.
EXETER CITY COUNCIL BILL [Lords]
Ordered,
That the Promoters of the Exeter City Council Bill [Lords] shall have leave to suspend proceedings thereon in order to proceed with the Bill, if they think fit, in the next Session of Parliament, provided that the Agents for the Bill give notice to the Clerks in the Private Bill Office of their intention to suspend further proceedings not later than the day before the close of the present Session and that all fees due on the Bill up to that date be paid;
Ordered,
That if the Bill is brought from the Lords in the next Session, the Agents for the Bill shall deposit in the Private Bill Office a declaration, signed by them, stating that the Bill is the same, in every respect, as the Bill which was brought from the Lords in the present Session;
Ordered,
That as soon as a certificate by one of the Clerks in the Private Bill Office that such a declaration had been so deposited has been laid upon the Table of the House, the Bill shall be deemed to have been read the first time and referred to the Examiners of Petitions for Private Bills;
Ordered,
That the Petition against the Bill presented in the present Session which stands referred to the Committee on the Bill shall stand referred to the Committee on the Bill in the next Session;
Ordered,
That no Petitioners shall be heard before the Committee on the Bill, unless their Petition has been presented within the time limited within the present Session or deposited pursuant to paragraph (b) of Standing Order 126 relating to Private Business;
Ordered,
That, in relation to the Bill, Standing Order 127 relating to Private Business shall have effect as if the words "under Standing Order 126 (Reference to committee of petitions against Bill)" were omitted;
Ordered,
That no further fees shall be charged in respect of any proceedings on the Bill in respect of which fees have already been incurred during the present Session;
Ordered,
That these Orders be Standing Orders of the House.—
[The Chairman of Ways and Means.]
Message to the Lords to acquaint them therewith.
Oral Answers To Questions
Agriculture, Fisheries And Food
Farming Industry
1.
asked the Minister of Agriculture, Fisheries and Food when he last met representatives of the farming industry; and what subjects were discussed.
I am frequently in touch with representatives of the farming industry on a wide range of agricultural matters.
Does the Minister appreciate the great uncertainty that exists in agriculture? Is he aware of the existence of large surpluses and the market decline in land values, which cause farmers great anxiety and feelings of insecurity? Secondly, the Government's commitment to conservation has not led them to present their position with clarity on farm and forest development in environmentally sensitive areas or, for that matter, anywhere else.
The hon. Gentleman is correct in saying that there is a certain amount of uncertainty throughout agriculture worldwide, where massive surpluses exist and export markets become fewer and fewer. I believe that our work over the past few years in Brussels to return the common agricultural policy to reality and prudence is a move in the right direction. I am surprised by the hon. Gentleman's comments about conservation. He will recall that we have had a warm welcome from both sides of the House and from many other places to our proposals for environmentally sensitive areas. We have specified these areas and we are now negotiating terms with those concerned.
Is my right hon. Friend aware that in the dairying community, and certainly in my constituency, there is strong objection in principle to the imposition of the new statutory inspection charges, and that when there is not objection in principle there is a strong feeling that the charges are too high anyway?
I have discussed with the leaders of the various sections of the farmers unions the statutory charges. My hon. Friend will recall that the proposed charge per visit under the milk and dairy regulations will be about £90. That figures will reflect actual costs. It is important to bear in mind that farmers with high standards of hygiene on their farms will be visited only once every three years, or even less frequently. A £90 per visit charge is equivalent to only £30 a year or less for those who have high standards of hygiene on their farms.
Will the Minister confirm the report that was carried on the front page of The Independent that he is to take on the fanning lobby? If it is true that the Department of Trade and Industry, the Treasury and the Departments of Employment and Environment are engaged in secret discussions about alternative land resource use and employment, does he agree that that will increase uncertainty? Will he confirm that the debate is being conducted in secret, and would it not be better to conduct it in public with the National Farmers Union?
The Government's policy is to continue to support British agriculture, which has made a massive contribution to our economy for a long time. The hon. Gentleman should not make statements such as he has just made, because agriculture is our finest industry.
Will my right hon. Friend explain, if he can, why he considers it just that farmers should have to pay for inspections that they do not want at a cost of £90 when factories do not have to pay for inspections by factory inspectors or by health and safety inspectors? Why should farmers have to pay when others do not?
My hon. Friend will know that the Government took the view that we should make certain charges on certain statutory duties. The National Farmers Union asked us especially whether we could be sure not to make charges for tuberculosis and brucellosis testing. I am aware of the anxieties, but charging is appropriate when the producer derives a benefit. The high quality and reputation of the product helps to maintain consumption, and thus benefits the producer.
Has the Minister had raised with him in his discussions the question of intereference by French farmers in the British lamb trade? What steps, beyond writing to his French opposite number and to the President of the Commission, does he propose to take? Will he make it clear in words that even M. Guillaume can understand that the French do not have a unique prescriptive right to strain the CAP rules, and that if we were to respond in kind they would have much more to lose?
The hon. Gentleman should know that I have twice spoken to M. Guillaume about the 'hijacking incident. My right hon. Friend the Prime Minister has spoken to President Mitterrand about the matter. We were both given assurances that fresh and firm instructions would go out to all police authorities and that compensation would be paid.
The House must be in no doubt about the strength of the Government's resolve on this matter. Actions by lawless French producers or interference with imports are absolutely unacceptable to us.Bearing in mind the Government's oft-stated wish to support farming and the problems caused to the port of Aberdeen as a result of the fall in oil prices, would it not be sensible to insist that all imports of Perrier water should be routed into Britain via Aberdeen, where they would be subjected to chemical analysis? Would that not encourage the French to stop interfering with our sheep?
My hon. Friend gives us, in general terms, food for thought. I am sure he agrees that, when we are criticising lawlessness by citizens of France, the last thing that we should do is resort to lawlessness ourselves.
Milk Marketing Board
4.
asked the Minister of Agriculture, Fisheries and Food when he last met the chairman of the Milk Marketing Board; what subjects were discussed; and if he will make a statement.
My colleagues and I frequently meet the chairman of the Milk Marketing Board. My last formal meeting with him was on 13 May, when we discussed a wide range of subjects.
I am grateful to my hon. Friend for that reply. When he next meets the chairman of the Milk Marketing Board, will he ask how many dairy farmers have agreed to take the new outgoers scheme, which would pay them 16·3p per litre over seven years? Does he agree that that, given the 22–25p per litre that farmers can get for selling their quota on the open market, not many will take up the scheme? Why can we not top up our outgoers scheme as do the Germans, who will increase theirs to about 22–27p a litre, payable over five years?
I am sure that my hon. Friend made a slip of the tongue. It is 18p a litre. Although it it is true that the Germans are topping up theirs, the French are paying less. No other country is topping up the amount to its farmers. Already a large number of people have written in for the details, and some people already wish to leave the industry in this way. We shall have to see how the system works. There is always disagreement in these circumstances about the right level at which to pitch it, but we have to stick where we are.
Will my right hon. Friend explain to dairy farmers, some of whom are perhaps without the same benefits of intelligence and education as he has, how it is right that they are paying taxes so that the Russians can get 1 million tonnes of British corn at a third of the price that our dairy farmers are having to pay for it?
Is that relevant?
It is about dairy farming, Mr. Speaker.
Many of the farmers are aware that if the Community is 14–5 per cent. over-supplied, it is better to get something for particularly old butter, which nobody wants, than to get nothing for it.
Cereals
5.
asked the Minister of Agriculture, Fisheries and Food what effect the co-responsibility levy on cereals will have on the amount of cereals produced within the European Economic Community.
6.
asked the Minister of Agriculture, Fisheries and Food if he will make a statement on the operation of the cereals co-responsibility levy.
The levy was not in force when plantings for the 1986 harvest were under way, and its effect on future harvests will be difficult to isolate because of numerous other factors at work. I have already made clear my attitude to this measure, for example in my statement to the Select Committee on Agriculture on 16 July.
Does my right hon. Friend agree that the co-responsibility levy will not reduce the amount of cereal grown, and that any set-aside programme will not achieve it on its own, because the worst land will be set aside and on the best land productivity will be increased? Will he do something to alleviate the present uncertainty by announcing, or getting his Common Market partners to announce, that any future restriction on production of cereals will be based on the yields of earlier years, or a combination of years, so as to reduce the distortion and the present increase in production of cereals?
I do not think that that would be the best way to deal with the problem, given that yields have increased in this country probably faster than in any other Community country. We would be in danger of shooting ourselves through the foot if we were to do it that way. I have always agreed with my hon. Friend that we need a packet of measures to deal with the cereals problem. I do not like, and the House does not like, the co-responsibility levy, and the House would, I think, like me, prefer a reduction in price. With the package of measures, we must have a stringent price policy and tough rules for grain that is suitable for intervention. At the same time, we have made proposals for a land diversion policy so that those farmers who find it most difficult to continue to produce grain at a profit may be given alternative enterprises to grain production, which is in a huge surplus.
Is this levy not inherently discriminatory, and does not the discrimination create an incentive to take avoiding action and to look for loopholes? is not the creation of these loopholes bad government at both national and European level? Why does the Minister not become tough with the Europeans and lay down what we want rather than what they want?
The hon. Gentleman cannot have been here when I made a statement at the end of the price fixing negotiations this year. We were able to remove all the items that discriminated against the United Kingdom in lamb, beef and cereals. Unlike the original Commission proposal for the cereals co-responsibility levy, the present system does not discriminate against the United Kingdom. It is satisfactory from that point of view, but, like the hon. Gentleman, I would much rather not have had the co-responsibility levy.
Will my right hon. Friend accept my congratulations on his set-aside proposals? They are part of a much more satisfactory alternative for the future of cereals than co-responsibility. Will he say something about the progress that he is making with these proposals?
I am grateful to my hon. Friend for his remarks about the land diversion proposals. This matter was discussed informally by the Council of Ministers and I was pleased by the constructive response of the other Ministers to the proposals. The matter is to be further examined by the Commission in Brussels. I hope that before too long it will emerge as a concrete proposal.
As, in a Community of 12, Britain's Presidency will always come round in the second half of the year, what steps does the Minister propose to take now to ensure that cereal prices are reduced in the first half of next year?
The early part of next year will be discussed on the basis of the proposals that the Commission will produce at the turn of the year. Obviously I cannot anticipate at this time what they will be. However, the hon. Gentleman knows very well that the price that the farmer receives for grain is based not entirely upon the support price that is agreed by the Council of Ministers. If he wants an example, he will see that this year farmers have obtained unexpectedly high prices for grain because of a buoyant export market, from which British agriculture has benefited.
Does my right hon. Friend agree that the best evidence of over-production of feedwheat comes from today's edition of The Times, which says that the EEC is so desperate to get rid of its surplus feedwheat that it is continuing to sell substantial quantities of it, with an export subsidy of £82·76, to Syria?
My hon. Friend will realise that there is no embargo on United Kingdom exports to Syria, but no special export refunds exist for the sale of cereals to Syria. The United Kingdom will oppose any proposal to introduce such a refund.
That was rather a pathetic answer.
To return to the co-responsibility levy, will the Minister accept that it is hitting consumers every bit as much as it is hitting producers, that it is an administrative nightmare fraught with unfair anomalies, that it cannot cover the cost of export subsidies and that it will have no impact on the production of surpluses? Does the Minister believe in this levy? If he does not, will he join many of his hon. Friends in supporting our prayer against the levy next week?I cannot anticipate next week's business. As for the co-responsibility levy being a tax on consumers, the hon. Gentleman should know that as the levy is charged on sales into intervention it will affect market prices across the board, especially those for feed grains. It should reduce the cost of grain to livestock farmers who mill their food, and it should not increase the cost of grain to compounders. The hon. Gentleman must check on the facts before making such statements.
Does the Minister accept that the inclusion of oats in the co-responsibility levy scheme is wholly and grossly unfair, because it is not a commodity that is in surplus? Will he use his good offices to try to get oats out of the scheme for next year?
I am sure that the hon. Gentleman is aware that in certain circumstances oats, barley and certain feedwheat are interchangeable. If, therefore, we are to have a co-responsibility levy, the exemption of oats would create the danger of distorting the market.
Will my right hon. Friend deal with a problem in operating the levy that is worrying farmers? If a merchant buys grain from a farmer he collects the levy, but if he sells that grain to a farmer who mills on his own farm he receives the rebate. However, there is no way of ensuring that that rebate is paid to the farmer. Is it possible to institute a method of auditing the books of merchants?
I have talked to my hon. Friend's constituents about this matter. I do not think that it will be possible to change the rules this year to enable such an audit to be introduced. However, we are prepared to look at the possibility and to discuss it with the Commission to see whether it might be possible in future to have a different system for operating the levy.
7.
asked the Minister of Agriculture, Fisheries and Food what proportion of agricultural land in England has been used for growing cereals in the current year: and what was the proportion 10 years previously.
The provisional results of the June agricultural census shows that cereals were grown on 34 per cent. of the total agricultural area in England in 1986, compared with 30·7 per cent. in 1976.
What is the Minister's estimate of the land that needs to be taken out of cereal production in order to align supply and demand?
No, because, as the hon. Gentleman will know, such an estimate depends upon where the land is, what sort of land it is and the circumstances. If we could have a package of measures, including restraint on price, to ensure that there are alternative crops, thereby providing some kind of land diversion, probably with rotation by fallowing, that would meet the need.
Do these figures not clearly demonstrate that cereal farmers have done far too well for far too long? What proposals does my right hon. Friend intend to produce to the European Commission to reduce substantially the subsidies on cereals?
As my hon. Friend knows, the measures taken this year will substantially reduce the price below what it would have been. That will be done by a mixture of changes in quality control and the intervention rules, coupled with the effect of the co-responsibility levy. We would have much preferred not to have this co-responsibility levy, because it is an odd and unacceptable way of doing it. We would have preferred a reduction in price, and that must by the basis of any future policy.
Why did the Minister not hold an inquiry into the the allegations by Mr. Pedley that witnesses in the BBC trial were interfered with when he was chairman—
Order. What has this to do with cereal levies?
I should like to return to the original question. Has my right hon. Friend reached any conclusion about the acreage that he would like to see in cereals in 10 years?
No. We can deal with cereals by providing the farmer with alternative uses for land by reducing the price of cereals in order to bring about a much better balance between supply and demand. It was a pleasure to have a question from a sane Member.
I am not clear whether the last remark by the Minister is in order, Mr. Speaker, but no doubt if you heard it you will rule on it.
Does the Minister accept that the new strains of wheat talked about in the Sunday Telegraph promise vastly increased production from diminishing cereal land? Is that not an argument for overall production control and not for taking land out of production, because technically we could easily produce as much or more cereals on less land.The hon. Gentleman would need carefully to qualify what he means by overall production control. If he means some sort of quota system, I should like him to explain how one could reasonably quota, for example, over I million grain farmers in Italy. That is not a sensible way to operate. The real difficulty about overproduction is that it is not a problem today nor will it be a problem in two to three years. The difficulty is that the problem increases almost exponentially as technology improves the situation. As my right hon. Friend said, we must have a system which meets the problem not in one way, but through a whole package of measures.
8.
asked the Minister of Agriculture, Fisheries and Food what is his forecast for cereal production for 1986.
United Kingdom production of cereals in 1986 is estimated at 24·6 million tonnes.
Is my right hon. Friend aware that the uncertainty about the nature of the measures to reduce surpluses has been the principal source of anxiety among cereal producers? While proposals to encourage the use of marginal land for other purposes such as forestry are very welcome, above all a clear and firm sign is needed on how the problem of surpluses is to be tackled.
I agree with my hon. Friend, and that is why the United Kingdom is taking the lead in seeking a package of measures which will relieve that uncertainty. The uncertainty arises primarily from the fact that we have moved from the position in which a farmer was certain about a market because there was a shortage in the world, into a situation today where there is uncertainty in the market because we are in a world of surpluses.
Does the Minister accept that to dispose of the expected surplus to Syria under the arrangements—which we cannot now change — in the Community, is offensive? Does he also agree that to dispose of those surpluses to Russia and allow Russian pig farmers to buy British grain at £36 a tonne, when we have to pay for them to receive it at that price, is disgraceful?
The hon. Gentleman is only underlining the reason why we have made a major effort and are taking the lead to ensure that we bring supply and demand into balance.
Will my right hon. Friend explain precisely what are the Government's objections to a compulsory set-aside system? Do the objections stem from the fact that more than only marginal land would be taken out of production?
My hon. Friend has to accept that Britain is one of the most efficient producers of cereals in the Community and the world. We do not want a system which so restricts cereal production that it causes unfair discrimination against the good producer. That is one of the dangers of having a compulsory system. It is much better to have a voluntary system where those who wish to go out can do so and so enable those who can produce cereals competitively and efficiently — as many of the United Kingdom farmers do—to continue to do that.
Fisheries Policy
9.
asked the Minister of Agriculture, Fisheries and Food if he will make a statement concerning progress during his Presidency of the Agricultural Council of Ministers with regard to EEC fisheries policy.
I am delighted to report that at the first meeting of the Fisheries Ministers under the United Kingdom Presidency on 22 and 23 September, I was able to secure a decision on the package of technical conservation measures which had been outstanding since the beginning of the year. This clears the decks for further work on control and on structural measures, on which I hope for decisions before the end of the year.
Does the Minister agree that the heart of any fisheries policy is the need to conserve stocks of fish? Is the right hon. Gentleman aware that officers and skippers of vessels in Spain in the port of Vigo organise a kitty from which they pay the fines that arise on the rare occasions when a Spanish fishery vessel is caught by our fishery protection vessels? Efficient policing will deplete the Spanish kitty, but what will happen to that policing effort when two or three fisheries protection vessels are taken out of service to police the waters in the south Atlantic?
The fisheries protection squadron of the Royal Navy and the arrangements operated by the various Departments in the United Kingdom are the envy of many countries in the Community. We intend to ensure the continuation of the rules on conservation which were agreed in Brussels, and which safeguard the opportunities for fishermen to get the maximum yield from the waters of the Community. We hope that those fishermen who are tempted to transgress the rules will realise that that does not pay.
Surely my right hon. Friend cannot be satisfied with the monitoring and policing of the fisheries policy. Is he aware that fishermen in the south-west feel particularly vulnerable over this aspect?
That is why we have been pressing the Community and the Commission in Brussels very hard indeed to increase the size of the inspectorate within the Commission so that countries which do not have as efficient an enforcement policy are made to observe the rules properly.
What consultations has the Minister had with his fellow Ministers in the EEC about arrangements for the Falkland Islands? Given that the authorities there will have the power to issue licences and quotas, does our membership of the EEC oblige us to give priority to members of the EEC?
The responsibility for fisheries protection and arrangments for the Falkland Islands is a matter for my right hon. and learned Friend the Foreign Secretary.
Is the Minister aware that many people in the industry believe that far too much of the British fleet is antiquated, inefficient, ineffective and unprofitable? Does he agree that much more investment in the British fleet is needed to make it competitive and modern? Is he aware that many people regard the Government's restructuring policy as a dismal failure? What does he intend to do about that?
The hon. Gentleman could not have heard me when I said that I hoped that the success of the first meeting of the Fisheries Council will enable us to clear the decks for further work on structural measures, among other things, on which I hope we shall have decisions before the end of the year.
On the subject of the negotiations between the Commission and Norway over the share of North sea herring, does the Minister agree that last year British fishermen were dismayed by the 40 per cent. deal which the Norwegians won and that they are now alarmed that the Norwegian fishermen see that as a minimum settlement for this year's negotiations? Can the Minister assure the House that during his Presidency the Community, and, through that, the British fishing fleet, will get a better deal with Norway than last year for North sea herring?
We are discussing the negotiations with Norway with the Commission in advance this year agree that the way in which the Commission conducted the negotiations last year was less than satisfactory.
Farm Safety
10.
asked the Minister of Agriculture, Fisheries and Food what steps he is taking to improve safety on farms.
Responsibilities for farm safety rest primarily with the Health and Safety Executive. However, considerable emphasis is placed on safety considerations in advice given by my Department to farmers and particular attention is paid to safety in the training courses run by the Agricultural Training Board. The safety record in the industry must be improved. It is essential that everyone who lives or works on farms, and especially those responsible for children, should become much more safety conscious. I hope that they will read the chilling but excellent report of the Health and Safety Executive, "Agricultural Black Spot—A Study of Fatal Accidents".
May I congratulate, or commiserate with, the hon. Gentleman on his appointment to the Government Front Bench?
Is he aware that in 1985 farm deaths rose by over one fifth on the previous year? Is he further aware that farming is the second most dangerous industry in Britain? Will he ensure that there are no further cuts in the numbers of agricultural inspectors? Indeed, will he ensure that more are appointed?I am aware of the number of fatalities last year. I am glad to report that to date such deaths are at a much lower level this year. The inspectors are nine understaffed at 165, but I believe that the Health and Safety Executive is doing all that it can to recruit more inspectors.
I congratulate my hon. Friend on his first speech from the Dispatch Box. Will he confirm that there will be no cuts in health and safety provision for farm workers and that the HSE service, which does such a good job, will be sustained and closely monitored by the Government?
I can confirm all that my hon. Friend has asked.
Is the Minister aware that one hazard faced by farm workers is that of noise? I understand that farm safety inspectors are supplied with decibel meters. How many times have they been used, and have there been any prosecutions in the past two years?
I do not know the answer to either of those questions, but I shall write to the hon. Lady.
May I also take this opportunity to congratulate the Minister on his appointment? I hope, however, that it will not be too long before he and all his colleagues are sitting on the Opposition side of the House.
Is he aware that the main cause of farm accidents is tractors overturning? What plans does the Minister have to extend existing regulations to make roll-over protection compulsory on all tractors?
I agree that one third of accidents involve self-propelled vehicles. The Health and Safety Executive is continually looking at such suggestions as the hon. Member has put forward.
Council Of Agriculture Ministers
11.
asked the Minister of Agriculture, Fisheries and Food if he will indicate the business of the next meeting of the Agriculture Council of the European Community.
The agenda for the next EC Agriculture Council is expected to include items on the reform of the beef regime and emergency measures in the milk sector as well as a number of internal market items.
I thank my right hon. Friend for that reply. Is he aware that he has a fight on his hands over the beef sector proposals and that it will be every bit as tough as the annual price-fixing round? Is he ready for that?
Yes, Sir. We have been holding constructive discussions at an official level in the Community. I have made it clear that several of the beef proposals are unacceptable to us because of discrimination. I shall continue to resist them. [Interruption.] I think especially of the limit of 50 head for the proposed beef premium.
Order. Will hon. Members please refrain from chatting, as I cannot hear.
Does the Minister agree that retaining beef variable premiums is the best way of securing the beef industry for the years to come? As President, will he ensure that they will be maintained beyond the present financial year?
I assure the hon. Gentleman that in our discussions so far the British delegation has made it clear that the variable beef premium system has served us well and has led to beef being eaten instead of being put into cold store. I am glad that the Commission has proposed a premium system. In the weeks ahead we shall work hard to amend the existing proposals on beef premiums so that they are more acceptable to us.
Will the Minister put before the Council the scandalous position of Irish beef exports to Britain? The Irish are getting a subsidy of £151 per cow. That cannot go on. Will my right hon. Friend ensure that there is a devaluation of our green pound in order to rectify the problem?
My hon. Friend will be aware that we have made an official proposal to the Commission in Brussels that there should be a devaluation of the green pound, particularly in the beef sector, where massive distortions have arisen as a result of a 6 per cent. devaluation of the green punt. So far the Commission has not reacted to our request, but we continue to press very hard.
Is the Minister aware that the all-time record butter mountains both in Britain and elsewhere in Europe will be a fitting monument for this British Presidency of the Council of Agriculture Ministers? Now that we have 2·4 million tonnes of butter and skimmed milk powder in intervention stores around the Community, will the Minister accept that a deteriorating butter mountain is not a good investment for the taxpayer and that we need positive incentives to restructure the dairy industry?
Before the Minister starts talking about the outgoers scheme, will he tell us exactly how many people have submitted applications for the scheme?So far we have had 750 inquiries from farmers to whom we have sent application forms. With regard to the hon. Gentleman's snide remarks at the beginning of his question regarding the size of the butter surplus, he will be aware that nobody has done more than successive Ministers in this Administration to try to bring the milk regime back to a degree of rationality and reality. Before the hon. Gentleman makes any more remarks of that sort he should look at the records to see in how many months during the time his party was in power the butter mountain reached record levels.
Prime Minister
Engagements
Q1.
asked the Prime Minister if she will list her official engagements for Thursday 30 October 1986.
This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House, I shall be having further meetings later today.
Has the Prime Minister studied the community care manifesto published during the party conferences by Dr. Barnardo's, MIND, MENCAP and the Spastics Society, which calls, among other things, for legislation to abolish discrimination against disabled people? Is this not an opportunity for the right hon. Lady to redeem her Government's pledge to disabled people after the disgraceful manoeuvres against the Bill I introduced three years ago and the disgraceful introduction this week of availability for work tests, which is already denying supplementary benefit to some of the most disadvantaged, disabled people in our society?
This Government's record of help for the disabled exceeds that of any other Government, as the hon. Gentleman well knows.
In view of several statements this week on mortgage tax relief, including one from the Leader of the Opposition, will the Prime Minister make it clear that the Government will continue broadly in its present form mortgage tax relief and thus reassure many millions of people who have become owner-occupiers since 1979 and whose family budgets critically depend on the continuation of this provision?
As my hon. Friend is well aware, under this Government the present system of mortgage tax relief will continue. I believe that ours is the only party which stands four-square behind the system.
Q2.
asked the Prime Minister if she will list her official engagements for Thursday 30 October 1986.
I refer the hon. Gentleman to the reply that I gave some moments ago.
Will the Prime Minister, in her moments of reflection between engagements, reconsider the answer that she gave in a recent interview to Colin MacKay of STV? She said:
Surely all the evidence is to the contrary, and it is silly for the Government to pretend otherwise. Does the Prime Minister also appreciate that, given her opinion that devolution would lead to the break-up of Great Britain, she is shoulder to shoulder in the trenches with the hon. Member for Linlithgow (Mr. Dalyell)? Perhaps the call is, "Come back, all is forgiven.""I am not satisfied that there is a fundamental desire for devolution."
I confirm what I said in the interview and I would repeat every word again today.
Will my right hon. Friend congratulate the Minister for Housing, Urban Affairs and Construction on his reported comments yesterday to the effect that the Government are to make a specific form of assistance available to many young people in the south-east who find it so difficult at present to obtain housing? Does she appreciate that many of us welcome that wholeheartedly?
I understand that that is a reference to a breakthrough in housing finance under which it will be possible to build for assured tenancies with a mixture of public and private finance. I believe that it is a breakthrough and that it will help many young people, as well as helping to take a number of people out of bed-and-breakfast accommodation, which they would otherwise have to occupy.
Q3.
asked the Prime Minister if she will list her official engagements for Thursday 30 October.
I refer the hon. Gentleman to the reply that I gave some moments ago.
Is it not a fact that the Prime Minister's obvious lack of judgment and credibility are causing increasing embarrassment, even to her own party? How much would it cost the Tory establishment to see her off at Victoria station?
The hon. Gentleman is whistling in the dark, whether at Victoria station or elsewhere.
Will my right hon. Friend accept that it is not just in Brent and Hackney where the thought police are on the march in education? In Birmingham teachers are being threatened that if they advise on what is best for their students and parents in the way of grammar school education they will be disciplined. Does she not think that it is an evil practice when Socialists say that if all cannot be eagles then all must be sparrows? Is not the pursuit of excellence what the country needs?
Yes. I warmly support my hon. Friend in what he said. Grammar schools are an extremely important part of our education system and they stand for the pursuit of excellence. Many of us owed our future to those schools.
The Government have not volunteered a statement on their views about the Reykjavik talks or responded to our request that they should do so. Will the Prime Minister tell me whether she recalls saying to the United States Congress last year that nothing in the ABM treaty precludes research but that if research led to the
it would be, in her words,"possible deployment of new defence systems"
Is that still her position in view of the much less clear and less positive view expressed by the Minister of State at the Ministry of Defence last week? Can she tell us, specifically, what is the Government's position on star wars and the ABM treaty? [Interruption.] If we had had a statement, this request would not have been necessary. Can the Prime Minister also say, specifically, what is her attitude to the adoption of the zero/zero option as discussed at Reykjavik? [Interruption.] As I said, if we had had a statement, this would not be necessary. In view of President Reagan's clear reassertion yesterday that he will persist—[Interruption]—I shall persist, too."a matter of negotiation under the treaty"?
Order.
In view of President Reagan's clear reassertion yesterday that he intended to persist, very sensibly with his proposals on ballistic missile systems in future negotiations, will the Prime Minister tell us—[Interruption.]
Order. We have only 15 minutes and points of order do not help.
Thank you, Mr. Speaker. I repeat, had we had a statement from the Government, these questions would not have been be necessary.
In view of President Reagan's clear reassertion yesterday that he wanted to pursue his proposition to get rid of ballistic missiles over 10 years, is the Prime Minister prepared to reconsider—[Interruption.]—the purchase of the Trident ballistic system, especially in view of the pressures that that imposes on our conventional defence programme?I seem to remember that the other place was sitting at the time of the Reykjavik talks and a statement was made there. So a statement was made by Her Majesty's Government to Parliament on those talks.
Intermediate nuclear forces were subject to the SDI proposal at Reykjavik and we believe President Reagan was absolutely right in refusing to stop research on SDI. The future of the INF talks also appeared to be made subject to that, so the whole question is in issue again. It will be sorted out at the talks at Geneva. We are in discussion, through the NATO Alliance, with the United States about those talks and the proposals that have been made. We believe in an independent nuclear deterrent. The British and French independent nuclear deterrents were not part of those talks. The Conservative party believes that the independent nuclear deterrent is vital to our future defence. We shall keep it, and the Trident programme will go ahead.Will my right hon. Friend explain today why the European Commission is selling cut-price grain to Syria? Does she recognise how irritating that is and the considerable anger that that subsidy to state terrorism has caused?
The question of sales of European grain to Syria has arisen before. Normal refunds apply to all external sales and I am afraid that there is nothing we can do about that. However, I understand that there will be no special rates of refund to Syria following the meeting of my right hon. and learned Friend the Foreign Secretary with the Foreign Ministers a few days ago.
Does the Prime Minister agree that if President Reagan was successful in negotiating the withdrawal of all ballistic missiles, both Soviet and American, it would be unlikely that the United States would be happy to go on selling us Trident? Is that not one more case for looking seriously at the cruise missile option?
I am sure that the right hon. Gentleman will be the first to understand when I say that the defence of a nation consists not only of its nuclear stance and independent nuclear deterrent, but also of chemical and conventional weapons. For anyone to suggest that one can get rid of ballistic missiles without considering conventional weapons and the impossibility of achieving equality in conventional forces in the alleged time scale is utterly absurd. President Reagan did not agree at Reykjavik, as the House knows.
Does my right hon. Friend accept that our defence is based upon deterrence — the deterrence of alliances and of massive retaliation if attacked—the crucial pillar of which is the Atlantic Alliance? Does she now see that our key alliance is under threat from within, when partners within that Alliance are not only not prepared to support actions against terrorism but unilaterally to negotiate with terrorists? Secondly, does my right hon. Friend not see that our Alliance is under threat from within the Labour and so-called alliance parties—parties that march to the same drum, the drum of Socialism—which is a serious threat to our national security?
I agree with my hon. Friend that the NATO Alliance is under threat and under attack from the Opposition. Any change in the fundamental doctrine of flexible response, of which nuclear weapons are a fundamental part, is a matter for the whole Alliance to discuss and could not be decided separately. The fact is that the nuclear deterrent has kept the peace for 40 years—peace from nuclear weapons and from conventional war—and that is the most important factor of all.
Q4.
asked the Prime Minister if she will list her official engagements for Thursday 30 October.
I refer the hon. Lady to the reply that I gave some moments ago.
Will the Prime Minister explain to the House how an increase in the bank rate will lead to a reduction in unemployment and a reduction in the cost of living?
An increase in bank rate is occasionally necessary to hold down the long-term rate of inflation. As many hon. Members on both sides of the House have said, inflation breeds unemployment — it does not cure it.
On a point of order, Mr. Speaker. In view of the importance of the question asked by my right hon. Friend the Leader of the Opposition —[Interruption.] It is the most important matter that we could be discussing. It is a matter of life or death. Will the Prime Minister—
Order. The hon. Gentleman should address his point of order to me.
May I ask whether the right hon. Lady will tell the yah-boos on her side that she takes this matter seriously?
That is not a matter for me.
On a point of order, Mr. Speaker. As a matter of order, will you consider consulting Back-Bench Members as well as the usual channels on whether it would be in the interests of the House to return to the practice of Mr. Speaker Hylton-Foster, whereby an hon. Member when called asked only one question of a Minister rather than a series? It would mean that many more hon. Members could ask questions and the House could proceed much more quickly.
As the hon. Gentleman knows, if he is here regularly for Prime Minister's Question Time, that is what I do, but it depends on how the questions fall on the Order Paper. I should point out, however, that it has been a long-standing convention that the Leader of the Opposition has an opportunity to ask more than one question. Today he asked only one question.
On a point of order, Mr. Speaker. I hope I am wrong, but I thought I saw you reading from a list of names of Conservative Members and calling them to ask supplementary questions of the Prime Minister. Is that because representations are made to you — [Interruption.] I am asking for guidance from Mr. Speaker, not from Conservative Members. Is it the case, Mr. Speaker, that Members make representations to you before Question Time to be called to ask supplementary questions, or do you genuinely look around and choose at random?
I am delighted to have the opportunity to clear up the matter. I must say to the hon. Gentleman and to the whole House that if representations are made to me beforehand that an hon. Member wishes to be called during Prime Minister's Question Time, that hon. Member will not be called. I make that absolutely clear. As to what goes on here—[Interruption.] I hope that the House will listen to this. My secretary lists the number of times that hon. Members have been called to put a supplementary question—
Well, I should be next then.
There is nothing secret about it. The hon. Gentleman can have a look for himself. Against those names is marked the number of times that hon. Members have been called to put a supplementary question. I seek to ensure that every Member who seeks to put a question to the Prime Minister during a Parliament has an equal opportunity. I hope the House will agree that that is fair. [Interruption.]
Further to—
rose—
Sit down.
Order. I think I am the only one who says that.
Thank you, Mr. Speaker. We elder statesmen occasionally get impatient with these younger puppies. While absolutely understanding and accepting your explanation, Mr. Speaker, with the deep and due regard that I hold for you, is it not a disproportionate way of choosing who should be called in Prime Minister's Question Time, for the following reason. Some of us assiduously attend Prime Minister's Question Time—
And nothing else.
Order.
It is very heartening to see this occasional stranger. The point I was trying to make when that rather ludicrous comment was made about those of us who attend this Parliament daily was this. Is it not an incorrect way to assess the eagerness of hon. Members simply to have a list and see that they are all called in due proportion, when some of us are here every Prime Minister's Question Time, rise at every Prime Minister's Question Time, and make a much more frequent and regular effort to be called? Would it not be fairer to count our appearances in attempting to be called than simply to go through a list?
Order. This is a matter for my discretion. I seek to treat the House fairly. I shall consider what the hon. Gentleman has said, but as most of the questions originally addressed to the Prime Minister appear on the Order paper in identical form it does not seem unfair that hon. Members whose questions are reached should be called.
Further to that point of order, Mr. Speaker I am interested to learn that you have a list of people who have asked questions of the Prime Minister. Can you tell me when I last asked a question of the Prime Minister?
Order. The hon. Member has been called three times this Session on Prime Minister's questions.
Further to that point of order, Mr. Speaker. I noticed that a moment ago you said that when an hon. Member has put down a question to the Prime Minister he will get some consideration. Are you aware that many hon. Members put down questions, but when we see that we are beyond Question No. 10 we immediately withdraw them? Does that enter your mind at all?
It does enter my mind. That would be unwise. The hon. Gentleman did not know the way in which I was dealing with this before today, so perhaps he will not do that in future. The hon. Member has been called five times.
On a point of order, Mr. Speaker. I hate to prolong this issue and, as you know, I rarely do so. Is it possible to make an opportunity available so that the Prime Minister can clarify the comments she made to the effect that the defence of the realm depends on chemical weapons. This is something that we find disturbing.
Order. That is not a matter that can be considered today. There will be other opportunities next week.
Further to that point of order, Mr. Speaker. By way of a constructive suggestion, may I say that if we had a form of extra time as a consequence of prolonged and pointless interruption during Prime Minister's Question Time it might assist the conduct of the House, because the alternative is to have extra time which takes the form of points of order, and that is as tedious for you, Mr. Speaker, as it is for most hon. Members.
Business Of The House
3.39 pm
May I ask the Leader of the House to state the business for next week?
Yes, Sir. The business for next week will be as follows: MONDAY 3 NOVEMBER — Consideration of Lords amendments to the Housing and Planning Bill.
TUESDAY 4 NOVEMBER — Consideration of Lords amendments to the Public Order Bill and the Housing (Scotland) Bill. Motion on the Channel Tunnel Bill. WEDNESDAY 5 NovEMBER—Consideration of any Lords amendments which may be received to the National Health Service (Amendment) Bill. Motion relating to the Cereals Co-responsibility Levy Regulations. Motion on the Rate Support Grant (Scotland) Order. THURSDAY 6 NOVEMBER — Opposition Day (20th Allotted Day). There will be a debate on an Opposition motion entitled "The Failure of the Government's Economic Strategy". FRIDAY 7 NOVEMBER—The House will meet for prorogation at 9.30 am. The House may be asked to consider any Lords messages and other business as necessary. The new Session will be opened on Wednesday 12 November.There are conflicting reports about the date of the Chancellor's autumn statement. Will the Leader of the House tell us exactly when the Chancellor will make his statement?
The right hon. Gentleman will know that there is considerable resentment on both sides of the House about paragraph 44 of the Government's response to the fourth report of the Select Committee on Defence on Westland plc. Paragraph 44 is considered to be a deliberate attempt to curtail the necessary rights of inquiry of Select Committees. When will the paragraph be withdrawn by Her Majesty's Government? Does the right hon. Gentleman recognise that there is widespread support throughout the House for an office of technology assessment to assist hon. Members on both sides of the House? Will he ensure that the House is given ample time to debate this proposal, which we understand the Prime Minister is resisting in some peculiar luddite form? The chairman of the Conservative party today issued a press release, which is couched in typically authoritarian terms, demanding that the vice-chairman of the BBC make, in the right hon. Gentleman's words, a[HON. MEMBERS: "Hear, hear."] I hear the cheers from a certain quarter of the House. This is a further attempt by the chairman of the Tory party to undermine the independence of the corporation. When will we have a chance to debate the various efforts of the right hon. Member for Chingford (Mr. Tebbit) to threaten the BBC in a variety of forms? A series of important foreign affairs issues have arisen since the summer recess, including South Africa, the Reykjavik summit, relations with Syria and the need to get full anti-terrorist co-operation from the other countries of the EEC. Will there be an early chance to debate foreign affairs after the Queen's Speech? In light of the widespread disquiet throughout the community about the spread of acquired immunity deficiency syndrome in Britain and in other countries, will the Government give time in the near future to debate the matter fully?"thorough reappraisal of the managerial and editorial standards of the BBC".
I shall deal with the points put by the Leader of the Opposition in the sequence in which they were presented. I am not in a position to say when the autumn statement will be made. Clearly, it is a matter of continuing attention.
If the right hon. Gentleman has a chance over the weekend to read the entire debate about civil servants appearing before Select Committees, he may find that his anxieties are a little misplaced.I certainly found my reading very interesting last weekend.
It just goes to show that weekend reading tends to be much more reflective than pre-breakfast summaries.
Last week's reading.
The right hon. Gentleman, in his rather different way, might find next weekend's reading of some value. The Treasury and Civil Service Select Committee is considering the Government's response on the point he mentioned. The right hon. Gentleman might bear that in mind.
I shall examine the possibility of a debate about the office of technology assessment, but I cannot respond positively at this moment. I must repudiate the intemperate language used about my right hon. Friend the Chancellor of the Duchy of Lancaster. It showed a certain end of term exuberance, which I understand, but I do not think it helps us to put into proper context the serious matters that would be employed in debating the Peacock report. I assure the right hon. Gentleman that we shall try to arrange an early debate on the Peacock report in the next Session. The Queen's Speech will provide an opportunity for a debate on foreign affairs. I note the request for a debate on AIDS. That is a matter of the utmost significance, and certainly we can look at it through the usual channels.Has my right hon. Friend observed that early-day motion 280 now bears 108 signatures?
[That this House notes the widespread concern felt in Parliament by eminent scientists, by other responsible observers and by members of the public who have viewed programmes on the matter screened by Channel 4, that Anne Maguire, Patrick Maguire (senior), Vincent Maguire (then aged 17), Patrick Maguire (then aged 14), Sean Smyth, Patrick O'Neill and the late Giuseppe Conlon, sentenced in 1976 to long terms of imprisonment since served, now appear, despite confirmation of their convictions at the time by the Court of Appeal, to have been entirely innocent of the crime with which they were charged; further notes at the conclusion of debate in the other place on 17th May 1985, the recognition by the Parliamentary Under Secretary at the Home Office of the strength of feeling in this matter in that House and his pledge to draw the attention of the Secretaryof State for the Home Department to what had been said; and therefore earnestly urges the Secretary of State for the Home Department in the interests of the highest standards of British justice of which this country needs to feel rightly proud, to move without delay for a review of these convictions, either under the provisions of section 17 of the Criminal Appeal Act 1968, or by such other public process of review as he may deem appropriate to this disturbing case.] The motion concerns the miscarriage of justice in the Maguire case. Is my right hon. Friend aware that I shall abate my request for parliamentary time if his right hon. Friend the Home Secretary will refer the matter to the Court of Appeal?My hon. Friend has pursued the matter with dignity and persuasiveness. I shall certainly put that point to my right hon. Friend.
Does the Leader of the House accept that, as the Government were prepared to accept a constructive amendment in the other place yesterday to the Housing (Scotland) Bill, that may shorten the time taken for debate on that measure and allow some time for Scottish Members to debate devolution, because, from the answer given by the Prime Minister today to my hon. Friend the Member for Inverness, Nairn and Lochaber (Sir R. Johnston), she does not know what Scottish opinion is and that might be educative for her?
I am not sure that the serried ranks of Labour and Liberal Members were all that correct in communicating to the House the nature of Scottish opinion on devolution when the matter was debated in the 1970s. I am quite cheerful about facing the prospect of another round of devolution, more government, more bureaucracy and more examples of the underlying unity between the alliance and the Labour party, but I am not sure that we can arrange that next week.
As we move towards the next Session, can my right hon. Friend assure me, in the interests of both sides of the House, that there will be no overload of legislation in the next Session and that there will be sensible and limited legislation so that Parliament can do its job properly?
I understand that my hon. Friend approaches his final Session of parliamentary service ever hopeful. I should not mind betting that he has travelled hopefully every Session that there has ever been and has never yet arrived.
If the Leader of the House is as careful as Mr. Speaker in keeping records, he will know that the number of embarrassing defeats suffered by the Government in the other place reached 100 last week. The issue was the Government's attempt to protect negligent health authorities with the cloak of Crown immunity. Can the right hon. Gentleman tell the House whether next week the Government will seek to reverse last week's decision, and, if they do, will he take note of the fact that that will be opposed by Labour Members, trade union members, the British Medical Association, the Royal College of Nursing and the majority of Members in the other place?
I take account of what the right hon. Gentleman says about the other place having secured its ton, and I draw from it the conclusion that we now have a transformed situation whereby the Labour Benches accept the legitimacy of the second Chamber having that type of influence over the legislation of this House. I note what the right hon. Gentleman says about the point of substance, and clearly that will be a matter for debate next week.
Will my right hon. Friend give urgent consideration to an early debate on the plight of police preserved rate widows, whose average age is 82? An agreement has now been reached in committee E of the police negotiating board. As it affects nearly every Member of the House in his constituency, it is important that committee E's agreement be ratified arid agreed.
I note what my hon. Friend says, but I think that in the first instance I could assist him by referring the matter to my right hon. Friend the Secretary of State for the Home Department.
Whether or not we can debate the Lords amendments to the Channel Tunnel Bill next week, does the Leader of the House agree that it is amazing that British Rail has not been called to give evidence to the Select Committee on the use of Waterloo as the sole flagship terminal for Channel tunnel traffic? Is he aware, for example, that the traffic may be the equivalent of a jumbo jet arriving at or leaving from Waterloo every three and a half minutes, and that there may be passenger traffic of 20 million people, yet British Rail is giving estimates of traffic congestion on only 6 million? Will the right hon. Gentleman ensure that the House has the proper means of debating the matter?
The hon. Gentleman invites me to comment upon the behaviour of a Committee that is in the process of taking evidence. There is a wise convention, in my view, that I do not respond to such invitations.
My right hon. Friend may or may not be aware that on Tuesday the Parliament arid Scientific Committee held a most important meeting on the subject of the OTA, at which it was concluded that the committee must continue to explore the potential arid possibilities of this type of organisation for Westminster. May I assure my right hon. Friend that there is interest in this matter on both sides of the House and that the request which the Leader of the Opposition made on this topic finds widespread support?
I take note of what my hon. Friend says about a matter of great concern to him and many other Members. There is great concern also about how any such proposals would be financed.
Is the Leader of the House aware of the stonewalling replies that I received at the beginning of the week from the Department of Trade and Industry when I sought to question it on the privatisation of Coventry Climax in 1981 from British Leyland and on the fact that for the past five years not one penny of the price supposedly asked by the consortium which took over Coventry Climax has been paid to British Leyland? Is the right hon. Gentleman aware that the receiver who was brought in on the financial collapse of Coventry Climax earlier this month has confirmed that nothing has been paid? Five years have passed and 80 per cent of the original 3,000 jobs have been cut—in other words, the consortium has had a free ride for five years. Surely the least we could expect is a statement from the Secretary of State for Trade and Industry on how the conspicuous failure of privatisation will be remedied. I would argue that that should be done by taking back into public ownership Coventry Climax and restoring the jobs that have been sacrificed.
I do not think that I can endorse the rhetoric with which the hon. Gentleman has invested his question. I shall refer to my right hon. Friend the Secretary of State for Trade and Industry his anxiety that there should be a statement on the matter.
In view of the serious controversy that has arisen over the past week or two about the BBC, and remembering my right hon. Friend's original promise that there would be a debate on the financing of the BBC, will he make the debate sooner rather than later in view of his answer to the Leader of the Opposition?
I appreciate the interest in the topic and the feeling that a debate should come as soon as can be reasonably arranged in the programme for the next Session. I can understand that.
Will the Leader of the House expand on his answer to my right hon. Friend the Leader of the Opposition in respect of what is happening in the fight against acquired immunity deficiency syndrome? Will he say specifically whether discussions are being held with the research authorities into methods of combating it, including vaccines? Are the Government now prepared to inform the House and the country on the steps that they will take to try to control this epidemic?
My reply to the Leader of the Opposition acknowledged the desirability of having such a debate, and having it as soon as possible. I quite understand the pressure for such a debate, and I hope that it can be considered through the usual channels. I cannot go further than that.
May I ask my right hon. Friend a question on exactly the same matter as there is concern about it throughout the House? Is he aware that every day in the newspapers and on television details are given of the serious spread of the disease? We need to have a clear statement on how the Government intend, with the medical profession, to deal with it and to give proper warnings to the public of the precautions that they can take to avoid it.
I understand my hon. Friend's point, and because I sympathise with this approach I responded in the way that I did to the Leader of the Opposition.
Given the controversy surrounding the passage of the Felixstowe Dock and Railway Bill, will the Leader of the House consider awaiting the report of the Committee that is being set up to consider private Bills prior to bringing the Bill before the House again?
That falls much more within the remit of the Chairman of Ways and Means than mine.
May I draw my right hon. Friend's attention to early-day motion No. 254, which has been signed by a staggering total of 270 hon. Members?
[That this House believes that overseas Civil Service pensioners should be allowed to count war service towards their pension entitlement in the same way as every other branch of the public service; and calls upon Her Majesty's Government to do justice towards a small number of mostly elderly people whose working lives were spent abroad in the service of the Crown.]. There is a supporting amendment which has attracted 12 names. The motion concerns the fact that all public servants get credit in their pensions for war service unless their service was overseas. Is that not a matter of honour? Should not the Government remedy that anomaly before prorogation?My hon. Friend is fully entitled to underline the magnitude of the case as represented by the number of signatures to the early-day motion. He will appreciate that there will be quite a struggle to get through all of the business that is promised for next week without holding out the prospect of any more legislation or Government action being added to it. I shall of course refer my hon. Friend's comments to my right hon. Friend the Chancellor of the Exchequer.
In view of the blatant misuse by the Syrian authorities of the diplomatic bag for the import of terrorist arms and weapons which has, it is reported, resulted in a complete arsenal of weapons being held in the Syrian embassy, may we have a statement on the subject before the House prorogues, with special reference to what is to happen to that arsenal and whether the bag of death is to be permitted to be used to take the weapons out of the country or, more likely, to transfer them to other embassies or agencies so that they may be used in other ways?
I note what the hon. and learned Gentleman says. I shall make that point to my right hon. and learned Friend the Foreign and Commonwealth Secretary.
In view of yesterday's decision by the Press Gallery to hold an inquiry into the future of the parliamentary lobby system, will my right hon. Friend try to arrange an early debate on this aspect of Government information? As my right hon. Friend seems to be one of those Ministers or ex-Ministers who has suffered under the present system of non-attributable briefings, would he be willing to support a motion calling for the handing out of more Government information on the record by a Minister of the Crown?
My hon. Friend has raised an interesting topic. I can only say that I cannot see any opportunity for it to be debated next week.
In view of the serious problems surrounding the imposition of fishing limits around the Falkland Islands, should we not debate this important issue at the earliest possible moment?
I understand the hon. Gentleman's point. There was clearly much interest in the subject when the statement was made in the House yesterday. I am not being unreasonable in saying that the Queen's Speech debate will enable the matter to be argued.
Now that my right hon. Friend the Prime Minister has opened the M25, when will the House have an opportunity to debate motorway safety, the fact that only 44 miles of that motorway are lit, that more than 70 miles are unlit and that, for £9 million, it could be made safe and accidents at night reduced by 60 per cent.? Is it not time that we looked after the motorist?
The debate on the Queen's Speech will provide my hon. Friend with the opportunity to make that very important point.
Does the Leader of the House recall that I have raised with him before the number of signatures to early-day motions 204— [That this House notes with concern that speech therapists, members of a highly-skilled caring profession, discharging a wide range of responsibilities, are underpaid in comparison with other National Health Service professionals doing work of equal value; notes also that speech therapy is traditionally a female profession; and calls upon Her Majesty's Government to provide sufficient funds to enable speech therapists' salary levels to be increased so that speech therapists receive equal pay for work of equal value.]
—and 217—[That this House expresses its appreciation of the valuable work performed by speech therapists; and, in expressing its concern that decreasing comparative salary levels will dissuade the ablest of individuals from entering this profession. calls upon Her Majesty's Government to ensure that speech therapists are remunerated at a level equal to that of other graduate specialists within the National Health Service.] —about speech therapists? I have requested him to ask the Secretary of State for Social Services to make a statement. This dedicated band of professional people, mainly women, are grossly underpaid as compared with other professionals in the NHS.I shall certainly comply with that request.
Will my right hon. Friend try to find time for a debate on aspects of our procedure. especially in view of concern about the practice of some Opposition Members who use bogus points of order to make accusations which they are unable to substantiate or are unprepared to repeat outside the House without the protection of parliamentary immunity?
I am sorry, but I have to observe that bogus points of order are like original sin: if they were abolished, life would be all the sadder. Come the new Session, there will be rather more opportunity for the House to consider these matters. I cannot offer the prospect of time being given to it next week.
Is the Leader of the House aware that, in two weeks' time, Sir Robert Armstrong, the Cabinet Secretary, will be going to the Supreme Court in New South Wales to represent the British Government in the Wright memoirs trial? Is he aware that Mr. Turnbull, representing Mr. Wright, has tabled 146 questions in the court of New South Wales and is demanding answers from the British Attorney-General as to the activities of MI5 in the United Kingdom and elsewhere? Will he ensure that, in the event of those questions not being answered in the court, the Attorney-General will come to the House to make a statement, so that we can find out why the Government insist on hiding from the British people the truth about the excesses of MI5?
I reject the charge contained in the closing words of the hon. Gentleman's question. I shall refer his points to my right hon. and learned Friend the Attorney-General.
I draw the attention of my right hon. Friend to the fact that the results of a number of surveys carried out in South Cleveland show that the vast majority of my constituents and others want that county to be abolished so that they can revert to the natural North Yorkshire area.
I note what my hon. Friend says. He might find a fair number of people in South Avon who would wish to return to Somerset. I cannot anticipate what will be in the Queen's Speech, but I do not think that it would be unduly inaccurate if I did not encourage him.
Has the Leader of the House received a request from the Paymaster General, who I am glad to see in his place, for an opportunity to correct the misleading information that he gave the House the other day regarding the availability-for-work test? On several occasions, he assured the House that the questionnaire would apply only to new claimants, but it has been revealed today that unemployed people in Halifax and Newton Abbot, including elderly and disabled people, have had benefits suspended. It would seem that there is consideable confusion in unemployment benefit offices about the application of this test.
When my right hon. and learned Friend the Paymaster General came back to the House, he dealt with this matter most authoritatively. I have heard what the hon. Gentleman said, and I shall pass on his remark to my right hon. and learned Friend.
Bearing in mind the continuing persecution of my constituent, headmistress Miss Maureen McGoldrick, by the Brent Labour council and the perverse and evil behaviour in—
Order. Is the hon. Gentleman aware that this matter is sub judice?
I am grateful for your advice, Mr. Speaker. Perhaps I should withdraw that bit, but ask my right hon. Friend the Leader of the House to bear in mind the perverse and evil behaviour of the Brent Labour council and the Ealing council—
Order. That is probably the issue of the case.
I am not referring to the case.
Order. I gave the hon. Gentleman a jolly good chance. The matter is sub judice.
May I make my point?
No. The hon. Gentleman will find it difficult. He will have to discover another way to raise the subject.
As contact seems undoubtedly to have been made between Tory Central Office and potential witnesses after legal action was initiated in the BBC libel case, is it not necessary for the Chancellor of the Duchy of Lancaster to make a statement, as his remarks were inadequate? Will the Leader of the House recognise that if the chairman of the Tory party continues to make outbursts like the one that he has just made against the BBC, which clearly shows that he wants to browbeat the BBC into becoming part of the Tory Central Office, we will not be satisfied that the right hon. Gentleman answers questions only four times a year for five minutes at a time?
If the hon. Gentleman believes that the course of justice has been perverted by any official of the Conservative party, he has a clear remedy.
Has my right hon. Friend seen two recent speeches by certain prominent people urging the housebuilding industry, in its extreme flexibility and efficiency, to concentrate its attention on renewing inner cities and those parts of our country that are desperate for refurbishment, renewal and redevelopment rather than building on green fields in the south of England? Does he agree that we should have time to discuss this important matter?
I accept that it is an important matter, particularly in constituencies such as that represented by my hon. Friend. He could probably make a contribution in the debate on the Queen's Speech that would enable him to make his case.
In view of the accusation made by the hon. and learned Member for Leicester, West and Tel Aviv against the Syrian Government, would it not be advisable for the Government to make a statement about Hindawi and his earlier connections with Mossad and about the bomb, which was supposedly planted by Hindawi, which had Hebrew lettering?
Order. I am sure that that is not a matter for the Leader of the House.
I heard the points made by the hon. and learned Member for Leicester, West (Mr. Janner) and the hon. Member for Warley, West (Mr. Faulds) and I do not believe that Conservative Members are entitled to intrude on private animosity.
I am grateful to you, Mr. Speaker, for calling me despite the fact that last week I asked the Leader of the House whether it would be possible for us to have a full debate on the annual report of the London Residuary Body. He undertook to write to me. I have his letter in front of me and it says:
Will the Leader of the House reconsider that decision as the London Residuary Body is an unelected, unaccountable quango appointed by the Government, and there is a great deal of interest in London for an opportunity to debate matters considered by the LRB that used to be within the purview of the democratically elected Greater London council?"It is not the Government's intention to promote a debate".
Alas, this is the pitfall of asking questions. Far from being happy to reconsider the answer I gave, I am most happy to reconfirm it.
As the person responsible for my party's health — [Laughter.]—which, as a qualified pharmacist, I am in a good position to be, may I make the plea that a debate on AIDS should be all party? Some estimates show that more than 100 people each day are being infected by the virus. We have a new Minister for Health and urgent matters need decisions. The Leader of the House's earlier answer that he would consult through the usual channels is not good enough. Is he not prepared to devote Government time to this important subject now?
I gave a generous answer to the Leader of the Opposition, and I fear that, in the present straitened circumstances, the hon. Gentleman cannot recognise generosity when it is thrust before him. I shall take into account his representations.
I am not saying that I am responsible for my party. I am sure that the Leader of the House is aware that Members of Parliament have received letters from the Department of Transport saying that deregulation is taking place, and that any response that Members of Parliament wish to give the Department would be welcome. Does this mean that the Department will be given parliamentary time for those responses to be debated?
I am sure that the hon. Gentleman will be the first to appreciate that the debate on the Queen's Speech will range sufficiently widely to include certainly a debate on transport matters generally and the specific question of dereglation.
Teachers' Pay And Conditions
4 pm
With permission, Mr. Speaker, I wish to make a statement about schoolteachers' pay and conditions of service in England and Wales. For more than two years the local authority employers and the teacher unions have been negotiating about school teachers' pay and conditions. During this time the education of the children in our schools has been repeatedly disrupted. The children have been the victims. The local authorities and teacher unions sought help from the Advisory, Conciliation and Arbitration Service because they were unable to reach a settlement within the Burnham committee. Limited progress has been made as a result of ACAS's work. Some "heads of agreement" were negotiated at Coventry in July, but little has been achieved since then. Now, scandalously, further disruption is threatened. A further negotiating meeting is planned for 8 November at Nottingham. I must make the Government's position clear.
We now also have the Main committee's report about pay and conditions of service for schoolteachers in Scotland. My right hon. and learned Friend the Secretary of State for Scotland will shortly make a statement giving the Government's response to that report. The Government regard the recommendations in that report relating to the teachers' pay structure, and to their duties and conditions of service, as well judged. We consider that similar arrangements should be adopted in England and Wales, although existing differences in practice mean that it is not appropriate to seek to apply the Main committee's findings in their entirety to England and Wales. I am therefore writing today to the chairman of the Burnham committee's management panel explaining the additional resources the Government are willing to make available for teachers' pay in England and Wales and spelling out our conditions for releasing those resources. I have placed a copy of that letter in the Vote Office. The Government will make additional resources available only when two very important conditions are delivered. First, there must be a pay structure with differentials which reflect the varying responsibilities of teachers and the need to recruit, retain and motivate teachers throughout the school system and at all stages of their careers. The pay structure envisaged at the Coventry meeting in July does not meet this condition. A structure more in line with the recommendations in the Main committee's report is necessary, and I have set out such a structure in the letter which I have put in the Vote Office. All teachers will receive higher pay, more than half of them on promoted posts reflecting varying responsibilities. The crucial importance of head teachers, who carry the biggest responsibilities, will be recognised. The second condition is that teachers' professional duties must be more sharply defined and clarified, leaving no room for ambiguity about their duties, and this must be carried through into enforceable contracts of employment. Contracts and conditions of service must be brought into line with the 19 points under discussion at the Coventry meeting. In particular, schoolteachers should be under an express contractual obligation to cover for absent colleagues and to be available to work at the direction of head teachers for 1,300 hours over 195 days each year. All this is set out in more detail in the letter I have placed in the Vote Office. In return for delivery of these conditions, teachers' pay would be increased in two instalments. The first instalment would increase average schoolteachers' pay by 8·2 per cent. from 1 January 1987, and the second instalment would be a further 8·2 per cent. from 1 October 1987. These two instalments would cover the full percentage increase in average schoolteachers' pay implied by the Main committee's recommendations. This would settle teachers' pay for 1986–87 and 1987–88. The increase of 8·2 per cent. from 1 January means that teachers' pay will have increased by over 16 per cent. since 30 March of this year. Teachers will have had an average 25 per cent. increase over the two years to October 1987. This means that a good honours graduate in his third year would receive after two years of teaching £10,000, an increase of about 20 per cent. The head of the largest comprehensive would get an increase from £26,250 to £30,500. I want to emphasise that these increases are only justified by the fundamental change in the terms, conditions and structure of the service which must accompany them. If, and only if, these conditions are met are the Government prepared to add £118 million in 1986–87 and £490 million in 1987–88 to planned expenditure on education in England and Wales. Education grant-related expenditures would be increased accordingly. Block grants to local education authorities would be increased by £56 million in 1986–87 and £200 million in 1987–88. The cost of these increases would have to be shared by taxpayers and ratepayers. We estimate that rates would increase by between 2 per cent. and 4 per cent., compared with the decisions that local authorities would otherwise have taken. I hope that the meeting at Nottingham will accept the position I have outlined. I look to the employers and unions to act quickly and positively. I must make it clear that the matter must now be resolved on all the terms and conditions I have set out. The Government will not be prepared to amend them further, or to make any additional resources available. Now let me turn to the future. Over the last few years it has become widely accepted that the present negotiating machinery should be replaced. The Government therefore intend to repeal the Remuneration of Teachers Act 1965 and to bring forward proposals to this House for new machinery which will involve an interim committee to advise the Secretary of State on conditions of service and the distribution of pay within the resources available at the appropriate time. The Government are making these proposals in the interests of the whole country. I believe that they will be seen as fair, and continued disruption will be seen to be unforgivable in these circumstances. My proposals constitute a very special offer for very special people, and when I say "special people" I mean the children of our nation.4.9 pm
Does the Secretary of State accept that parents have a right to know why, if money is now available for teachers' pay, it was not available two years ago? Is it not the case that all the disruption, turmoil and damage of the prolonged teachers' dispute could have been avoided if the Government had come up with this kind of money in 1984?
Parents will also want to know how today's statement will help to improve standards. Why is there nothing in today's statement about the need to reduce the size of classes, to give time for preparation of lessons and to provide more opportunities for in-service training? All these issues were constructively and imaginatively dealt with by the employers and the teachers' unions in the Coventry agreement, which the Secretary of State has completely ignored. But perhaps the most important question of all is this: will today's announcement improve the chance of a settlement next week at Nottingham, or will it make it harder? Is it not a fact that the Secretary of State is making almost impossible demands on the negotiators by imposing new conditions on the pay structure at this, the eleventh hour? I have to warn the Secretary of State that parents will not forgive him if his intervention today, with its hectoring tone, its last-minute demand for changes in the pay structure and its threat of an imposed solution, undermines next week's negotiations and scuppers the prospects for lasting peace in our schools.May I begin by congratulating the hon. Member for Durham, North (Mr. Radice) upon his reelection to the shadow Cabinet. I refute completely his suggestion that a settlement could have been reached at any time during the last two years. The plain fact of the matter is that under the existing Burnham machinery there have been constant negotiations which have produced no settlement and that during the course of the last two years there has been disruption in our schools. The children of our country are entitled to uninterrupted education.
The hon. Gentleman asks how this will improve the standards of teaching and quality in the classroom. He will see from the letter that I have placed in the Vote Office that we are proposing five promotion posts on the basic scale ranging from an extra £900 to an extra £4,800. Those promotion posts recognise the quality of classroom teaching and mean that secondary teachers will go to an upper level, if they are worth it, of £16,500 and £17,500. The hon. Gentleman also asked about Coventry. Perhaps I could remind him about what the Main committee said. It said:The hon. Gentleman accused me of intervening and of trying to wreck the Nottingham negotiations. I hope that the Nottingham meeting will take place because details about such things as how the first 8·2 per cent. should be distributed have to be settled. I have not derailed Nottingham: I have provided a solid framework for the negotiators. The hon. Gentleman also accused me of intervening at the eleventh hour. I remind him that at Question Time on Tuesday he accused me of dithering. Now he accuses me of being provocative. Is it provocative to announce that the Government are prepared to make substantial funds available? Is it provocative to set out a pay structure that strengthens the career prospects of all teachers? Is it provocative to expect duties and conditions to be clearly set out in contracts so that teachers, head teachers and local education authorities know where they are? That is not being provocative. This dispute has been rumbling on for over two years. I have acted today in the interests of Britain's children."We … wondered whether a new management structure that further reduced the number of promoted posts at a time of contraction and that offered teachers so little prospect of further improvement in career earnings once they had reached the top of the basic scale would be in the interests either of the service or of individual teachers."
Can my right hon. Friend tell us how this excellent deal for the average teacher compares with the pay that such a teacher received when the Government came to office in 1979? Can he also tell us how that compares with the pay in 1975 under the last Labour Government? Will he accept that the parents and teachers in Britain expect no less than that the unions and the Labour party and all who, like the Conservative party, have the interests of children at heart will support this award, which will give our children the best education that we possibly can?
I am grateful to my hon. Friend for his support. I will write to him about the exact comparisons between 1975 and 1979 for the average teacher. In broad averages, the pay of a school teacher now is £11,150. By 1 January 1987, the average will be up to £12,060. By 1 October next year, it will be up to almost £13,000. I envisage that the lowest paid qualified classroom teacher will move up from £6,400 to £7,600 while a senior teacher on the maximum of his scale will go up from £15,300 to £17,500. Exact figures for individual teachers will emerge from the negotiations.
Is the Secretary of State aware that most teachers and parents are sick to death of this dispute? If he is able to secure agreement on the general lines of this package he will receive plenty of thanks. However, he will get no thanks if he blows it by leaving no room for discussion with the local authorities or the teachers' unions.
The Government are now willing to listen to an independent inquiry, even though it was purely for Scotland, and to put more money on the table. Why on earth did they not do that two years ago when we were asking them for an independent inquiry? Will the Secretary of State back what he has said by telling the House that he is prepared to back state schools and that his object is not to pull all the best teachers into his own centrally controlled city schools at the expense of the state schools? Will he look again at his proposals for the future, because from the small print it is clear that he plans to take total control of teachers' pay? It also looks like total control of education from the centre.I emphasise that the funds being made available for city technology colleges are in addition to the planned expenditure on education. That money is not at the expense of the maintained sector and I would not want to see that. Nothing that I have said in this debate in any way derails the Nottingham meeting. I have provided a solid framework for the negotiators. They can now go to Nottingham knowing that the Government's position is crystal clear on contractual duties, conditions of service, pay structure, the provision that we will make for spending on teachers' pay and on the level of grants that we will make available to local authorities.
I warmly congratulate my right hon. Friend on producing a pay offer worth 25 per cent. over two years. That is good news for teachers and even better news for our children, who have suffered from disruption for far too long. Can my right hon. Friend say how the new offer equates with Houghton, and can he say something more about appraisal?
Condition No. 6 at Coventry dealt with appraisal. As I have said, we have made it clear that we want the 19 conditions agreed. Condition No. 6 says:
I hope that appraisal will be introduced this year. As my hon. Friend may know, there is a proposal for certain pilot projects to be put in hand. That is an important advance and is contained in the Education Bill which recently left the House and is now in another place. I thank my hon. Friend for welcoming this offer. Like me, he is anxious to seek to improve the career structure of teachers. That is the best way to improve the profession and its standing."contribute to and participate in formal performance appraisal and review, team planning, self-evaluation, in-service training and professional development in assigned areas of the curriculum, and pastoral arrangements."
Is it not most unfortunate that for two years the Government have provoked the longest strike in the history of education and have now produced a statement delivered in the voice of diktat and threat about what will happen if teachers do not toe the line? The Minister is new to the job and has a lot to learn about it. For years teachers on pitiful wages have carried out voluntary duties. The Government now threaten that those duties will be made contractual and that teachers will be forced to carry them out. That will create again exactly the same conditions that gave rise to the trouble over the last two years. It is useless to say to the teachers that they will get no more. The Government have been dragged, kicking and screaming, from position to position, saying that teachers will get no more, but now they are to get more and the Government are boasting about it as if their action were voluntary.
The hon. Gentleman was once a head teacher. As a result of my proposals, head teachers will get rather more than Members of Parliament. In the hon. Gentleman's case, it may be a question of water finding its own level.
I refute the point that he made that the Government are in any way responsible for the breakdown of negotiations. I was appointed to this office in May and since that time I have been pressed every week, almost every day, to clarify the Government's position about teachers' pay. I have now done that and provided a framework which should lead to a settlement.My right hon. Friend's clear and unequivocal statement will be welcomed not only by parents but by the vast majority of teachers. The statement is a result of a failure ever since the Houghton award to deliver what was contained in the last paragraph of Houghton—the teacher unions' willingness to deliver the professional teacher. This is not a case of the Government being dragged, screaming and protesting, up to date. The Minister of State served with me on the Burnham committee and knows that there has been this failure for a long time. This statement is long overdue.
I agree with my hon. Friend—this is a special offer and a special settlement. It recognises the importance of the classroom teacher, who is the heart and essence of the education system. We must have a proper career structure so that teachers can see a way forward and be properly rewarded. The offer is a major step forward.
In the suggested conditions, has any special consideration been given to the role of the primary school teacher, bearing in mind the recent recommendations from the Select Committee on Education, Science and the Arts about the achievement in primary schools? Has the Secretary of State and his Cabinet colleagues taken account of the likely effect of the offer on other employees in the public sector?
I agree that the recent report from the Select Committee on Education, Science and the Arts on primary education was important, and it dealt with wider matters than pay. In the promotion posts that 1 have announced, the first three levels will be available for primary school teachers—that is £900, £1,800, and £2,800. The resulting maximum salary scales for primary teachers, other than heads and deputies, will be £13,600, £14,500 and £15,500.
I welcome the Government's decision to abolish the Remuneration of Teachers Act 1965. Will my right hon. Friend consider whether it would be better to move away from a centralised, national system of pay bargaining towards a decentralised system under which state-funded schools would be financially self-governing, negotiating contracts with teachers as their employees?
My hon. Friend raises a very wide and interesting question. I do not think that his suggestion will arise from the Nottingham meeting. However, he will know that I have made possible the arrangements he suggested for the city technology colleges. They will be independent trusts able to employ such teachers as they wish under the pay and conditions they wish to set.
Will the Secretary of State take us a little further on the matter of the two lots of 8·5 per cent.? Is that the global total or is it the minimum which would apply to any teaching grade? If it is not the global total, what will be the minimum for each grade? Does the right hon. Gentleman agree that imposing the condition of a completely new system of wage bargaining — presumably replacing the present pattern —will make his problems more difficult and not contribute to the welfare of children in the way that he wishes? He is imposing a third condition and, as far as I can gather, he has not made the terms of that clear. He is asking for a blank cheque.
I am not asking for a blank cheque. I have said that the Government are prepared to write a very substantial cheque provided that the conditions are met. I want to emphasise that point most strongly. This is a substantial increase in teachers' salaries and the equivalent amount of planned expenditure. It is justifiable only as a result of what we want to gain—which is a restructuring of the basic pay structure of the profession.
After looking at the Coventry proposals on pay and the long scale which went up automatically, I became convinced that that was not appropriate for the teaching profession, and many teachers agreed with me. Teachers on scales 3 and 4—senior teachers—have recognised that that is not the appropriate way to remunerate the profession.
The right hon. Gentleman has not answered the question.
Is my right hon. Friend aware of how much I welcome his constructive proposals and how much I think that they will do to restore morale in the teaching profession? Does he agree that schools should be stable institutions in the lives of our children, and that firm conditions of employment are one way to re-establish the trust between children and teachers which has been so sorely damaged during the past two years?
Like my hon. Friend, I deplore what has happened over the past 18 months, when teachers—who children should look up to, who have had the benefit of higher education and who have a responsible position in society—have walked out on their responsibilities and children have had to be sent home from schools. That is simply not acceptable. We believe that the 19 conditions should be reflected in contracts of employment, clearly setting out the duties and obligations of teachers so that they know their responsibilities and the head teacher knows what he can ask teachers to do.
The tone of the Secretary of State's statement was as conciliatory as a shotgun marriage. If his proposals are not accepted at Nottingham, will he impose them unilaterally? Is he aware that the concern of teachers had as much to do with the lack of resources in education as it had to do with the pay structure? In creating a new contract, will he ensure that the resources meet the requirements of staff in the interests of our children?
The hon. Gentleman asked about the successful outcome of Nottingham, and I hope that there will be one. However, whether or not Nottingham achieves a negotiated settlement, I must re-emphasise that the Government's conditions will still have to be met if the extra money is to be paid. I am sure that the teachers want their extra money and I hope that the Nottingham negotiators will not stand in their way.
Does my right hon. Friend agree that parents will be astonished if teachers cannot find sufficient to requite their legitimate aspirations in this generous package? Can he confirm that the proposed machinery for settlements will have more chance of guarding against pay erosion as a result of the standards he has set?
In answer to my hon. Friend's last point, the proposals I shall bring before the House, for an interim advisory committee advising me upon pay, conditions and structure, will provide a better guarantee for teachers than the erosion they have suffered as a result of the breakdown of the Burnham machinery. There is wide agreement across the spectrum that the Burnham machinery is no longer useful.
I fully endorse and agree with my hon. Friend's first point. If, as a result of my statement, the teacher unions decide that they want more, are not prepared to accept the conditions, or they reject the structure and as a result disruption occurs in schools, that action should be universally condemned. The Government are prepared to provide substantial resources provided that we can find a long-term solution to the dispute.
Does the Secretary of State appreciate that many parents will be bewildered and angry that the Government have done today what the right hon. Gentleman's unhappy predecessor said for so long was impossible? They have provided new money for teachers' salaries. Does he understand that with the take-it-or-leave-it attitude he has adopted today he has not created the best conditions for genuine negotiation? Does he mean that the money is available only if all 19 conditions are accepted? Is there any room for genuine negotiations? Further, will the maximum bill to fall on local government be 4 per cent.?
In response to the hon. Gentleman's point about the 19 conditions, the Coventry heads of agreement said:
I have not plucked the list of 19 duties out of the air. The hon. Gentleman will find the list in the Coventry report. He will also find greater reservations in that report. These provided the unions with a useful quarry for chipping away at Coventry. I insist that the 19 conditions are absolutely necessary. What was the hon. Gentleman's other point?"The basic contractual requirements of the jobs of teachers … should be defined in accordance with the ACAS report on duties and responsibilities."
The 4 per cent. limit.
Of course. The hon. Gentleman raised the question of the rates. The Government have provided new money, and we have provided for an increase in planned education expenditure. However, the increases that I have announced today will have to be met by the taxpayer and the ratepayer.
In what proportion?
I stated what local authorities could deduct from the block grant in my original statement. However, the rates will rise from between 2 per cent. and 4 per cent. more than they would have increased without the settlement.
I warmly welcome the terms of my right hon. Friend's statement. Does he accept that if parents are to be given the long-term reassurance that they seek the professional duties of teachers should be enshrined in statute?
My hon. Friend has raised an interesting point. I am anxious that the 19 conditions should be enshrined in the contracts of employment which lie between the local education authorities and the teachers. We would want to see the conditions implemented before any money was paid.
Is it not clear from today's statement that the Secretary of State looks upon the teachers less as members of a profession than as manual workers since he insists upon conditions and contracts of employment? Do the contracts of employment clearly state hours of employment, meal break allowances, whether teachers are to be paid for overtime or whether they will be given time off in lieu? Will the right hon. Gentleman say clearly what the position will be for local authorities which are subject to rate capping? Will there be a dispensation if they concede the increases?
The one local authority that could be in trouble this year is ILEA because it is not in receipt of block grants. ILEA is the largest spending and most extravagant education authority in the country. I would expect any extra money that ILEA pays this year to be found from its own resources. As for next year, I shall have to look at ILEA's expenditure level.
The hon. Gentleman made a disparaging, unhelpful and demeaning remark about relating teachers to manual workers. That is exactly what I am not doing. In the proposals I am trying to enhance and improve the professional status of teachers.rose—
May I say to those hon. Members who rose to ask a question that there is a further statement and some Lords amendments to consider which will take us late into the night. I shall allow questions to continue for a further 10 minutes. I shall make a careful note of those hon. Members who are not called and seek to give them preference later.
Can my right hon. Friend assure me that to pay for the improved pay system the change in the rate support grant system takes account of the different education systems run by the various education authorities and the different numbers of children involved? Does he agree that both matters have a bearing on the number of teachers employed and the salaries that have to be paid?
My hon. Friend is right. He raises a wider point about the rate grant system, which many people believe to be less than satisfactory. I wish to make it clear that the block grant in respect of this expenditure will be paid to local education authorities through a supplementary report next year.
Does my right hon. Friend accept that his statement today will be welcomed by my right hon. and hon. Friends, in spite of the pathetic attacks from the Opposition's empty Benches? Is it not a sign of the interest in education that the Government side of the Chamber is packed and the Opposition side almost empty? Will my right hon. Friend explain that the 8 per cent. increase that he has announced, with inflation at 3 per cent., is a very definite increase in teachers' pay, far greater than any increase granted by the Labour Government, when inflation was 20 per cent.?
The increase is substantial. I emphasise and reinforce my hon. Friend's remarks. The 8·2 per cent. from 1 January next year is on top of a 7·4 per cent. increase in teachers' salaries from 30 March this year. I can think of no group in the public sector that has had a settlement of that sort. The Government are prepared to contemplate such a settlement only because we hope to gain from it the restructuring of the teaching profession.
I agree that the Opposition Benches are thinly attended. I hope that the Opposition will not, because of their thinness, be tempted to support any disruptive action. The thinnest Benches of all are those occupied by the SDP. Until a moment ago there was no one there at all.Will not the chances of a settlement at Nottingham be vastly increased if today's proposals are accepted by the Opposition? Will it not be regrettable if, for narrow party political reasons, the Opposition attempt to undermine the proposals?
I thank my hon. Friend. The Opposition Front Bench and the leader of the Labour party have a responsibility. They have pressed me and my predecessor for a substantial commitment of Government funds to resolve the two-year dispute. I hope that they recognise the essential generosity of the offer. I hope that they will say publicly that they support what I have announced today.
Is my right hon. Friend aware that his splendid package will mean that the public will totally reject any move by the teachers' unions not to go along with it? Does he agree that the teachers' unions must agree, because they will never achieve a better package?
Many teachers will welcome what I have said today. Many parents will look at the figures and reflect upon them. They will recognise that they have not had adjustments in their salaries or wage packets on this scale. They will recognise that the offer should be accepted.
Is my right hon. Friend aware that the most welcome single element in his statement is the clear decision to bring together, at last, the pay and professional conditions of service for teachers? Does he agree that that is long overdue? Will my right hon. Friend confirm to the House and to those who are worried about the problems of public sector pay that he and the entire Cabinet are determined to stand firm? Does he agree that this proposal should not set a precedent for a repeat of the Clegg awards some years ago?
I reinforce that absolutely and totally. The Government are prepared to make the extra provision of Government funding only in very special circumstances, involving the restructuring of the whole pay system for the teaching profession and the establishment of proper contracts of agreement which tabulate, lay down and regulate duties and obligations. I want to emphasise that strongly. This is not the forerunner, and should not be considered to be the forerunner, of any other settlements in the public sector.
My right hon. Friend is to be congratulated on proposing such reasonable, generous and conciliatory terms for teachers. Is it not a matter for regret that it took the quid pro quo of a much higher pay offer to encourage many teachers to fulfil their responsibilities for covering for other teachers, as many of them have in the past? However, will my right hon. Friend be somewhat cautious in going too far down a statutory path of imposing responsibilities on teachers because that might encourage a work-to-rule mentality which could be detrimental to young people's education?
Nottingham allows the teachers' unions and employers to come to an agreement which does not have to be imposed statutorily. I hope that they will take the opportunity to do that. Cover responsibilities are clearly laid out in my letter and are dealt with in the 1,300 hours provision. I do not need to remind the House of the recent court judgment that cover is an existing professional obligation for teachers. That is important.
I welcome my right hon. Friend's statement. Does he agree that the vexed problem of the shortage of science and maths teachers will not be fully addressed until teachers are paid, not only in accordance with their performance, but in accordance with the level of demand for their skills?
That is one of the reasons why the Coventry deal was so profoundly unhelpful. A scale which operated in a standard manner with automatic progression did not allow for sufficient promotion posts. The five promotion posts that I have recommended today in the pay structure will allow such problems to be dealt with. It is important to deal with it because there is a shortage in those important disciplines. The problem will be addressed in that way.
Was my right hon. Friend surprised by the hostile reaction to his statement from Labour Members? Will not parents find it unforgivable if the Labour party or its political friends in the trade unions make any attempt to sabotage such an imaginative basis for a settlement of this long-running dispute?
I think that the Opposition Front Bench is in a bit of a muddle over this, and does not quite know how to react. If, after reflecting on my statement, Labour Members take a concerted line condemning what I have said this afternoon, they will bear very great responsibility for any disruption in our schools.
I welcome this new and most generous pay structure. Will my right hon. Friend confirm that 400,000 teachers, many of whom are Labour party members, will benefit from the genuine career and promotion prospects? Is it not irresponsible of Labour and Liberal Members to deny their support when parents have had enough, and expect their children to be properly taught, without any unrest?
I am grateful to my hon. Friend for his support, and I endorse what he has said. Parents and families will have high expectations of a settlement in Nottingham and of peace in our schools. We must return to what was always considered to be the natural basis of education in Britain, which means uninterrupted education for the benefit of our children.
Does my right hon. Friend agree that after his imaginative statement there will be even less justification than there ever was for the unballoted industrial action proposed for next week by NAS/UWT? Will he write to that union pointing out the advantages, following his statement, of calling off action before it is too late?
I entirely agree with my hon. Friend. I deplore the action threatened next week, the disruption of half days and the picketing that will take place. It is totally unnecessary, and can only harm education. Moreover, it will severely damage the reputation of those teachers and unions that support it.
I welcome the fact that the Government are providing more money but I repeat: if it is available now, why was it not available two years ago? I must ask the Secretary of State again, because he did not answer before, why he said nothing about the Coventry proposals on reducing the size of classes, giving time to the preparation of lessons and providing more opportunities for in-service training? The right hon. Gentleman did not answer that question before. Will he answer it now?
The Secretary of State seemed rather annoyed about my warnings over the nature and tone of his intervention. I asked him to state whether the Government would he prepared to give more money. They have done that, but I do not accept the way that it has been done. At this last moment, is not the Secretary of State asking teachers to keep faith with the contract side of the bargain while at the same time telling employers to tear up the agreement on pay structure that was so carefully negotiated at Coventry and that was specifically designed to reward the classroom teacher? Finally, is the Secretary of State aware that we are desperately anxious that Nottingham should succeed? For the past two years we have tried to obtain a settlement of the teachers' dispute, and if the Nottingham negotiations fail, it will be the Government's fault.I do not think so. In my statement I mentioned 195 working days and set out the figure that was discussed at Coventry. I understand that the 1,300 hours also featured until very late in the marathon negotiating session in Coventry. Those are very important figures because they deal with class time. It works out at an average of 33⅓ hours for the 39 teaching weeks of the year.
Apparently, the hon. Gentleman now wishes to support Coventry, but he knows perfectly well that ever since that agreement was negotiated unions have chipped away at it. There has been considerable disquiet about it, and it was condemned and strongly attacked in the Main committee. It does not provide a proper basis for the structure of the teaching profession. When the hon. Gentleman has read the letter that I have placed in the Vote Office, and has reflected on it, I hope that his support for what I have said today will be unequivocal.On a point of order, Mr. Speaker. Although questions from Labour Members completely dried up towards the end of this vital statement on education, is it not the convention that the Opposition spokesman should use his second intervention to raise new points, and not just reiterate points because he made them so badly the first time?
That may be, but I am not responsible for what is said.
Further to that point of order, Mr. Speaker. It quite often happens that there are general questions affecting England on which there is a statement. That is then followed by a statement involving Scotland. Quite often only a proportion of English Members of Parliament are called. Would it not be appropriate if a similar proportion of Scottish Members were called, as otherwise it might appear that English Members are second-class citizens. I think not of myself but of the general issue.
I cannot give any such guarantee. I am genuinely sorry about what has happened. It would be ideal if I could call every hon. Member who wished to speak on a statement, but that is patently not possible. I do my best to make amends later when these matters are discussed. I keep very careful records.
Teachers' Pay And Conditions (Scotland)
4.55 pm
With permission, Mr. Speaker, I wish to make a statement about school teachers' pay and conditions of service in Scotland.
On 6 March this year I told the House that I intended to set up a committee of inquiry to examine the pay, conditions of service, and management of school teachers in Scotland. The committee was asked to report by the end of the summer. I received the report towards the end of September and it was published on 2 October. I congratulate Sir Peter Main and his colleagues on the speed and thoroughness with which they have discharged a very difficult and important task. At the core of the committee's report is a set of recommendations which the committee has suggested should be judged as an indivisible package. These relate to pay level and structure, the duties and conditions of service of teachers, staffing standards and negotiating machinery. I am pleased to be able to tell the House that, in general, the Government accept the asterisked recommendations as a package. I shall make the necessary resource provision, backed by additional rate support grant, to allow local authorities to implement in full the salary scales proposed in the report so as to settle teachers' pay for 1986–87 and 1987–88. This will he done on the following time scale—half the further increases recommended by Main will be paid from 1 January 1987, making an average increase of 8·2 per cent. from that date on top of the 5·5 per cent. interim increase paid from 1 April 1986, and the remaining half will be paid from 1 October 1987. Both stages would depend on the Scottish Joint Negotiating Committee reaching agreement on a settlement which provides for the full implementation of the asterisked recommendations on pay structure, duties and conditions of service. I must emphasise that my offer is entirely dependent on reaching such agreement, in that it cannot be increased and there can be no question of any part of these resources being made available other than on this basis. The size of the award and the burden that it imposes on the ratepayer and the taxpayer make it sensible to stage implementation, as has been done in the past with other awards of this kind. My proposals would involve adding £14 million in 1986–87 and £60 million in 1987–88 to planned expenditure on education; this reflects the cost over and above the figures that I have already announced as the basis for rate support grant in 1987–88. Grant will be increased in those two periods by £8 million and £30 million respectively. That would represent a big pay increase for Scottish teachers; it is justified only by the benefits which the package as a whole will bring—the right kind of pay structure for Scottish schools, the necessary clarification of teachers' duties, which parents will find particularly helpful, and a more practical and realistic approach to teachers' conditions of service. In accepting these recommendations, the Government are making clear the importance that they attach to securing the future development of the education service and recognising the contribution that teachers make to our society. There is one asterisked recommendation on which I will for the time being reserve the Government's position—the recommendation that an independent review body be established to settle the pay and conditions of school teachers. That recommendation has major implications for the future and I wish to give it further thought before reaching a final conclusion on it. I have concentrated in this statement on the asterisked recommendations which lie at the core of the Main committee's report. There are, of course, many other valuable recommendations —on the role and functions of head teachers, on the professional development of teachers, on the role of parents and on the more effective and economical use of resources within the school system. I intend to pursue all these matters vigorously in consultation with the education authorities and the other interests concerned. Since August 1984 Scottish schools have suffered disruption as a result of the present teachers' dispute. The Main committee's report offers us an excellent basis not only to end that dispute but to offer our schools and teachers a positive way forward. This is a once and for all opportunity which must be seized with both hands. The Government are prepared to do their part even though the cost to the ratepayer and taxpayer is high; now it is up to the teachers and the employers to do theirs. Meanwhile, I call upon the teachers' unions to call off their continuing boycotts of certain duties and to allow schools to function normally; the immediate resumption of normal working must, of course, be a feature of the agreement that I am asking the SJNC to reach. I am sure that the whole House will join with me in urging teachers and employers to reach speedy and full agreement along the lines I have indicated.5 pm
By any standards, this is a serious statement which is central to the possibility of settling a long-running, unhappy dispute, and we should be dismayed indeed if the Government were to put at risk, or worse still beyond reach, a just and honourable settlement.
The Minister says that the Government have accepted Main "in general". He will accept that that is an important qualification. He must agree that the report is pre tinted as an indivisible package, an approach which the Government have urged upon teachers. Does the right hon. and learned Gentleman accept that he is taking a considerable risk in departing from the report's central recommendations on pay? Does he accept that, over this financial year and the next, his re-jigging of the financial timetable proposed in Main will have a significant impact on individual teachers and what they can expect? Does he accept my calculation that the new phasing would cost a teacher about 10 per cent. of his present salary during that period? The newly proposed settlement involves the loss of 16·4 per cent. for three months from 1 October 1986 to 1 January 1987 with a further 8·2 per cent. in the nine months from 1 January 1987 to 1 October 1987. I have not had a great deal of time to calculate the figures, but will the Secretary of State confirm that a teacher on a present salary of £8,000 can expect over the period from October 1986 to October 1987 to get about £800 less than he would have got if the Government had held to the Main timetable? The right hon. and learned Gentleman will recall that the Main committee put the cost of its recommendations on pay for the year 1987–88 at £144 million. What will the figure be for the revised package now before the House? I accept that the Government have found a considerable sum, but is it right or prudent to depart from Main in this way? It is certainly a risk. I ask the right hon. and learned Gentleman to consider whether it would be wise to discuss phasing with the local authorities—the employers who, after all, have to bear a large proportion of the burden of any settlement. Will he confirm that the whole cost of any settlement will be eligible for rate support grant funding and that no authority will suffer penalties because it has spent above the guidelines simply as a result of any settlement that might be reached? In other words, will the guidelines be adopted to take full account of any increase in expenditure following from the teachers' pay settlement? The Secretary of State will recall the important recommendation in Main, marked with an asterisk, calling for a radical review of overall staffing levels. Is he willing to tackle this matter positively? Teachers will want to know his attitude before they reach their decision. Can the Secretary of State confirm that these revised proposals will be subject to the agreement of the SJNC —the agreement of the employers and employees? Will he assure the House that if, unfortunately, agreement is not reached on an acceptable package, there is no possibility of legislation to impose the conditions? Will he kill that fear stone dead? Will he make it clear that Main's rejection of that option is a rejection that he unreservedly supports? The Secretary of State's reservations are more than minor presentational changes. It would do no one any favours if those changes were hidden. The Secretary of State's reservations must be assessed by all interested parties. Our fervent hope is that this departure from Main will not fatally undermine the chances for a settlement. The Government have shown a measure of flexibility, to put it kindly, by departing from the central recommendations on pay in the Main report. I trust that they will not now take an unyielding, inflexible stand in the continuing search for a solution.I thank the hon. Member for Glasgow, Garscadden (Mr. Dewar) for recognising that the teachers will be expected to make grave decisions in the weeks to come. It is important that they respond to the present situation in a measured way. The Scottish public— parents, and children — will expect the teachers to respond in a way which will allow our schools to function properly.
The hon. Gentleman asked a number of detailed points to which I shall respond. First, he asked me to give an assurance that local authorities would not suffer penalties as a consequence of any increased expenditure arising out of this settlement. I can confirm that that is so. Local authority funding provision will be increased to ensure that authorities will not suffer penalties. The hon. Gentleman suggested that phasing should be subject to discussion as it is a new measure which I have announced today. The hon. Gentleman is quite right that this proposal has expenditure implications for local authorities. He will be the first to appreciate that local authorities will be saving resources as a result of phasing, so there will not be any marked additional expense. The central question which the hon. Gentleman raised is whether it is reasonable that a major increase of 16·4 per cent. should be phased. The hon. Gentleman and the House will be aware that, over the last few years, there have been numerous precedents with regard to phasing settlements in the public sector. The examples range from nurses, doctors, the police, the armed forces and dentists. Such groups have accepted phasing, especially when a settlement has been above the rate of inflation. It is right to make a reasonable recognition of the importance of ensuring reasonable levels of pay settlement in the country and in the public sector. I believe that reasonable people, including teachers, will accept that the proposed phasing is responsible and sensible. I must point out to the hon. Gentleman that the phasing we are proposing will mean that half of the amount recommended will be paid from 1 January and the other half nine months later. That means that teachers will, during the course of 1986–87, have an increase in their pay, including the interim award agreed some months ago of almost 14 per cent., of a further 8·2 per cent., which will be given in the second stage. By any standards this is a generous proposal to the Scottish teaching profession.I congratulate my right hon. and learned Friend on his response to the Main report. Does he accept that the provision of a 16·4 per cent. increase over a year and a 36 per cent. increase over three years is a triumph for the Government? Everyone in Scotland will expect the teachers to welcome this response with enthusiasm and to return to work as soon as possible and without any further argument. Does my right hon. and learned Friend agree that this decision proves that Tories care about education and are prepared to back that commitment with money?
I thank my hon. Friend for the welcome that he has given to this proposal. The emphasis of the Main recommendations and the Government's response is concerned not simply with pay but with the duties and responsibilities of teachers. I strongly believe — I trust that the public share my belief—that it is in the interests of the teaching profession that these matters should be considered as a single package, and that is what we have done.
Does the Secretary of State accept that it must now be recognised that it was a fundamental mistake by the Government to wait for 19 wasting and damaging months before establishing an independent pay review? I associate myself with the congratulations given to Sir Peter Main.
Is the right hon and learned Gentleman aware that the alliance regret the fact that the Secretary of State has been unable to reach a conclusion about an ongoing pay review as recommended in paragraph 58 of the Main report? It is not a new idea and I am surprised that the Secretary of State should suggest that it is. My hon. Friend the Member for Gordon (Mr. Bruce) and I argued it many times with the previous Secretary of State. Is the right hon. and learned Gentleman aware that we are angry and unhappy at the way in which he has departed from Main on pay? It is still not clear, from his answer to the hon. Member for Glasgow, Garscadden (Mr. Dewar), precisely what is the financial loss which emerges from this. However, it is incontestable that there is a loss. Surely it is unreasonable for the right hon. and learned Gentleman to depart from the indivisible package of the Main report and simultaneously require the full implementation from the profession. Surely the right hon. and learned Gentleman would agree that that is a dangerous strategy and could well carry the serious risk of teacher rejection.The hon. Gentleman will be aware that the unions and local authorities have differing views on the question of an independent pay review. I believe that the announcement I have made today, that we wish to give further thought to the matter, will be widely welcomed. I listened to the hon. Gentleman's remarks on phasing with some interest because I did not hear his hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) raise any objection to phasing of the award proposed by my right hon. Friend the Secretary of State for Education and Science. If the Liberal party believes that it is reasonable and in the public interest for a major increase of 16·4 per cent. to be phased in the way proposed in England and Wales, I await with some curiosity to hear why it should be considered irresponsible north of the border.
Is my right hon. and learned Friend aware that his statement will be warmly welcomed by parents throughout Scotland and by all reasonable teachers? Against a background where, on my calculations, the average pay increase for Scottish teachers will be 30 per cent. over the three years to next October, will it not he regarded by parents as incomprehensible if disruption should now continue in Scottish schools?
My hon. Friend is right. On the basis of what I have announced today, more than 66 per cent. of teachers in Scotland, over two thirds, will be earning over £12,000 a year and nearly one third of teachers in secondary education will be earning more than £15,000 a year. [HON. MEMBERS: "When?"] By 1 October 1987. That is less than a year from now. That is in the context of an increase of 16·4 per cent. on top of the 5·5 per cent. they have already been awarded this year, which was on top of the 9 per cent. awarded last year. That will mean that over two to three years teachers in Scotland will be seeing an increase in their salary of almost 30 per cent. My hon. Friend is right in saying that parents and the public in Scotland would be astonished if there was any suggestion of disruption in the schools as a consequence of an offer of that kind.
Is the Secretary of State aware that many of us felt that the Main report provided an excellent basis for a settlement for teachers' salaries and conditions in Scotland, preventing further disruption in schools? However, it is extremely misleading for the Secretary of State to say that he has accepted the asterisked recommendations as a package when the salary increase date of 1 October 1986 was a key recommendation in the report.
Is it not a fact that the phasing, far from being minor, will save about 10 per cent. of the annual salary bill over the next 18 months and therefore reduce teachers' expectations, as compared with Main, by about 10 per cent. of their annual salary? Is it also not a fact that if further disruption does unfortunately occur in Scottish education the Secretary of State will bear a major share of the responsibility for that, just as it was the Government's earlier intransigent attitude over the setting up of the independent pay review that caused so much hardship to Scottish education?I will do the right hon. Gentleman the credit of saying that I do not think he believes in what he is saying. I genuinely express the view that the right hon. Gentleman knows perfectly well that an award of 16·4 per cent. to teachers, with a nine-month gap between the two phases, is an extremely generous offer to teachers. He knows that the public, including his constituents, would be delighted if they were to receive such an increase. He also knows that there is ample precedent throughout the public sector for phasing of the kind I have proposed. If nurses, doctors, the armed forces and the police are able to accept phasing of that kind, I do not think that the right hon. Gentleman believes that it is unreasonable to expect teachers also to accept it.
I add my congratulations to the Secretary of State for the speedy response he has made to the Main report, which has obviously had far-reaching implications over the Scottish border. Would he care to emphasise the ring fence approach to the pay award and the fact that this does not constitute a signal that there can be a free-for-all for pay increases in the public sector?
That is the case. The pay that has been proposed, which is generous, is properly tied to the agreement by the teaching profession in Scotland to the conditions and to other aspects of the non-pay package as recommended.
I congratulate the Secretary of State on making a statement today as requested by John Pollock and the national executive of the Educational Institute of Scotland before the special general meeting of the EIS on 8 November and the subsequent ballot of EIS members. Those members will now be able to decide on the facts without being in the political vacuum that would have existed had the statement not been made.
If the Secretary of State is prepared to negotiate on the anomalies in the salary scales proposed by Main in the salaries committee, is he also prepared to negotiate on conditions of service within the conditions of service committee, which is unique to Scotland and has no counterpart in England or Wales, in order to allow the Scottish teachers to look at the conditions of service, or have the teachers to accept or reject the statement today as a package?It would have to be the latter. It is clear that the 16·4 per cent. pay increase is quite properly tied to the other proposals in the report. There may be other matters in the report which are not given the same importance and which may be subject to discussion of the kind to which the hon. Gentleman refers.
I thank the hon. Gentleman for the early part of his question in which he made the fair point that it is reasonable that teachers, when they consider their response, should be aware of the fact that the Government are prepared to fund the report and that we are prepared to devote substantial new resources to it and ensure that local authorities are able to cope with it without any increase in penalties. The hon. Gentleman's contribution, like that of the shadow Secretary of State for Scotland, recognised the important matter we are dealing with and the fundamental consequences for parents and education in Scotland if this offer does not lead to a resolution of this difficult problem.I also warmly congratulate my right hon. and learned Friend on the statement. I assure him that parents throughout Scotland will be delighted. May we now expect that an agreement will have to be reached by 1 January, or will talks go on beyond that date and the backdating of pay take place if an agreement has not been reached?
As long as an agreement has been reached at some stage on the basis that has been proposed, that agreement will be backdated to 1 January.
Why does it need the imminence of a general election to loosen the public purse strings? Can the right hon. and learned Gentleman give an assurance that this package, even if accepted, will lead to the diminution of the drain of science teachers to industry?
The hon. Gentleman raises two points. First, his timescale about elections is somewhat misplaced. The Government's response arises from the Main inquiry, which was announced nine months ago. We could not respond to the Main inquiry until it had reported, which it did at the beginning of October. Therefore, by all normal criteria, we responded pretty quickly. I am sure that the hon. Gentleman will respond to that in his usual generous way.
On the question of science teachers and others of that kind, one of the crucial ingredients of the package proposed by Main and accepted by the Government is that, for the first time for several years, teachers who acquire real responsibility in their schools are being offered substantial salaries. For example, a headmaster in one of Scotland's largest secondary schools will be able to expect to receive a salary of about £28,000 per year. At lower levels, salaries are substantially greater than teachers have been able to expect in recent years. If we are anxious to attract people of real ability to the teaching profession, we now have a far better means of doing so than we have had for some time.Bearing in mind that it was my right hon. and learned Friend who set up the Main committee to try to find a solution to this long-running and unhappy dispute, and mindful of the maxim that he who wills the end must will the means, does my right hon. and learned Friend agree that nothing could be worse than a grudging response from the Government at this stage? Therefore, will he assure the House that, irrespective of the forthcoming autumn statement and other matters of concern to the Treasury, the money is firmly up front and remains on the table, subject only to the teachers having the good sense to accept this package and return to normal working in the classroom?
I can confirm that. However, if the proposals were to be rejected, there is no way that one penny of additional resources would be made available. That is clearly the view, not just of the Government but of local authorities. The Convention of Scottish Local Authorities has said that it is not interested in a pay settlement which deals with pay alone. The Government and Scottish local authorities speak with a single voice on this.
Is it not the case that the Secretary of State lost the battle in Cabinet and is unwilling to deliver the pay proposals in the Main report? Does he remember saying to the Scottish public, through the medium of the press, that he regarded the Main report as a distinctive entity which should be delivered? Is he not jeopardising our children's education by gambling in that fashion?
For the hon. Gentleman to suggest that the announcement today of a 16·4 per cent. pay increase for teachers represents—[HON. MEMBERS: "It is not."] I am sorry, it does represent a 16·4 per cent. increase for school teachers. Whether phased or not, it is an increase, similar in nature to phased increases for other groups in the public sector. For the hon. Gentleman to suggest that that represents anything other than an excellent offer for the teaching profession in Scotland is extraordinary and misguided.
Does my right hon. and learned Friend agree that many parents who have suffered the effects of the disruption will view these increases as fabulous? As my hon. Friend the Member for Eastwood (Mr. Stewart) pointed out, the increases amount to about 30 per cent. Is it not remarkable that few Opposition Members will go back to their constituencies and urge teachers to accept it? How can they possibly go back to their constituencies and expect to be treated as though they have been behaving responsibly if their only response to this settlement is to carp and to whine as they have done today?
My hon. Friend is right. It is an extremely generous settlement. The estimated average salary of a teacher in primary education will be £12,300 and it will be £13,745 for a secondary school teacher. If one compares that to the salary levels of two years ago, there will be few people among the general public who will see this as anything other than an extremely generous proposal.
Many of us recognise that it could not have been easy for the Secretary of State for Scotland and his right hon. Friend the Secretary of State for Education and Science to screw this settlement out of the Treasury. Nevertheless, I remind the right hon. and learned Gentleman that the whole ethos of the Main report gave full recognition to all the problems which have been confronted by Scottish teachers over the past two years and, while not justifying the disruption, could understand it. I appeal to the Secretary of State to take a less aggressive approach, and not to threaten the teachers that if they do not accept this in total there will be no money at all on the table.
It is a curious threat to offer a 16·4 per cent. pay increase. As the hon. Gentleman's introductory comments recognised, the offer involves a substantial increase in demand on public resources. He is correct to say that phasing was not recommended by the Main report, but he will be one of the first to appreciate that the Government have a responsibility not only for the teaching profession, but to try to ensure that public sector pay negotiations generally, as well as other matters which affect the wider economy, are taken into account.
It is not unreasonable to say that a massive increase such as this should be phased over a short period, just as it would be for others in the public sector. The Government propose 8·2 per cent. from 1 January and the other 8·2 per cent. nine months later. That is not an absurd degree of phasing extending over two, three or four years. It will ensure that the full award recommended by the Main report will be available to all Scottish teachers within a short period. The vast majority of teachers will accept that that is not unreasonable given the situation affecting the wider community.I associate myself with the initial comments of the hon. Member for Cunninghame, South (Mr. Lambie) that the remarks of my right hon. and learned Friend the Secretary of State this afternoon will give considerable satisfaction to John Pollock and his executive in the Educational Institute of Scotland. Does my right hon. and learned Friend agree that it is deplorable that some members of the EIS, and other unions in Scotland, have decided to condemn the Main report before Mr. Pollock and his executive have had a chance to consider it in a responsible manner as they have done since the Main report was published?
It is regrettable that some individuals believe that they should receive massive pay increases and not accept their responsibility to respond to the other matters recommended by the Main report. I am sure that that is not the view of the vast majority of Scottish teachers, who know that most of the non-pay recommendations with regard to a new contract represent what they currently do in normal circumstances — for example, curriculum development, the presentation of pupils for examinations, and the various other duties suggested by the Main report. None of those will impose a new burden on the teaching profession. I was interested to learn that some leading members of the EIS had been seeking to explain that to their fellow members during the last few days. I hope that they are successful in their effort.
Given that the asterisked comments in the Main report will have serious consequences for the teachers, does the Secretary of State think that it is more likely that teachers would feel inclined to accept the conditions from their employers rather than having a gun put to their heads by the Secretary of State before they had had a chance to discuss them with their employers?
The Government are providing not a gun but money, which ultimately must be paid by the taxpayer, and, through the local authorities, by the ratepayer. The EIS and others have been anxious to hear the Government's view. They have said that they wish to know whether the Government would be prepared to fund the consequences of the Main report's recommendations. I have confirmed today that we shall be able to do just that. That should now lead to a speedy response from the teachers and full endorsement of the proposals put forward.
I assure my right hon. and learned Friend that his announcement will be warmly welcomed by my constituents who will join me in congratulating him and his ministerial colleagues on their sustained efforts to promote peace and stability in Scottish schools. Does my right hon. and learned Friend agree that the public and the parents, who will finance this deal, are entitled to expect that the leaders of the teaching profession will make a positive response when they meet next week and recommend their members to accept the proposals set out in the Main report, and return to normal working conditions as soon as possible? Can my right hon. and learned Friend tell me what the position is about the disregard for local authorities in respect of the 5·5 per cent. interim award paid for the current year?
I have not commented on my hon. Friend's final point, but I am able to confirm that there will be a disregard with regard to the consequences of the 5·5 per cent. interim award announced earlier this year. Therefore, no local authority will attract penalties as a consequence of that earlier award.
Parents and the public would find any further disruptions in the schools incomprehensible. I think that it would be fair to say that the House would also find it incomprehensible. Whatever reservations hon. Members may have about phasing, few would wish to argue for a return to disruption by teachers in Scotland.Will the Secretary of State bow a little to the reality of what is happening in the schools? When the Main report was issued its starred recommendations were treated as an indivisible package and the Main proposals on salaries were immediately circulated in the schools. I think that the right hon. and learned Gentleman will accept that he has moved away from those recommendations and, whether he supplies the figures or not, what will now be circulated in the schools will be the moves, which he thinks are small but which we think are substantial, from the Main recommendations.
We are all concerned about the atmosphere in the schools and, by moving away from Main in his statement today, no matter how little, the right hon. and learned Gentleman is conditioning an atmosphere against the Main proposals. [Interruption.] The hon. Member for Aberdeen, South (Mr. Malone) sits muttering on the Front Bench, but he knows nothing about it. I speak as the husband of a teacher and the father of a teacher. I challenge the Secretary of State to publish the difference between what he is proposing and Main. Does he accept starred proposal No. 8 because that has implications for the management of the school and the position of the head teacher?Yes, we accept the recommendations for head teachers, which seem to be sensible. If the hon. Gentleman is the husband of a teacher who is likely to receive a 16·4 per cent. increase over the next few months, he should have responded in slightly more cheerful tones than he seems to feel capable of. If the hon. Gentleman asks his constituents whether it is reasonable or unreasonable to phase a 16·4 per cent. pay increase over a period of months, I think that he will find that few of them would not like to be in the position of being offered such a pay increase. The hon. Gentleman should take that into account.
Will my right hon. and learned Friend modestly accept the claim that it is due to his sensitive, sophisticated and almost singular initiative that this intractable dispute was solved at all, and solved not only for Scotland but for England? Will he remind the House that the teaching profession refused to negotiate on conditions of service and that for them now to say that they object to the phasing of the pay claim and to try to put in the dark the far more important review of conditions of service and teaching would be a betrayal of the initiative with which he has served the teaching profession, the parents and the children so well?
I thank my hon. and learned Friend for his remarks. I genuinely believe that the vast majority of people in Scotland will see the Government's response as an extremely generous one, guaranteeing, as it will, the implementation of a major pay increase, and, indeed, expecting from teachers no more that what the vast majority of good teachers already do in normal circumstances. That is the context in which it should be judged.
The Main committee costed its pay package at £90 million in 1986–87 and £144 million in 1987–88. As a result of the Secretary of State's tampering with the phasing of the funding, how much will it cost in those financial years? Will the Secretary of State rule out legislation?
The hon. Gentleman should recall that the Main committee's estimate of the cost included the 5·5 per cent. interim award that was announced earlier this year and that reduces the cost of Main from £144 million to £113 million. In addition to that, there is the 3·75 per cent. increase in the budget which the Government allowed for in determining the rate support grant for next year which reduces the cost of £144 million to £87 million. In addition, there are the resources that I announced in my statement earlier. It is only by taking all those factors into account that a proper comparison can be made.
One of the worst things that can happen to a child in Scotland, as in the rest of the kingdom, during its education is that it should fall under the tutorship of one of the small minority of bad teachers. What action is my right hon. and learned Friend taking within the package to ensure that we can get rid of bad teachers?
There is no specific proposal within the package, but the Main report said that it had come to the conclusion that the present complicated procedures that are required to be fulfilled before a bad teacher can be dismissed need to be modernised so that the rules governing teachers should be closer to those governing all other employees. That requires further consultation and consideration and does not form part of the specific package announced today.
Will the Secretary of State concede that, in the critical days ahead when the Scottish teachers deliberate and ballot on the report in the context of his response on behalf of the Scottish Office, trust is essential? The right hon. and learned Gentleman has taken an enormous political gamble in saying that the package remains indivisible in relation to the full implementation of an agreement and conditions while seeking to divide that package with the phasing of the pay award.
Will the right hon. and learned Gentleman finish the critical sentence in his reply to the question from the hon. Member for Glasgow, Maryhill (Mr. Craigen) when he came to the inbuilt costs or losses associated with his announcement on phasing today? He could not have made that statement unless the Scottish Office had done the costings. What is the net loss?I said in my original statement that the added provision for 1987–88 is £60 million. I cannot give the exact figure immediately, but one would have to incorporate that in the figures that I announced earlier to work out the difference between what Main announced and the figures that I have given. As I mentioned earlier, the cost that Main announced of £144 million comes down to £113 million because of the interim award and down to £87 million because of the provision that we have already made in the rate support grant. I shall have to check, but it would appear that, given the £60 million that I have announced today for 1987–88, there will be a difference of £27 million for 1987–88.
Does the Secretary of State recall that when he first set up the so-called independent inquiry earlier this year some of us had our doubts about how much an inquiry could be truly independent if its findings were to be subject to the financial straitjacket of Government economic policy? Now that our fears have been realised by the Secretary of State's deplorable failure to deliver the salary timescale recommended by Main and Main's statement that his report is an indivisible package, does the Secretary of State realise that the only honourable course open to him is to go back to the Prime Minister and the Chancellor of the Exchequer and tell them to come up with a fairer deal for Scottish teachers? Otherwise, there will be a real risk of a continuing crisis in Scottish education for which the Secretary of State must bear full responsibility.
The hon. Gentleman should not get carried away with that sort of hyperbole. He knows perfectly well that a 16·4 per cent. pay increase, half paid in January and the other half nine months later, is a superb offer for teachers. He knows perfectly well that he would be acting in a grossly irresponsible way if he sought to suggest that any reasonable person would reject such an offer. I know that the hon. Gentleman finds it difficult to be responsible, but he should try occasionally.
Will the Secretary of State come clean with the House and with the teaching profession by stating clearly how much has been saved by postponing the first phase of the pay increase from October to January and by phasing the rest of it?
Will the Secretary of State also explain to the House and to the teaching profession, the members of which must consider their monthly salary in contrast to the enthusiasm that we have heard from Conservative Members, why the Cabinet accepted the Treasury recommendation as against the Main recommendations, themselves considerably diluted? Why has the Secretary of State underestimated the intelligence of the teaching profession and of parents? Finally, why should teachers have faith in the Secretary of State when he refuses to accept the central recommendation of ensuring that there is an independent pay review body to deal with these matters?The teaching profession should have faith in what I have said because, as a result of the Main inquiry which I set up earlier this year, teachers are now being offered a 16·4 per cent. pay increase. If that is not a major step towards ensuring peace in schools, it is difficult to imagine what would be.
The hon. Member for Monklands, West (Mr. Clarke) questioned why the first phase of the pay increase will be paid on 1 January. The Government and the Main report make it clear that such a high pay increase can be justified only by a return to normality within schools. It is equally true that, at this time, there is no normality in schools. There is no curriculum development or parental liaison and in many areas of school life teachers have declined to behave normally. Even if the result of the ballot is what we hope—in favour of the resolution of this issue—it is unlikely that the Scottish Joint Negotiating Committee will ratify this agreement much before the middle of December. Therefore, it is reasonable that, if the proposals art approved and ratified, the increase should date from 1 January 1987.The Secretary of State has not answered the question asked by my hon. Friend the Member for Monklands, West (Mr. Clarke). As with all negotiations involving terms and conditions of employment, concessions must be made by employers and employees. However, if the teachers have an answerable case, as Main has said, for pay increases now, why are the Government not implementing the award from 1 October, as Main recommended?
I have just answered the hon. Member for Monklands, West (Mr. Clarke) and explained why 1 January is a far more relevant date, given that there is no normality in the schools and that there will not be until the Scottish Joint Negotiating Committee ratifies the award.
I understand that the Secretary of State has said two things this afternoon. First, the difference between the Secretary of State's proposals and the Main proposals is approximately £27 million. He is sacrificing the indivisible Main package for £27 million. Secondly, can he confirm that his statement will mean that, during the next 12 months, Scottish teachers will suffer a 10 per cent. loss compared with what they would have received had Main's proposals been implemented?
The hon. Gentleman should realise—I believe that he does—as his colleague the hon. Member for Berwick-upon-Tweed (Mr. Beith) realizes—
It is irrelevant.
No, it is not irrelevant. It would be gravely irresponsible, at a time when inflation is as low as it is, for any Government to implement a pay increase of 16·4 per cent. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) must realise, as some other hon. Members certainly do, that since in earlier pay settlements phasing has been a natural part of the process, the modest phasing that is proposed here is acceptable. It is not just a matter of £27 million, although the hon. Gentleman is correct to say that that is the sum involved over the year in question. It is also important to ensure that teachers are not considered as living on the moon, separate from other people engaged in wage negotiations.
The hon. Member for Roxburgh and Berwickshire can have no interest in an escalation of wage claims. That is why, in many previous cases in the public sector and elsewhere, when a major pay increase has been considered reasonable and responsible, most responsible people have accepted that a phasing of the increase is not unreasonable.On a point order, Mr. Speaker. This is further to the point of order that I raised previously. I believe that it is a substantial point of order.
We had a statement on education in England, which lasted for about 46 minutes. Various English Members of Parliament were not called. I make no complaint about that because I got my question in anyhow on the Scottish statement. We had questions on the Scottish statement for 49 minutes. If we take a minute out of that for myself, that leaves 48 minutes. That is two thirds of a minute for every Scottish Member and less than a tenth of a minute for every English Member. It seems that the Scottish Members get a better crack of the whip than the English Members. Speaking as an English Member, and knowing that you are an Englishman, Mr. Speaker, I wonder whether in future weeks and months some consideration could be given to the matter so that some of my English colleagues —not myself, because I know the problem that faces you — do not consider themselves as second-class Members.Further to the point of order, Mr. Speaker.
I do not think it will help.
If Scottish statements were taken first and were followed by English statements, Scottish Members would be very pleased.
May I say to the hon. Member for Northampton, North (Mr. Marlow) that I allowed 50 minutes, which is by any standards a long time for a statement, on the first statement and rather less for the Scottish statement. The hon. Member can do his arithmetic. It would be absolutely marvellous from the point of view of the Chair if I could satisfy every hon. Member every day. Unhappily, that is not within my power. I simply try to be as fair as I can.
Orders Of The Day
Financial Services Bill
Lords amendments considered.
Clause 1
Investments And Investment Business
Lords amendment No. 1, in page 2, line 1, leave out subsection (2) and insert—
"(2) In this Act "investment business" means the business of engaging in one or more of the activities which fall within the paragraphs in Part II of that Schedule and are not excluded by Part III of that Schedule.".
5.45 pm
I beg to move, That this House doth agree with the Lords in the said amendment.
With this, it will be convenient to take the following Lords amendments: No. 2, in page 2, line 8, after "business" insert "maintained by him"
No. 3, in page 2, line 9, leave out paragraph (b) and insert—No. 32, in clause 30, page 19, line 27, after "business" insert "maintained by him"."(b) engages in the United Kingdom in one or more of the activities which fall within the paragraphs in Part II of that Schedule and are not excluded by Part III or IV of that Schedule and his doing so constitutes the carrying on by him of a business in the United Kingdom."
As this is the first group of amendments to be discussed, and especially as it is the first group of several which deal with the scope of the Bill, it might be appropriate if I made some general comments before coming to the substance of the amendments under consideration.
Many amendments have been made to the Bill. I wish that it had been possible to keep the number rather smaller, although I must immediately add that many of the amendments are technical. However, the number and variety of amendments fulfil a promise we have made throughout the proceedings on the Bill that we would listen carefully and with an open mind to representations put to us and would not hesitate to introduce amendments where a case was made out. The Bill is highly technical and it ventures into previously uncharted legislative territory. We would have been severely criticised, and justly so, if in those circumstances we had not listened to representations. I would not wish my introduction to suggest that the Bill is, or is intended to become, fundamentally different from the Bill that was introduced 10 months ago. The basic regulatory structure remains unchanged because we believe that it is the right structure. But the Bill has benefited from extensive consultation on detailed structure and on technical points. We have received several representations about the scope of clause 1. The anxiety that has been expressed about the definition in clause 1 was that a person engaging in some business wholly unconnected with investments might be regarded as carrying on investment business, and hence be required to be authorised, by virtue of entering into a single investment transaction. That would clearly be absurd. As it happens, it would not be the result of the clause as originally drafted. But on such a matter, it is clearly important that there should be as little room for doubt as possible. Amendment No. 1, therefore, makes it clear that a person who engages in investment activities from a permanent place of business in the United Kingdom will be regarded as carrying on investment business in the United Kingdom only if his investment activities taken on their own, in isolation from any other activities and from any activities excluded by virtue of part III of schedule 1, could be regarded as amounting to carrying on business. Amendment No. 3 makes it clear that a person who does not carry on investment activities from a permanent place of business in the United Kingdom will be regarded as carrying on investment business here only if he engages in the United Kingdom in one or more investment activities which are not excluded by parts III or IV of schedule 1 and, in so doing, may be regarded as carrying on a business in the United Kingdom. These amendments will, I believe, remove any remaining doubts about the effect of the clause. Amendments Nos. 2 and 32 make it clear that the references to a "permanent place of business" in clause 1(3)(a) and clause 30(2) refer to a permanent place of business maintained by the person in question. Without this clarification it might be argued that an overseas person who engaged an agent established in the United Kingdom to enter into investment transactions for him could be regarded as entering into those transactions from a permanent place of business in the United Kingdom. This would mean that the exclusions in part IV of schedule 1 would not apply, although the arrangement I have described is one which they were designed to cover. Once again, it seems preferable to put the matter beyond doubt by the amendments.I am grateful to the Parliamentary Under-Secretary for his general comments. As this is the first group of amendments, I shall follow suit. We are confronted with a most unusual position. We have before us a list covering 581 Lords amendments, comprising 136 printed pages. It is fair to say, as the Minister has, that many of the amendments are of a technical and consequential nature and that others arise because of commitments given in earlier proceedings. However, the fact remains that we have great difficulty, not only because of the sheer volume of the amendments, but because of the timing.
The Lords completed their procedures only earlier this week. The simple exigencies of printing, and so on, have meant that we have seen the amendments in their marshalled form for only 24 hours at the maximum. Although the Minister is well able to handle the volume of material, since, one assumes, he has had a hand in preparing it, a great burden is placed on other hon. Members. I immediately pay tribute to the efforts that the Minister and his private office have made over the past months to try to keep the Opposition Front Bench in touch with what has been going on. That has been helpful. However, I think of other Government and Opposition hon. Members who will find it an almost superhuman task to try to winnow out from this immense volume of material what is important and what is not. It is all very well for the Minister to say that the amendments are merely technical, but if the Opposition —I include all Opposition parties—are to do their job properly, they cannot take that on trust. We must look at the amendments to ensure that they are technical and consequential and that there are not points of political significance buried in them. It must be said that the Government have confronted the House with an extremely difficult proceeding. In my view, the Government are not entirely to blame, although, as the prime mover in such matters and responsible for the consultations and preparations for the Bill, they must take the ultimate responsibility. However, I think that the Minister has been unfortunate—if I may offer him a word of comfort—in that he has been the victim of some remarkably late lobbying on the part of City interests and institutions which have belatedly woken up to the fact that some of the Bill's provisions will cut across some of their well-established interests. No doubt the Minister has found that some people have been banging hard on his door over recent weeks, and perhaps that is part of the reason we are confronted with so many late amendments. We cannot let the point pass without registering that protest — that we are confronted with that difficulty and, as a consequence, we are unable to give the Bill the detailed scrutiny that it should have. It is an important measure, and I fear that we must take a great deal on trust. I was interested to hear the Minister's comments on the substance of the amendments. I shall ask him a straightforward question. Many of the amendments to the definition clauses of the Bill have arisen because of representations made by bodies such as the Association of Corporate Treasurers and the Confederation of British Industry. They became alarmed that the Bill as originally drafted would drag into its net a range of activities that were not intended to be covered. Opposition Members are familiar with some of those arguments. From time to time, the Minister and his governmental colleagues have said that great reliance can be placed on the word "engaged", and that the phrase "engaging in business" implies a connotation of continuity; in other words, it does not apply to a one-off transaction and, therefore, many of the problems that were feared might arise are thereby dealt with. Sometimes, it was argued that the word "engaged" implied the doing of business for remuneration. I ask the Minister whether he is satisfied that such reliance can be placed on the term. Can he give us a general assurance that the proper concerns raised by the corporate treasurers and others have been largely met? I am not aware that there is any residual difficulty about the matter, but I think that it is worth placing on the record the fact —if indeed it is a fact—that the basic objections and difficulties have been met.I shall comment briefly on the general points that have been made. First, I congratulate the hon. Member for Dagenham (Mr. Gould) on his election to the shadow Cabinet. On behalf of the Labour party, he has carried the Bill almost single-handedly, and his performance has been most impressive. Perhaps that has something to do with his elevation. As to the points made about the way in which the matter has been dealt with—
Order. I thought that it made sense to allow the Minister to make an explanation. Equally, it made sense for the Opposition Front Bench spokesman to respond. However, I think it inappropriate to embark on what would, in effect, be a further Third Reading debate. The House should address itself to the amendments.
That is a bit tough on Back Benchers, is it not, Mr. Deputy Speaker?
Order. No. The hon. Gentleman is suggesting that I should never have allowed any general comment in the first place. That is a criticism that he must not apply to me. The House must address itself to the amendments.
I apologise, Mr. Deputy Speaker.
The amendment illustrates the dilemma in which my hon. and learned Friend the Minister found himself. He said that when he received representations on the matter he was not satisfied that there was any need to amend the Bill. He felt that clause 1 made it clear that what was intended was reference to sombody who was running an investment business on a regular basis. He thought that it was quite clear that it was not referring to a one-off investment transaction. However, he wanted to put the matter beyond doubt and to satisfy those who were concerned. I think that many of the amendments are to do with the periphery, the boundaries of the Bill, the definition of "investment business", and whether certain people are or are not caught by the Bill. Amendment No. 1 illustrates the difficulty in which my hon. and learned Friend found himself. That is true of many of the amendments. He has said that, although the Government have put down amendments and they have been accepted in another place, amendment No. 1 is not strictly necessary.I thank my hon. Friend the Member for Beaconsfield (Mr. Smith) for his remarks. I associate myself with the congratulations he offered to the hon. Member for Dagenham (Mr. Gould) on his election yesterday to the shadow Cabinet. I am also happy to associate myself with the remarks made by my hon. Friend about the part played by the hon. Gentleman during the consideration of the Bill in this House. Certainly, it owes a good deal to his constructive contribution. I acknowledge the protests that he registered and the way in which he did so. I hope that we can make progress this evening, and if necessary tomorrow, to deal with the issues involved.
The answer to the specific question that the hon. Gentleman raised was largely provided by my hon. Friend the Member for Beaconsfield. We took the view that the word "engaged" had the connotation suggested by the hon. Member for Dagenham. For that reason, the meaning which was attributed to clause 1 by those who were concerned about its application was not justified, and they were being unduly apprehensive. On the other hand, it seemed that one had a duty to respond to those concerns, to place the matter beyond doubt and to deal with it in the way in which we have sought to do by bringing the amendment before the House. I am happy to tell the House that we have met the concerns that were expressed rather late in the day by the CBI and the Association of Corporate Treasurers. There is no lingering unhappiness on their part, at least so far as I am aware, about the concerns they expressed to us at the end of July.Question put and agreed to.
Subsequent Lords amendments agreed to.
Clause 2
Power To Extend Or Restrict Scope Of Act
Lords amendment: No. 4, in page 2, line 21, at end insert
"or the carrying on of such business in the United Kingdom.
() The amendments that may be made for the purposes of subsection (1)(b) above include conferring powers on the Secretary of State, whether by extending or modifying any provision of that Schedule which confers such powers or by adding further such provisions.".
6 pm
I beg to move, That this House doth agree with the Lords in the said amendment.
With this it will be convenient to take Lords amendment No. 5, in page 2, line 24, after "business" insert
"or the carrying on of such business in the United Kingdom".
The most important change made by amendment No. 4 relates to the scope of the powers in clause 2. The need for an amendment springs from an amendment which introduces into schedule 1 a procedure for the Secretary of State to grant permissions which will have the effect of excluding from the definition of investment business certain activities carried on by the holder. The existing power in clause 2 to amend the definition of investment or investment business would not have been sufficient to amend the powers of the Secretary of State to grant permissions under the new provisions or to confer further powers on him. Therefore, it would not have been possible to extend the powers to cover activities other than those specified in the amendment, or to amend the criteria against which applications are to be judged. The amendment gives the clause 2 powers this desirable flexibility. Amendment No. 5 and the first part of the amendment No. 4 are consequential on amendments to the definitions in clause 1 made on Report.
I understand from what the Minister has said that the general effect of amendment No. 4 is to give the Secretary of State greater flexibility to adjust the definition of what carrying on investment business might or might not mean. One could add to the definition or subtract from it. That is a welcome flexibility, and I accept the purpose of the amendment. I take this opportunity to examine the direction in which the Secretary of State might intend to use his powers. An obvious and important way in which he might use these powers is by incorporating as part of the investment business, which ought to be dealt with under the Bill, the advising and managing of takeover bids. Most people understand that this is an important aspect of City operations and of investment business generally.
Given the unfortunate fact that the City very often finds itself in the headlines these days as a consequence of public concern at the way in which takeover bids are managed, it seems perverse that so far the Government have not taken the opportunity of specifically including the rules of the takeover code and the role of the takeover panel within these definitions. The fortunate aspect of this amendment is that it at least keeps open the possibility that the Secretary of State will choose to use his powers to do what the Opposition believe he should do, and ought to have done from the outset. The sheer volume of takeover activity has caused a great deal of concern, but there is even more concern about the obvious evidence that corners are being cut and rules are being bent simply because of the immensely valuable business available to merchant bankers and others in this lucrative market. Increasingly, one finds — there is evidence virtually every day of the week—that the City and the takeover panel are concerned at the way in which the rules are ignored. It is perverse that the Government do not take the opportunity to remedy that obvious difficulty. A current example with which we are all familiar involves the problems arising from the Turner and Newall bid for AE. It could be argued that the takeover panel acted very fairly and responded with the appropriate range of sanctions and penalties. I shall try to argue in a moment that that is not necessarily the best way of dealing with that situation. The difficulty, of course, is that the panel as presently constituted and operating, and operating outside the Bill and outside any possible statutory framework, remains a voluntary body. As a consequence, its rules have no legal force, it has no sanctions, and at the end of the day it has no teeth. In the intensely competitive new City, the major new players, as we all know, are intent on playing to the rules—to the whistle—and will demand something more than the relative lack of certainty offered by a voluntary code. Already there is evidence that in major takeover bids of this sort people are increasingly tempted to go to court, and on occasions do so, to get a legally binding ruling as to what is permissible and what is not. The danger is that if things are left as they are, quite apart from any other problems, the takeover panel may find itself bypassed in many of these important matters. The case for the takeover panel in the present situation is that it provides a system of flexibility and of speedy response. I do not dispute that. My criticism is not of the fulfilment of the takeover panel's role within the constraints placed upon it. It has done an excellent job. If these matters are to be regulated effectively and if public and City concern is to be damped down, it is important that, in addition to speed and flexibility, and perhaps in contradistinction to those qualities, the takeover code should offer certainty. Grey areas are no longer good enough. We need the certainty of black letter law, as it were, so that everybody knows where he stands.In the Turner and Newall case, the panel said that anybody in doubt about the meaning of the code, instead of consulting his lawyers — we all know that one's lawyer will often give the advice one is looking for—should consult the panel and get a legal ruling.
I am not sure whether the Parliamentary Under-Secretary's reply meets my point. I do not dispute for a moment the willingness of the panel to answer such questions. The problem is that the answers that the panel gives are no more legally binding than anything else it does. It is increasingly clear that some parties to bids are likely to want a legally binding decision from the courts.
The Turner and Newall case — the AE case —illustrates the difficult point that concern about the role of the takeover panel and the case for bringing it within the framework of the Bill rests on two attitudes which, in some senses at any rate, run in contrary directions. There is the problem that, without sanctions, the takeover panel is increasingly in danger of being ignored. It will be ignored, if we are not careful, by those whose reputations are of no great value to them. The sanction at the disposal of the takeover panel is that of public reprimand. The panel could use the sanction of public reprimand to hurt people who transgress the rules. Damage is caused to the reputation of the bank or house involved. If, however—this is not by any means beyond the bounds of possibility —we are dealing with people who, in a sense, have no reputation to protect and are content to take the money and run, the sanction is of much less significance. Without some statutory back-up to the code—some legal force to the sanctions which it can apply—I fear that, in the intensely competitive climate in the City, it will become simply part of the acceptable wounds of battle, or some of the occupational hazards which merchant banks and others are content to accept as the price for carrying out this business and for obtaining future business. There is evidence in recent cases that even reputable merchant banks and reputable brokers are willing to take that public reprimand — that slap across the wrist. As a consequence, they can show their present and future clients that they are in to play rough for the best possible result for their clients. The danger is that over a period the sanctions, such as they are, which the takeover panel might be able to exert will simply lose their force. We saw in the case of Lloyd's what happens when a regulatory system becomes inured to unacceptable behaviour. I fear that the same may happen with the takeover code and the activities of the panel. That is the primary case for the Minister using the power that the amendment gives him to extend the ambit of the Bill to the takeover panel. In relation to the AE case, let me explain the other set of concerns. I think that this is the point that was made by the hon. Member for Beaconsfield (Mr. Smith). Even where the panel appears to take tough action, and appears to apply the rules in a penal way, there is still a substantial ground for concern at the fact that the panel has no statutory powers. The difficulty arises because if the panel gets tough, it does so on the basis of no legally established powers of any sort. It is not a tribunal, and it is not a court of law. It does not and cannot therefore provide the legal safeguards. It provides little by way of proper appeals, and so on. If major decisions are to be taken, affecting hundreds if not thousands of millions of pounds, they should be taken by a body that is set up by law and therefore provides all the ordinary safeguards that should be provided. The difficulty with the AE case is that the takeover panel in many ways fell short of some of the procedural safeguards. It left some of the parties dissatisfied. In the end the sanctions that it applied were applied to the company rather than to the advisers. It was the shareholders of the victim company, as it were, who, in the end, had to carry the burden of the bad practices of their merchant banks and stockbrokers. In other words, even where the takeover panel has done what it can to punish transgressors, it has ended up punishing the wrong people. Even in areas where it tries to improve the operation of the code—for example, in the restrictions on advertising—it is in danger of misunderstanding what is needed in the interests of investor protection. For many shareholders, the full-page advertisement in one of the quality dailies is a useful and almost unique source of information about the nature of various bids. Even in its constitution, the takeover panel is hardly representative of the investing public, but it is certainly representative of many of those who manage investments and deal with takeover bids. It is unfortunate that in its attempts to regulate the area, it has acted against the interests of small investors.Interesting as the hon. Gentleman's submissions are, which he has made at length, what is their exact relevance to the amendment? We want to reach many important provisions at a reasonable hour, and we may not do so.
The hon. Gentleman is yielding to his familiar temptation to usurp the functions of the Chair. I can assure him that I am as anxious as anyone to make progress with the Bill. As I am about to conclude my remarks, I shall bear his strictures with equanimity.
I urge the Minister to reply along the lines that he is sensitive to the issue that I raise. I hope that he recognises the need for improvement by legislative intervention in that area, and that he will use the powers that the amendment provides to extend the Bill to that vital area.I fear that if I were to add my congratulations to the hon. Member for Dagenham (Mr. Gould) on his election to the shadow Cabinet I might do his chances next year some damage, as so much admiration has already been expressed by Conservative Members.
I rise merely to comment on the burden of the hon. Gentleman's speech. He said that he found the amendment sensible and one that he could normally support but was probing the Minister as to what was in his mind. From the hon. Gentleman's speech, I got the impression that if the Minister could not assure him about the takeover panel and its ultimate inclusion in the Bill, the hon. Gentleman might push the matter to a Division. I have to say with no enthusiasm, and perhaps, to put it bluntly, with a little embarrassment, that if he were to do that my party and I could not go into the Division Lobby with him. I say that with a little embarrassment because we joined him in the Division Lobby last time he raised the matter. Therefore, I ask him and others to recognise that, on maturer consideration of those matters and, in particular — [Interruption.] Labour Members have good reason to laugh, but Conservative Members have not. They will recall that the Government introduced some 700 amendments, 20 new clauses and four new schedules and the Minister has had to refer time and again to "mature consideration". I recall that when we discussed the immunity of self-regulating organisations he argued for half a morning that there should be no immunity for SROs but subsequently gave in—not to the blandishments of good sense, but to the pressure put upon him by City organisations and others. 6.15 pm If the Minister can make such claims, so can I. I shall try to explain why we have reached that view. I refer first to a point made by my hon. Friend the Member for Stockton, South (Mr. Wrigglesworth) — that the takeover panel is currently working well. One does not need to take his view or, indeed, my view on that. The most cursory study of the speech by the hon. Member for Dagenham when he raised the matter on Report will reveal, at column 539, a tribute to the working of the panel. The debate in the other place was redolent with statements by the Labour spokesman there about how the takeover panel was working effectively. I direct the attention of the House to column 518 of the Official Report, House of Lords, of 27 October, in which the official spokesman for the Labour party said that he believed that the panel was working well and that the code in operation was good. I do not quote him precisely, but any cursory study of the debate gives that sense. The Labour spokesman did not criticise the working of the panel in any way or suggest that it was inimical to the shareholders. There was a good deal of contradiction between the speech of the hon. Member for Dagenham about the working of the takeover panel and the statements by his party's representative in the other place, where the Labour spokesman went so far as to say specifically that he believed that the takeover panel in its operation and under the present rules looked after the interests of the small shareholder. That is precisely the point on which the hon. Member for Dagenham has taken a different view, so perhaps there are differences in other areas as well. In short, there was no suggestion in any of the those speeches that the takeover panel was not operating successfully and looking after the needs of small shareholders — for instance, in a way that ensures that they receive offers in the same way as larger shareholders. Indeed, one criticism of the takeover panel has been that in some quarters it makes it too easy for small shareholders to receive such bids. I am assured, however, that the hon. Member for Dagenham would not wish to alter that provision—and nor would I.What we should like to hear is not criticism of what my hon. Friend the Member for Dagenham (Mr. Gould) said, but the Liberal view. Is the Liberal party happy that the takeover panel has no teeth? That is what we want to know.
I was moving to that point. It seems that the Labour Front Bench in the other place, and, by inference, here as well, agrees that the takeover panel is operating well at present. The view is shared by them and us that the current operation of the takeover panel is adequate. The hon. Member for Dagenham has not criticised that.
The hon. Gentleman has made the statement so frequently that even I, with my great patience, am forced to rise to contradict him. I have just spent eight or 10 minutes explaining carefully, as I thought, precisely why Labour Members—I am glad to associate my hon. Friends in the other place with the sentiments that I have expressed — believe that the takeover panel, although an admirable body within the constraints that apply to it, is not doing an adequate job in the interests of investor protection. I am astonished that the hon. Gentleman did not take that meaning from what I said.
I take the flavour of that, but it seems that there is a contradiction to be drawn between what has been said this evening and what was said on Report. The hon. Member for Dagenham said:
He then said that the serious question was whether that arrangement would suffice following the big bang."It is appropriate to pay tribute to the work of the takeover code and of the panel that administers it."—[Official Report, 12 June 1986; Vol. 99, c.539.]
If the hon. Gentleman believes that there will be different problems after the big bang, is he saying that he agrees with my hon. Friend the Member for Dagenham (Mr. Gould), or is he trying to explain why there are apparently no Liberal Members present to support him this evening?
If this issue is pressed to a Division, the hon. Gentleman will find that members of my party will be present to support me. There is no difference between the hon. Member for Dagenham and myself about the takeover panel perhaps being in need of some amendment in future. The question is whether the best way of doing that is to bring it within the Securities and Investments Board.
I am left in some slight confusion. When this matter was debated in another place an Opposition Front Bench spokesman made it clear that, although it was suggested that the panel should be subject to statutory rules, that did not include an intention to bring it under the SIB. That is contrary to what the hon. Member for Dagenham has said. We accept that the takeover panel is working adequately, leaving aside whether that will continue to be the position after the big bang, so is it appropriate to bring the panel under the SIB now in readiness for changes that might have to be made in the future? The SIB is clearly overloaded and it is doubtful whether, with its current resources and with the challenges that it is now facing, it is capable of taking on even more responsibility as suggested by the hon. Member for Dagenham and whether it could carry out the job in an appropriate manner is even more doubtful. There are some defects in the statutory approach that has been suggested, and the hon. Member for Dagenham fairly and honestly named some of them. Would a statutory code governing the panel slow down the essential speed of operation that is so important and to which the hon. Gentleman alluded? Would a statutory code be too inflexible to meet the panel's needs in a way that hon. Members on both sides of the House would like to see? The present arrangement gives some flexibility in operating the rules for the panel, which can be beneficial. There is no reliance on statute and the courts. I support the view that was advanced cogently in a previous debate by the hon. Member for Edinburgh, Central (Mr. Fletcher). He made some trenchant criticisms of the panel but said that he felt that the SIB had enough on its plate already. If that was true on 12 June, it must be immeasurably more true now with the pressures that have since been placed on the SIB. The hon. Member for Edinburgh, Central was right to call for an independent reexamination of the panel. The Minister did not concede that there was a need for that to be done, but I hope that he will give the suggestion further thought. I believe that it would be a useful way forward. If we place the panel within the SIB, whose job it is to direct itself purely to City matters, will we limit the ambit of a panel which from time to time may have to address broader considerations affecting the public interest which may not be exclusive to the City? We know that the SIB is interested particularly in investor protection and those who invest in the City, and is there not some evidence to show that the panel's considerations will extend beyond investor protection to the broader public interest? I accept that the panel may well have to be examined in future, but it is operating very well now and it is not necessary to change it now. Indeed, it is necessary not to change it until it becomes necessary to do so.A typical Liberal.
It is typical that Liberals are prepared to consider these issues in the light of the circumstances that prevail at the time and to make a judgment of what is appropiate. I share with the hon. Member for Dagenham some doubts about whether the panel, as constructed, will meet the needs of the City and will be able to carry out the job that it is called upon to perform in the new context in which it will find itself, but I do not think it necessary to solve the problem by immediately placing the panel on a statutory basis or placing it within the SIB. It is probably better to lake a longer view of the problem and to arrange for an independent re-examination to take place.
When that process has been completed, we can take the most sensible course that will meet the needs of the City. We shall be able to take a much more measured and sensible approach as a result of taking a longer view of the problem. That would be infinitely preferable to placing the panel within the SIB now.I hope that the House will forgive me if I resist the temptation to enter into a fascinating analysis of whether, and if so to what extent, the hon. Member for Dagenham (Mr. Gould) was criticising the takeover panel and, if so, whether he was being consistent or inconsistent with what he said previously, or with what was said from the Opposition Front Bench in another place, and to what extent that view accorded or did not accord with the views expressed by the hon. Member for Yeovil (Mr. Ashdown). Even more tempting is the philosophy behind the question posed by the hon. Member for Yeovil in his closing remarks. I think that he was saying, "To change or not to change, that is the question"—subject on which he and his party are unrivalled in their expertise.
The peg on which the hon. Member for Dagenham sought to hang his intervention, with characteristic ingenuity, was the extent to which the activities of advising and managing bids and takeovers come or would come within the scope of the amendments. It is that point, which is cardinal and perhaps the only point relevant to the debate, that I propose to address, but I fear that I am unable to offer the hon. Gentleman much comfort. A professional adviser who advises a person on the acquisition of shares is already covered by the definition of "investment business". So, too, is a merchant bank which makes arrangements for the acquisition. I think that that much will have been appreciated by the hon. Gentleman, and I have no doubt that it is common ground between us. Clause 2 could not be used to bring the panel's rules, which apply to acquirers as well as to advisers, into the scope of the Bill. It is concerned with the activities and people caught by the Bill, not with the Secretary of State's rule-making vires. Even if I were persuaded by the hon. Gentleman's blandishments that the powers which are the basis of the amendment could be used to cover the activities to which he has referred, the scope to do so does not exist within the terms of the amendments, so it would not be possible to do what has been suggested. Tributes have been paid by hon. Members on both sides of the House— I do not wish to re-enter the argument about the precise tone of the speech of the hon. Member for Dagenham — to the panel's activities. I wish to associate myself with the tributes and compliments that have been paid because I believe that the panel is working well. I see no ground for criticising its rulings in the case of Turner and Newall and AE. Without wishing in any sense to be provocative, it seemed that at one stage the hon. Member for Dagenham was seeking to criticise the panel for not being able sufficiently to enforce its rulings. At another stage, he seemed to be suggesting that it was enforcing its rulings too stringently and too effectively. I detected a certain inconsistency there. I suggest that the panel is working well, that there are no grounds for interfering with its workings, that there would be no advantage in bringing its activities within the scope of the Bill and that, in any event, it would not be possible to do so within the scope of the amendments.6.30 pm
With the leave of the House, I should like to reply to the debate.
I listened with great interest to the hon. Member for Yeovil (Mr. Ashdown), who made a valiant effort to hide his embarrassment at the fact that he and his party have from one stage of the Bill to another almost totally reversed their stance. He tried to cover that up by paying great textual attention to what my noble Friends said. All I can offer the House is the thought that, on that subject at least, I can act as a more authoritative interpreter of their remarks than the hon. Member for Yeovil. There is no difference between my noble Friends and me on this. We believe that the takeover panel has done a good job within the constraints put on it in its role as a voluntary body. We also believe that, in the light of the immense changes that are taking place in the City, that ought to change. We are asking not, as the hon. Member for Yeovil would have it, for the takeover panel to be brought immediately within the aegis of the SIB—although that might have been a desirable possibility at an earlier stage of the Bill—but that the Secretary of State should exercise some form of reserve power.Is the hon. Gentleman saying that he has changed his mind about bringing the takeover panel within the aegis of the SIB? If he has changed his mind, perhaps he will be honest enough to say so.
I have made it clear that I have not changed my mind. I am simply adjusting to new circumstances at a different stage of the Bill. Unlike the Liberal party, we have not done a complete volte face. We might well have settled this issue in another place if alliance peers had joined the otherwise cross-bench alliance in support of my present argument.
What the Minister said came as no surprise to me. I understand the technical point that he made but, to reach a speedy conclusion to the debate, I shall content myself with saying that his speech was imbued with a complacency that is not shared by a wide range of opinion outside the House, not least in the City. A good deal of press comment and City opinion is now convinced that we can no longer live with the present arrangements. The Opposition want to register that point strongly. I have no real quarrel with that amendment, but to register our view on the Government's refusal to take the takeover point seriously we shall be compelled to divide the House.
Question put, That this House doth agree with the Lords in the said amendment:—
The House divided; Ayes 228, Noes 133.
Division No. 303]
| [6.33 pm
|
AYES
| |
| Adley, Robert | Forth, Eric |
| Alexander, Richard | Fox, Sir Marcus |
| Alison, Rt Hon Michael | Franks, Cecil |
| Amess, David | Fraser, Peter (Angus East) |
| Ancram, Michael | Gale, Roger |
| Ashby, David | Galley, Roy |
| Ashdown, Paddy | Gardiner, George (Reigate) |
| Aspinwall, Jack | Gardner, Sir Edward (Fylde) |
| Atkins, Rt Hon Sir H. | Garel-Jones, Tristan |
| Atkinson, David (B'm'th E) | Goodlad, Alastair |
| Baker, Rt Hon K. (Mole Vall'y) | Gorst, John |
| Baker, Nicholas (Dorset N) | Gow, Ian |
| Baldry, Tony | Grant, Sir Anthony |
| Batiste, Spencer | Gregory, Conal |
| Bellingham, Henry | Griffiths, Peter (Portsm'th N) |
| Bendall, Vivian | Ground, Patrick |
| Bennett, Rt Hon Sir Frederic | Hamilton, Hon A. (Epsom) |
| Best, Keith | Hamilton, Neil (Tatton) |
| Bevan, David Gilroy | Hampson, Dr Keith |
| Biffen, Rt Hon John | Hanley, Jeremy |
| Biggs-Davison, Sir John | Hannam, John |
| Blackburn, John | Hargreaves, Kenneth |
| Boscawen, Hon Robert | Harvey, Robert |
| Bottomley, Peter | Haselhurst, Alan |
| Bottomley, Mrs Virginia | Havers, Rt Hon Sir Michael |
| Bowden, A. (Brighton K'to'n) | Hawkins, Sir Paul (N'folk SW) |
| Bowden, Gerald (Dulwich) | Hawksley, Warren |
| Boyson, Dr Rhodes | Hayhoe, Rt Hon Barney |
| Braine, Rt Hon Sir Bernard | Hayward, Robert |
| Brandon-Bravo, Martin | Heathcoat-Amory, David |
| Bright, Graham | Heddle, John |
| Brown, M. (Brigg & Cl'thpes) | Hickmet, Richard |
| Browne, John | Hicks, Robert |
| Bruinvels, Peter | Higgins, Rt Hon Terence L. |
| Budgen, Nick | Hill, James |
| Burt, Alistair | Hind, Kenneth |
| Butcher, John | Holland, Sir Philip (Gedling) |
| Butler, Rt Hon Sir Adam | Holt, Richard |
| Butterfill, John | Hordern, Sir Peter |
| Cash, William | Howard, Michael |
| Channon, Rt Hon Paul | Howarth, Alan (Stratf'd-on-A) |
| Chapman, Sydney | Howarth, Gerald (Cannock) |
| Chope, Christopher | Howell, Rt Hon D. (G'ldford) |
| Churchill, W. S. | Howell, Ralph (Norfolk, N) |
| Clark, Sir W. (Croydon S) | Hubbard-Miles, Peter |
| Clegg, Sir Walter | Hunt, David (Wirral W) |
| Cockeram, Eric | Jenkin, Rt Hon Patrick |
| Colvin, Michael | Jessel, Toby |
| Conway, Derek | Johnson Smith, Sir Geoffrey |
| Coombs, Simon | Jones, Gwilym (Cardiff N) |
| Cope, John | Jones, Robert (Herts W) |
| Corrie, John | Jopling, Rt Hon Michael |
| Critchley, Julian | Kellett-Bowman, Mrs Elaine |
| Dickens, Geoffrey | Kershaw, Sir Anthony |
| Dicks, Terry | Key, Robert |
| Dorrell, Stephen | King, Roger (B'ham N'field) |
| Douglas-Hamilton, Lord J. | Knight, Greg (Derby N) |
| Dover, Den | Knight, Dame Jill (Edgbaston) |
| du Cann, Rt Hon Sir Edward | Knox, David |
| Dunn, Robert | Lamont, Rt Hon Norman |
| Durant, Tony | Lang, Ian |
| Dykes, Hugh | Latham, Michael |
| Evennett, David | Lawrence, Ivan |
| Eyre, Sir Reginald | Leigh, Edward (Gainsbor'gh) |
| Fairbairn, Nicholas | Lewis, Sir Kenneth (Stamf'd) |
| Farr, Sir John | Lightbown, David |
| Favell, Anthony | Lilley, Peter |
| Fenner, Mrs Peggy | Lloyd, Sir Ian (Havant) |
| Finsberg, Sir Geoffrey | Lloyd, Peter (Fareham) |
| Forman, Nigel | McCrindle, Robert |
| Forsyth, Michael (Stirling) | McCurley, Mrs Anna |
| MacKay, Andrew (Berkshire) | Speed, Keith |
| Maclean, David John | Spencer, Derek |
| McLoughlin, Patrick | Spicer, Jim (Dorset W) |
| McNair-Wilson, M. (N'bury) | Spicer, Michael (S Worcs) |
| Major, John | Squire, Robin |
| Malone, Gerald | Stanbrook, Ivor |
| Marlow, Antony | Steen, Anthony |
| Mates, Michael | Stern, Michael |
| Maude, Hon Francis | Stewart, Allan (Eastwood) |
| Mawhinney, Dr Brian | Stradling Thomas, Sir John |
| Maxwell-Hyslop, Robin | Sumberg, David |
| Mayhew, Sir Patrick | Taylor, John (Solihull) |
| Mellor, David | Taylor, Teddy (S'end E) |
| Meyer, Sir Anthony | Temple-Morris, Peter |
| Moore, Rt Hon John | Terlezki, Stefan |
| Murphy, Christopher | Thompson, Donald (Calder V) |
| Nelson, Anthony | Thompson, Patrick (N'ich N) |
| Neubert, Michael | Thorne, Neil (Ilford S) |
| Norris, Steven | Thornton, Malcolm |
| Onslow, Cranley | Townend, John (Bridlington) |
| Osborn, Sir John | Tracey, Richard |
| Portillo, Michael | Trippier, David |
| Proctor, K. Harvey | Twinn, Dr Ian |
| Raffan, Keith | van Straubenzee, Sir W. |
| Raison, Rt Hon Timothy | Vaughan, Sir Gerard |
| Rathbone, Tim | Waddington, David |
| Ridley, Rt Hon Nicholas | Wakeham, Rt Hon John |
| Ridsdale, Sir Julian | Wall, Sir Patrick |
| Rippon, Rt Hon Geoffrey | Wallace, James |
| Robinson, Mark (N'port W) | Waller, Gary |
| Roe, Mrs Marion | Ward, John |
| Ross, Stephen (Isle of Wight) | Wardle, C. (Bexhill) |
| Rossi, Sir Hugh | Watts, John |
| Rowe, Andrew | Wells, Bowen (Hertford) |
| Rumbold, Mrs Angela | Wheeler, John |
| Sainsbury, Hon Timothy | Whitfield, John |
| Sayeed, Jonathan | Wilkinson, John |
| Shelton, William (Streatham) | Winterton, Mrs Ann |
| Shepherd, Colin (Hereford) | Wolfson, Mark |
| Shepherd, Richard (Aldridge) | Wood, Timothy |
| Shersby, Michael | Woodcock, Michael |
| Sims, Roger | |
| Smith, Sir Dudley (Warwick) | Tellers for the Ayes: |
| Smith, Tim (Beaconsfield) | Mr. Mark Lennox-Boyd and |
| Soames, Hon Nicholas | Mr. Richard Ryder. |
NOES
| |
| Adams, Allen (Paisley N) | Corbyn, Jeremy |
| Anderson, Donald | Cox, Thomas (Tooting) |
| Archer, Rt Hon Peter | Crowther, Stan |
| Atkinson, N. (Tottenham) | Davis, Terry (B'ham, H'ge H'I) |
| Bagier, Gordon A. T. | Deakins, Eric |
| Banks, Tony (Newham NW) | Dewar, Donald |
| Barnett, Guy | Dixon, Donald |
| Barron, Kevin | Dobson, Frank |
| Beckett, Mrs Margaret | Dormand, Jack |
| Bell, Stuart | Douglas, Dick |
| Bermingham, Gerald | Dubs, Alfred |
| Bidwell, Sydney | Duffy, A. E. P. |
| Blair, Anthony | Dunwoody, Hon Mrs G. |
| Boothroyd, Miss Betty | Eadie, Alex |
| Boyes, Roland | Eastham, Ken |
| Bray, Dr Jeremy | Edwards, Bob (W'h'mpt'n SE) |
| Brown, Gordon (D'f'mline E) | Fatchett, Derek |
| Brown, Hugh D. (Provan) | Faulds, Andrew |
| Brown, N. (N'c'tle-u-Tyne E) | Field, Frank (Birkenhead) |
| Brown, Ron (E'burgh, Leith) | Fields, T. (L'pool Broad Gn) |
| Buchan, Norman | Fisher, Mark |
| Caborn, Richard | Flannery, Martin |
| Callaghan, Jim (Heyw'd & M) | Forrester, John |
| Campbell-Savours, Dale | Foster, Derek |
| Canavan, Dennis | Foulkes, George |
| Clark, Dr David (S Shields) | Fraser, J. (Norwood) |
| Clarke, Thomas | Freeson, Rt Hon Reginald |
| Clay, Robert | George, Bruce |
| Clelland, David Gordon | Gilbert, Rt Hon Dr John |
| Clwyd, Mrs Ann | Godman, Dr Norman |
| Coleman, Donald | Golding, Mrs Llin |
| Cook, Frank (Stockton North) | Gould, Bryan |
| Corbett, Robin | Hamilton, James (M'well N) |
| Hamilton, W. W. (File Central) | Pavitt, Laurie |
| Hardy, Peter | Pendry, Tom |
| Hart, Rt Hon Dame Judith | Powell, Raymond (Ogmore) |
| Hattersley, Rt Hon Roy | Radice, Giles |
| Healey, Rt Hon Denis | Randall, Stuart |
| Hefter, Eric S. | Redmond, Martin |
| Hogg, N. (C'nauld & Kilsyth) | Richardson, Ms Jo |
| Hoyle, Douglas | Roberts, Ernest (Hackney N) |
| Hughes, Dr Mark (Durham) | Robinson, G. (Coventry NW) |
| Hughes, Robert (Aberdeen N) | Rooker, J. W. |
| Hughes, Roy (Newport East) | Ross, Ernest (Dundee W) |
| John, Brynmor | Rowlands, Ted |
| Leadbitter, Ted | Sheerman, Barry |
| Leighton, Ronald | Sheldon, Rt Hon R. |
| Lewis, Ron (Carlisle) | Short, Ms Clare (Ladywood) |
| Lewis, Terence (Worsley) | Short, Mrs R.(W'hampt'n NE) |
| Litherland, Robert | Skinner, Dennis |
| Lofthouse, Geoffrey | Smith, C.(Isl'ton S & F'bury) |
| McCartney, Hugh | Soley, Clive |
| McKelvey, William | Spearing, Nigel |
| MacKenzie, Rt Hon Gregor | Stewart, Rt Hon D. (W Isles) |
| McNamara, Kevin | Thomas, Dafydd (Merioneth) |
| McTaggart, Robert | Thompson, J. (Wansbeck) |
| McWilliam, John | Tinn, James |
| Madden, Max | Wareing, Robert |
| Marek, Dr John | Weetch, Ken |
| Marshall, David (Shettleston) | Welsh, Michael |
| Meacher, Michael | Williams, Rt Hon A. |
| Michie, William | Wilson, Gordon |
| Mikardo, Ian | Winnick, David |
| Milian, Rt Hon Bruce | Young, David (Bolton SE) |
| Miller, Dr M. S. (E Kilbride) | |
| Nellist, David | Tellers for the Noes: |
| Orme, Rt Hon Stanley | Mr. Allen McKay and |
| Park, George | Mr. Laurence Cunliffe. |
| Patchett, Terry |
Question accordingly agreed to.
Lords amendment No. 5 agreed to.
Clause 5
Agreements Made By Or Through Unauthorised Persons
Lords amendment: No. 6, in page 3, line 19, leave out "investment agreement" and insert
"agreement to which this subsection applies".
6.45 pm
I beg to move, That this House doth agree with the Lords in the said amendment.
With this it will be convenient to take the following Lords amendments: No. 7, in page 3, line 34, leave out
and insert"interest on any such money"
No. 8, in page 3, line 36, leave out "interest" and insert "compensation". No. 9, in page 3, line 42, leave out from beginning to end of line 13 on page 4 and insert—"compensation for any loss sustained by him as a result of having parted with it."
"constitutes" in line 29 and insert
No. 11, in page 4, line 31, at end insert"Subsection (1) above applies to any agreement the making or performance of which by the person seeking to enforce it or from whom money or other property is recoverable under this section".
No. 76, in clause 51, page 37, line 3, leave out"and is not excluded by Part III or IV of that Schedule."
and insert"interest on any such money"
No. 86, in page 39, line 20, leave out"compensation for any loss sustained by him as a result of having parted with it."
and insert"interest on any such money"
No. 77, in page 37, line 4, leave out "interest" and insert "compensation". No. 85, in clause 52, page 39, line 8, leave out"compensation for any loss sustained by him as a result of having parted with it."
and insert"interest on any such money"
No. 87, in page 39, line 22, leave out "interest" and insert "compensation". No. 202, in clause 112, page 90, line 35, leave out"compensation for any loss sustained by him as a result of having parted with it."
and insert"interest on any such money"
No. 203, in page 90, line 36, leave out "interest" and insert "compensation". No. 204, in clause 113, page 91, line 40, leave out "an investment agreement" and insert"compensation for any loss sustained by him as a result of having parted with it."
No. 205, in page 91, line 45, leave out"an agreement to which section 5(1) above applies".
and insert"interest on any such money"
No. 206, in page 92, line 1, leave out "interest" and insert "compensation". No. 207, in page 92, line 10, leave out from "1982" to end of line 24 and insert"compensation for any loss sustained by him as a result of having parted with it."
";and
(b) that it is just and equitable for the contract to be enforced or, as the case may be, for the money or property paid or transferred under it to be retained."
These amendments reflect debates, both here and in another place. They concern what happens where an unenforceable investment agreement is entered into. An investor who enters into such an agreement shall be entitled, not simply to interest on money handed over but to such compensation as a court may determine or the parties agree. So, if an investor who hands over shares under such an agreement loses out on a rights or bonus issue, this can be taken into account in determining the level of compensation These amendments also enable a court to allow an otherwise unenforceable investment agreement to be enforced, if it considers this to be just and equitable in the circumstances of the case. The court will have to be satisfied that a person who entered into the agreement in the course of carrying on investment business in contravention of clause 3 reasonably believed that his entering into the agreement did not breach the requirements of clause 3. If the agreement was with an authorised person but in consequence of the involvement of an unauthorised person, then the court will have to be satisfied that the authorised person did not know of the unauthorised person's involvement.
These amendments will substantially reduce the risk of a person, in a sector other than investment business, inadvertently crossing the boundary line and finding his contracts to be held unenforceable. The criminal and negligent will continue to have this sanction applied.Question put and agreed to.
Subsequent Lords amendments agreed to.
Clause 6
Injunctions And Restitution Orders
Lords amendments made: No. 12, in page 4, line 39, leave out "or, in Scotland, an interdict".
No. 13, in page 4, line 40, at end insert
"or, in Scotland, and interdict prohibiting the contravention". —[Mr. Howard.]
Clause 10
Grant And Refusal Of Recognition
Lords amendment made: No. 14, in page 7, line 37, at end insert
" or an exempted person in respect of that business." —[Mr. Howard.]
Clause 13
Alteration Of Rules For Protection Of Investors
Lords amendment made: No. 15 in page 10, line 5, leave out "and" and insert "or".
No. 16, in page 10, line 13, at end insert
"or an exempted person in respect of that business".—[Mr. Howard.]
Clause 15
Authorisation By Membership Of Recognised Professional Body
Lords amendment: No. 17, leave out clause 15.
I beg to move, That this House doth agree with the Lords in the said amendment.
With this it will be convenient to take the following Lords amendments: No. 18, leave out clause 16.
No. 19, after clause 16, insert the following new Clause—"PERSONS AUTHORISED BY RECOGNISED PROFESSIONAL BODIES
Authorisation by certification by recognised professional body.
.— (1) A person holding a certificate issued for the purposes of this Part of this Act by a recognised professional body is an authorised person.
(2) Such a certificate may be issued by a recognised professional body to an individual, a body corporate, a partnership or an unincorporated association.
(3) A certificate issued to a partnership—(a) shall be issued in the partnership name; and (b) shall authorise the carrying on of investment business in that name by the partnership to which the certificate is issued, by any partnership which succeeds to that business or by any person who succeeds to that business having previously carried it on in partnership; and, in relation to a certificate issued to a partnership constituted under the law of England and Wales or Northern Ireland or the law of any other country or territory under which a partnership is not a legal person, references in this Act to the person who holds the certificate or is certified shall be construed as references to the persons or person for the time being authorised by the certificate to carry on investment business as mentioned in paragraph (b) above."
No. 20, after clause 16, insert the following new clause—
" Professional bodies—
.— (1) In this Act a "professional body" means a body which regulates the practice of a profession and references to the practice of a profession do not include references to carrying on a business consisting wholly or mainly of investment business.
(2) In this Act references to the members of a professional body are references to individuals who, whether or not members of the body, are entitled to practise the profession in question and, in practising it, are subject to the rules of that body.
(3) In this Act references to the rules of a professional body are references to the rules (whether or not laid down by the body itself) which the body has power to enforce in relation to the practice of the profession in question and the carrying on of investment business by persons practising that profession or which relate to the grant, suspension or withdrawal of certificates under section (Authorisation by certification by recognised professional body) above, the admission and expulsion of members or otherwise to the constitution of the body.
(4) In this Act references to guidance issued by a professional body are references to guidance issued or any recommendation made by it to all or any class of its members or persons seeking to become members, or to persons or any class of persons who are or are seeking to be certified by the body, and which would, if it were a rule, fall within subsection (3) above."
No. 21, in clause 18, page 12, line 39, leave out from "that" to end of line 18 on page 13 and insert
"the requirements of subsection (2A) below and of Schedule (Requirements for recognition of professional body) to this Act are satisfied as respects that body.
(2A) The body must have rules which impose acceptable limits on the kinds of investment business which may be carried on by persons certified by it and the circumstances in which they may carry on such business and which preclude a person certified by that body from carrying on any investment business outside those limits unless he is an authorised person otherwise than by virtue of the certification or an exempted person in respect of that business."
No. 22, in clause 19, page 13, line 27, leave out "any of the requirements of subsection (2) of that section are" and insert
"section 18(2A) above or any requirement of Schedule (Requirements for recognition of professional body) to this Act."
No. 23, after clause 19, insert the following new clause—
" Compliance orders—
—(1) If at any time it appears to the Secretary of State—(a) that subsection (2A) of section 18 above or any requirement of Schedule(Requirements for recognition of professional body) to this Act is not satisfied in the case of a recognised professional body; or (b) that such a body has failed to comply with any obligation to which it is subject by virtue of this Act. he may, instead of revoking the recognition order under section 19 above, make an application to the court under this section. (2) If on any such application the court decides that subsection (2A) of section 18 above or the requirement in question is not satisfied or, as the case may be, that the body has failed to comply with the obligation in question it may order the body to take such steps as the court directs for securing that that subsection or requirement is satisfied or that that obligation is complied with. (3) The jurisdiction conferred by this section shall be exercisable by the High Court and the Court of Session."
No. 24, in clause 20, page 13, line 36, leave out subsections (1) to (3) and insert—
"(1) The Secretary of State may make regulations requiring a recognised professional body to give him forthwith notice of the occurrence of such events relating to the body, its members or persons certified by it as are specified in the regulations and such information in respect of those events as is so specified.
(2) The Secretary of State may make regulations requiring a recognised professional body to furnish him at such times or in respect of such periods as are specified in the regulations with such information relating to the body, its members and persons certified by it as is so specified.
(3) The notices and information required to be given or furnished under the foregoing provisions of this section shall be such as the Secretary of State may reasonably require for the exercise of his functions under this Act.
(3A) Regulations under the foregoing provisions of this section may require information to be given in a specified form and to be verified in a specified manner.
(3B) Any notice or information required to be given or furnished under the foregoing provisions of this section shall be given in writing or in such other manner as the Secretary of State may approve."
No. 25, in page 14, line 14, after "but" insert " (a)".
No. 26, in page 14, line 18, at end insert
"; and
(b) notice need not be given in respect of any rule or guidance, or rules or guidance of any description, in the case of which the Secretary of State has waived compliance with this subsection by notice in writing to the body concerned;
and any such waiver may be varied or revoked by a further notice in writing.".
No. 27, in page 14, line 19, after "of" insert ", or of regulations under,"
No. 60, in clause 45, page 30, line 45, after "or" insert "persons certified by a".
No. 67, in clause 48, page 33, line 36, after "or" insert "a person certified by a".
No. 68, in clause 49, page 34, line 26, after "or" insert "a person certified by a".
No. 72, in clause 50, page 36, line 3, after "or" insert "a person certified by a".
No. 73, in page 36, line 16, leave out from third "of' to "to" in line 18 and insert
"a recognised self-regulating organisation or a person certified by a recognised professional body".
No. 78, in clause 51, page 38, line 2, after "or" insert "a person certified by a".
No. 106, in clause 57, page 45, line 20, after "or" insert "a person certified by a".
No. 107, in page 45, line 24, leave out
"a member of such an organisation or body"
and insert
"such a member or so certified".
No. 116, in clause 59, page 46, line 29, after "or" insert "a person certified by a".
No. 129, in clause 66, page 49, line 6, after "substitution" insert " (a)".
No. 130, in page 49, line 7, leave out "or recognized professional body".
No. 131, in page 49, line 10, at end insert
"; and
(b) for the reference to the rules of a recognised professional body of a reference to any prohibition or requirement imposed in the exercise of powers for such purposes by that body or by any other body or person having functions in respect of the enforcement of the recognised professional body's rules relating to the carrying on of investment business".
No. 166, in clause 82, page 63, line 10, after "or" insert "certification by a ".
No. 170, in clause 89, page 68, line 18, leave out "other than section 15".
No. 171, in page 68, line 26, leave out paragraph (f)
No. 172, in page 68, line 35, leave out from first
"organisation" to end of line 37 and insert
"or certification by a recognised professional body, the name and address of the organisation or body;".
No. 173, in page 69, line 5, leave out "15 or".
No. 175, in page 69, line 40, at end insert "or".
No. 176, in page 69, line 43, leave out from "effect" to end of line on page 70.
No.177, in clause 92, page 71, line 28, after "or" insert
"a person certified by a".
No. 185, in clause 96, page 76, line 10, after "1" insert
"and paragraphs 4, 4A and 7E of Schedule 13".
No. 304, in clause 141, page 110, line 4, after "or" insert
"certification by a".
No. 317, in clause 148, page 115, line 40, after "or" insert
"certification by a".
No. 320, in page 116, line 20, after "or" insert
"certification by a".
No. 321, in page 116, line 29, after first "or" insert
"certification by a".
No. 336, in clause 153, page 123, line 40 after "or" insert
"certification by a".
No. 338, in clause 154, page 125, line 36, at end insert
"certification by a".
No. 339, in page 126, line 8, after "or" insert
"certification by a".
No. 344, in page 127, line 8, after "Schedule 2" insert
"paragraph 4(6) of Schedule (Requirements for recognition of professional body)".
No. 380, in clause 171, page 140, line 4, after "or" insert
"a person certified by a".
No. 383, in clause 173, page 141, line 5, at end insert—
" "certified" and "certification" mean certified or certification by a recognised professional body for the purposes of Part I of this Act;".
No. 384, in page 141, line 29, leave out "16" and insert
"Professional bodies".
No. 386, in page 141, line 38, leave out "16" and insert
"Professional bodies".
No. 388, in page 143, line 12, leave out "16" and insert
"Professional bodies".
No. 433, after schedule 2, insert the following new Schedule — Requirements for recognition of professional body—
"Statutory status
1. The body must:—(a) regulate the practice of a profession in the exercise of statutory powers; or (b) be recognised (otherwise than under this Act) for a statutory purpose by a Minister of the Crown or by, or by the head of, a Northern Ireland department; or (c) be specified in a provision contained in or made under an enactment as a body whose members are qualified to exercise functions or hold offices specified in that provision.
Certification
2. — (1) The body must have rules, practices and arrangements for securing that no person can be certified by the body for the purposes of Part I of this Act unless the following conditions are satisfied.
(2) The certified person must be either—(a) an individual who is a member of the body; or (b) a person managed and controlled by one or more individuals each of whom is a member of a recognised professional body and at least one of whom is a member of the certifying body.
(3) Where the certified person is an individual his main business must be the practice of the profession regulated by the certifying body and he must be practising that profession otherwise than in partnership; and where the certified person is not an individual that person's main business must be the practice of the profession or professions regulated by the recognised professional body or bodies of which the individual or individuals mentioned in sub-paragraph (2)(b) above are members.
(4) In the application of sub-paragraphs (2) and (3) above to a certificate which is to be or has been issued to a partnership constituted under the law of England and Wales or Northern Ireland or the law of any other country or territory under which a partnership is not a legal person, references to the certified person shall be construed as references to the partnership.
Safeguards for investors
3. — (1) The body must have rules regulating the carrying on of investment business by persons certified by it; and those rules must in respect of investment business of any kind regulated by them afford to investors protection at least equivalent to that afforded in respect of investment business of that kind by the rules and regulations for the time being in force under Chapter V of Part I of this Act.
(2) The rules under that Chapter to be taken into account for the purposes of this paragraph include the rules made under section (Financial resources rules) and under sections 49 and (Compensation fund) so far as not themselves applying to persons certified by the body.
Monitoring and enforcement
4.—(1) The body must have adequate arrangements and resources for the effective monitoring of the continued compliance by persons certified by it with the conditions mentioned in paragraph 2 above and rules, practices and arrangements for the withdrawal or suspension of certification (Subject to appropriate transitional provisions) in the event of any of those conditions ceasing to be satisfied.
(2) The body must have adequate arrangements and resources for the effective monitoring and enforcement of compliance by persons certified by it with the rules of the body relating to the carrying on of investment business and with any rules or regulations to which those persons are subject under Chapter V of Part I of this Act in respect of business of a kind regulated by the body.
(3) The arrangements for enforcement must include provision for the withdrawal or suspension of certification and may include provision or disciplining members of the body who manage or control a certified person.
(4) The arrangements for enforcement may make provision for the whole or part of that function to be performed by and to be the responsibility of a body or person independent of the professional body.
(5) The arrangements for enforcement must be such as to secure a proper balance between the interests of persons certified by the body and the interests of the public; and the arrangements shall not be regarded as satisfying that requirement unless the persons responsible for enforcement include a sufficient number of persons who are independent of the body and its members and of persons certified by it.
(6) The arrangements for monitoring may make provision for that function to be performed on behalf of the body (and without affecting its responsibility) by any other body or person who is able and willing to perform it.
Investigation of complaints
5.—(1) The body must have effective arrangements for the investigation of complaints relating to—(a) the carrying on by persons certified by it of investment business in respect of which they are subject to its rules; and (b) its regulation of investment business.
(2) Paragraph 4(4) above applies also to arrangements made pursuant to this paragraph.
Promotion and maintenance of standards
6. The body must be able and willing to promote and maintain high standards of integrity and fair dealing in the carrying on of investment business and co-operate, by the sharing of information and otherwise, with the Secretary of State and any other authority body or person having responsibility for the supervision or regulation of investment business or other financial services."
Amendment to the Lords amendment, in page 97, line 12, at end insert
`the whole or part of'.
No. 531, in schedule 12, page 201, line 41, leave out "or recognised professional body".
No. 532, in page 201, line 44, leave out "or body".
No. 533, in page 202, line 1, leave out "or body".
No. 534, in page 202, line 3, at end insert—
"3.—(1) Any proceedings with respect to a decision or proposed decision of a recognised professional body—(a) refusing or suspending a person's membership of the body: (b) expelling a member of the body.
(2) Any proceedings with respect to a decision or proposed decision of a recognised professional body or of any other body or person having functions in respect of the enforcement of the recognised professional body's rules relating to the carrying on of investment business—(a) exercising a power for purposes corresponding to those of Chapter VI of Part I of this Act; (b) refusing, suspending or withdrawing a certificate issued for the purposes of Part I of this Act."
No. 535 in page 203, line 13 at end insert—
"(2A) A recognised professional body.(a) A person certified by the body. (b) An applicant for certification by the body. (c) A person whose certification by the body is suspended. (d) An individual who is an associate of a person (whether or not an individual) described in paragraph (a), (b) or (c) above."
No. 536, in page 203, line 16, column 1, leave out "or paragraph 2 (b) or (c) above" and insert
", paragraph 2(a), (b) or (c) or paragraph 2A(a), (b) or (c) above".
No. 537, in page 203, line 48, column 1, at end insert—
", any other body or person mentioned in paragraph 3(2) of Part I of this Schedule".
No. 538, in page 204, line 4, column 1, leave out "or paragraph 2 (b) or (c)" and insert
", paragraph 2(a), (b) or (c) or paragraph 2A(a), (b) or
No. 539, in page 204, line 23, leave out "or membership" and insert ", membership or certification".
No. 540, in schedule 13, page 206, line 23, leave out from "that" to end of line 43 and insert—
"any of the requirements of section 18(2A) of this Act or paragraphs 2 to 6 of Schedule (Requirements for recognition of professional body) to this Act are not satisfied he may in accordance with this paragraph make a recognition order under section 18 of this Act "an interim recognition order" notwithstanding that all or any of those requirements are not satisfied.
(2) The Secretary of State may, subject to sub-paragraphs (2A) and (2B) below, make an interim recognition order if he is satisfied—(a) that the applicant proposes to adopt rules and practices and to make arrangements which will satisfy such of the requirements mentioned in subparagraph (1) above as are not satisfied; (b) that is not practicable for those rules, practices and arrangements to be brought into effect before the date on which section 3 of this Act comes into force but that they will be brought into effect within a reasonable time thereafter; and (c) that in the meantime the applicant will enforce its existing rules in such a way, and issue such guidance, as will in respect of investment business of any kind carried on by persons certified by it (or by virtue of paragraph 4A below treated as certified by it) afford to investors protection as nearly as may be equivalent to that provided as respects investment business of that kind by the rules and regulations under Chapter V of Part I of this Act.—
(2A) Where the requirements which are not satisfied consist of or include those mentioned in paragraph 2 of Schedule (Requirements. for recognition of professional body) to this Act an application for an interim recognition order shall be accompanied by—(a) a list of the persons to whom the applicant proposes to issue certificates for the purposes of Part I of this Act; and (b) particulars of the criteria adopted for determining the persons included in the list; and the Secretary of State shall not make the order unless it appears to him that those criteria conform as nearly as may be to the conditions mentioned in that paragraph and that the applicant will, until the requirements of that paragraph are satisfied, have arrangements for securing that no person is certified by it (or by virtue of paragraph 4A below treated as certified by it) except in accordance with those criteria and for the effective monitoring of continued compliance by those persons with those criteria.
(2B) Where the requirements which are not satisfied consist of or include that mentioned in paragraph 6 of Schedule (Requirements for recognition of professional body) to this Act, the Secretary of State shall not make an interim recognition order unless it appears to him that the applicant will, until that requirement is satisfied, take such steps for complying with it as are reasonably practicable."
No. 541, in page 206, line 45, after second "the" insert "practices and".
No. 542, in page 207, line 4, after "rules" insert ", practices".
No. 543, in page 207, line 10, after "rules" insert ", practices".
No. 544, in page 207, line 13, leave out "and arrangements, or other rules" and insert—
", practices and arrangements, or other rules, practices".
No. 545, in page 207, line 22, after "rules" insert ", practices".
No. 546, in page 207, line 25, after "rules" insert ", practices".
No. 547, in page 207, line 27, leave out "of subsection (2) (b) and (c) of that section" and insert—
"mentioned in sub-paragraph (1) above."
No. 548, in page 207, line 30, at end insert—
" Interim authorisation by recognised professional bodies
4A. — (1) If at the time when an interim recognition order is made in respect of a professional body that body is unable to issue certificates for the purposes of this Act, any person who at that time is included in the list furnished by that body to the Secretary of State in accordance with paragraph 4(2A)(a) above shall be treated for the purposes of this Act as a person certified by that body.
(2) If at any time while an interim recognition order is in force in respect of a professional body and before the body is able to issue certificates as mentioned in sub-paragraph (1) above the body notifies the Secretary of State that a person not included in that list satisfied the criteria of which particulars were furnished by the body in accordance with paragraph 4(2A)(b) above, that person shall, on receipt of the notification by the Secretary of State, be treated for the purposes of this Act as a person certified by that body.
(3) If at any time while an interim recognition order is in force in respect of a professional body it appears to the body—(a) that a person treated by virtue of sub-paragraph (1) or (2) above as certified by it has ceased (after the expiration of such transitional period, if any, as appears to the body to be appropriate) to satisfy the criteria mentioned in sub-paragraph (2) above; or (b) that any such person should for any other reason cease to be treated as certified by it. it shall forthwith give notice of that fact to the Secretary of State and the person in question shall, on receipt of that notification by the Secretary of State, cease to be treated as certified by that body.
(4) Where by virtue of this paragraph a partnership is treated as certified by a recognised professional body section 15(3) of this Act shall apply as it applies where a certificate has in fact been issued to a partnership.
(5) Where by virtue of this paragraph any persons are treated as certified by a recognised professional body the requirements of paragraph 2 of Schedule (Requirements for recognition of professional body) to this Act so far as relating to the retention by a person of a certificate issued by that body and the requirements of paragraph 4 of that Schedule shall apply to the body as if the references to persons certified by it included references to persons treated as certified."
No. 549, in page 207, line 30, at end insert—
" Power of recognised professional body to make rules required by this Act.
4B. — (1) Where a recognised professional body regulates the practice of a professional in the exercise of statutory powers the matters in respect of which rules can be made in the exercise of those powers shall, if they would not otherwise do so, include any matter in respect of which rules are required to be made—(a) so that the recognition order in respect of that body can cease to be an interim recognition order; or (b) where the recognition order was not, or has ceased to be, an interim recognition order, so that the body can continue to be a recognised professional body.
(2) Rules made by virtue of this paragraph may in particular make provision for the issue, withdrawal and suspension of certificates for the purposes of this Act and the making of charges in respect of their issue and may accordingly apply to persons who are, or are to be, certified or treated as certified by the body in question whether or not they are persons in relation to whom rules could be made apart from this paragraph.
(3) Rules made by virtue of this paragraph may make different provision for different cases.
(4) The Secretary of State may at the request of a recognised professional body by order extend, modify or exclude any statutory provision relating to the regulation of the conduct, practice, or discipline of members of that body to such extent as he thinks necessary, or expedient in consequence of the provisions of this paragraph; and any order made by virtue of this sub-paragraph shall be subject to annulment in pursuance of a resolution of either House of Parliament."
Although a detailed explanation of the effects of this large group of amendments would take rather more time than is available, it may be helpful if I give some of the background to their overall purpose.
The Government recognise that a large number of professional people—solicitors, accountants, surveyors, and so on—engage in investment business incidentally to the practice of their profession. Indeed, in some cases the investment business which they carry on has come to be regarded as an ancillary service that someone practicing the profession in question is widely expected to provide. Clearly, there has to be a system of regulation for investment business carried on in this way, but it did not seem to us necessary that many thousands of professionals should be effectively forced into joining recognised self-regulating organisations if other arrangements could be equally effective. In particular, it seemed sensible to build on the professional monitoring and disciplinary arrangements which the main professional bodies already have if this could provide adequate investor protection. That principle underlay our original proposals and has not changed. The clauses as originally drafted provided for the authorisation of individual members of recognised professional bodies who were practising their profession on their own account or in partnership. This was because at present membership of such bodies is generally confined to individuals and the bodies' disciplinary sanctions are generally available only against individual members. However, it has been suggested that it would be desirable to allow in the Bill for the authorisation of other forms of practice, particularly corporate practices. The Royal Institution of Chartered Surveyors already allows its members to practise in corporate form, and there are similar developments under way in other professional bodies. The Government accept that it would not be desirable to stand in the way of such developments, and the first new clause therefore allows authorisation to be conferred on corporate practices as well as partnerships and individuals practising on their own account. This apparently simple change necessitates a large number of amendments to take account of the fact that the firm certified by a recognised professional body may not itself he a member of the body, although it must be subject to the body's rules. The second purpose of the amendments is to clarify and extend the requirements for recognition. Some critics have suggested that the special regime for professional bodies will be a "soft option". We have always made it clear that that was not our intention. The House will recognise that the new schedule includes many requirements which are derived from the corresponding provisions of schedule 2 for recognised self-regulating organisations. I would particularly like to draw the attention of the House to paragraph 3, which makes it clear that the investment business rules of the body must satisfy the same equivalence test as the rules of recognised self-regulating organisations, and to paragraph 4, which sets out the requirement for compliance with the rules to be effectively maintained and enforced. The third main change is introduced by the third new clause, which gives the Secretary of State or designated agency an intermediate sanction, short of derecognition, against a recognised body which fails to comply with a requirement for recognition or with any obligation, such as an obligation to provide information, to which it is subject by virtue of the Bill. The sanction is a powerful one because if a recognised body were to disregard an order of the court it would be in contempt and liable to punishment accordingly. This rather complicated group of amendments makes important changes to the provisions of the Bill relating to recognised professional bodies. The amendments represent the outcome of detailed consultation with the professional bodies most likely to apply for recognition and I believe that they are in general now satisfied with them. The amendments will enable a greater range of businesses to be authorised by this route while providing for fully adequate protection to investors.The amendment of the hon. Member for Beaconsfield (Mr. Smith) is grouped with these amendments. If he wishes to speak to his amendment, it will be perfectly in order for him to do so.
I am grateful to the Minister for his explanation of this quite substantial group of new provisions. The Opposition do not quarrel with the purpose of the amendments. Happily, we can endorse most of what the Minister said about their intention. However, I should like to put to him one question. It arises from the notes on clauses that have been so helpfully provided by the Department, and it may help if I express myself more or less in the language that the Department used to explain the effect of the clause.
It points out that a recognised professional body will be able to issue certificates to different groups of people — bodies corporate, partnerships, unincorporated bodies. Then it makes the point that paragraph 2 of schedule 2—one of the provisions that accompanies the new clauses — requires a professional body to have arrangements and rules specifying the classes of persons who are entitled to be certified so as to ensure that only members of those classes are certified. If, however, by any chance a recognised professional body were to make a mistake and issued a certificate contrary to its own rules to a person who was not a member of the specified class, that person would nevertheless be authorised as the possessor of the appropriate certificate. I understand why that is so, but I think that the Minister will agree that, if left open-ended in that way, it is a rather dangerous provision. Is he able to help the House by illustrating how the situation might arise and what measures would be taken by the Department to ensure that it was not repeated? It would be most unfortunate if a recognised professional body were consistently to issue certificates, contrary to its own rules, to people who in the ordinary course of events ought not to be authorised but who, by virtue of this delegation of powers to professional bodies, are permitted to carry on investment business as though authorised to do so.When my hon. Friend replies to the debate on these amendments, will he look at amendment No. 21, which has caused a certain amount of concern? It relates to professional bodies. I am a member of a professional body, and anything that is connected with accountancy means that I am subject to disciplinary action if anything goes wrong.
Many people are worried about the definition of "acceptable limits." Who is to determine what are acceptable limits for investment business? A large firm of accountants may have a turnover of £10 million or £20 million. If 5 per cent. of that business is investment business, a huge amount of money is involved. However, if a person is employed full-time in the life assurance business—I have to declare an interest as I advise the Life Insurance Association—his or her total income will be very small compared with the 5 per cent. or the 2·5 per cent. investment business of a large firm of accountants or solicitors. The investment side of an accountant's or a lawyer's receipts will be a small part of his total income, whereas that represents the total income of a full-time intermediary. The LIA and other professional bodies are worried about the fact that there could be unfair competition. Lawyers and accountants belong to recognised professional bodies and are provided with a blanket certificate, if I may put it that way. However, a part-time intermediary has to join a self-regulating organisation, and SRO rules and regulations are probably far more stringent than those of the disciplinary committee of a professional body. It would be ridiculous to expect legitimate professional bodies to have to register with an SRO, and I should like my hon. Friend to reassure me on that point. Under no circumstances should one create in this Bill unfair competition between those who work part-time and those who work full-time in the financial services industry.I very much welcome the changes that have been made as a result of the amendments. My hon. and learned Friend the Minister mentioned three. I should like to mention another helpful amendment. Originally, the Bill was drafted in terms of whether the investment business of a professional person was or was not incidental. Now it has been turned around. The Bill says that a professional person's main business must be the practising of a profession and not the running of an investment business. There was great doubt about what "incidental" meant, but that concept has now been removed from the Bill.
I share the concern of my hon. Friend the Member for Croydon, South (Sir W. Clark) about the meaning of "acceptable limits". It would be helpful if my hon. Friend the Minister could clarify what it means. Amendment No. 21 refers toI assume that what it means is that when the Securities and Investments Board discusses with a body, with a view to its recognition, the terms upon which it might be recognised, it will look at the kinds of investment business that will or will not be authorised. Part II of schedule I contains a list of different kinds of investment business. I assume that the intention is to ensure that there will be acceptable limits upon which categories of investment business are to be part of the recognition deal. It seems to me that there will be a tradeoff as to what kinds of investment business the recognised professional body will be able to authorise and, as a quid pro quo, what rules and regulations it will need to deal with authorisation. Obviously, for investment advice a much less rigorous regime is needed than for investment management, where one is managing clients' funds. It would he helpful if my right hon. and learned Friend could clarify that point. I shall now speak briefly about my modest amendment which is to subparagraph (6) of paragraph 4 to the new schedule on page 97. This is a new provision about monitoring and says that monitoring can be undertaken by somebody other than the body itself. Subparagraph 4 has a similar provision about enforcement but there it says that the whole or part of the enforcement function can be delegated, and it does not make the same provision for monitoring. It might be administratively convenient for part of the monitoring to be delegated and for part of it to be kept back."acceptable limits on the kinds of investment business."
7 pm
One matter arises from the meaning of "acceptable limits". Will the Minister address his mind to what happens in a firm of solicitors where a partner is a trustee of a large and substantial trust with considerable investments? In the City of London and throughout Britain, there are a considerable number of solicitor trustees who manage between them, not millions but often billions of pounds' worth of investment. What does "acceptable limits" mean in such cases? Can the Minister advise us on that?
I endorse the points that have been made by my hon. Friend the Member for Croydon, South (Sir W. Clark). I shall restrict my remarks to Lords amendment No. 21. It says that the recognised professional body
I think that I echo a point made on both sides of the House when I ask "acceptable to whom?" Let us suppose for a moment that a recognised body such as the Law Society decided that it was perfectly acceptable for a high percentage of a solicitor's activities to relate to investment. I do not suggest that the Law Society is likely to do that. There are those of us who believe that in some way that would confer a lesser measure of investor protection than would be extended by an independent investment intermediary operating under the other provisions of the Bill which require him to register with his self-regulatory organisation. Throughout the approach by my hon. and learned Friend the Minister is the aim to create a system in which fair competition prevails, irrespective of the vehicle through which one seeks to obtain investment advice. I should like to see a closer examination of the words "acceptable limits" because the clause, as amended by their Lordships, remains rather ill-defined. It might be thought to provide a soft option for those who, to a large extent, will still engage in advising people on investment. It would be helpful if the Minister could clarify exactly what is intended by the words "acceptable limits". More important, perhaps he would underline that in dealing with an investment adviser who is authorised by a registered professional body, the investor will receive no less protection than he could expect to receive if seeking his investment advice through an independent investment intermediary registered by a self-regulatory organisation or the Securities and Investments Board."must have rules which impose acceptable limits on the kind of investment business which may be carried on".
I should like to draw attention to a point about which I have had extensive discussions on a number of occasions with the Minister during the passage of this Bill. We have also exchanged correspondence about the Society of Company and Commercial Accountants. That is a professional body with about 8,000 members and it has a well-deserved reputation for advising small businesses. In amendment No. 20, a professional body is defined as
Amendment No. 433 sets out the requirements for the recognition of a professional body. It says:"a body which regulates the practice of a profession".
"The body must:—
The Society of Company and Commercial Accountants would to all intents and purposes be excluded as a recognised professional body. One could write a treatise on the reasons why that society should be accepted, but I have no intention of going through them. The society regards the provisions as unfair discrimination against it. No specific reason has been given about why it should not get this status. The Minister was good enough to send me a letter, which arrived today, in which he said that Parliament has had a number of opportunities to amend the Bill during its passage but has not done so. The inference there is that Parliament does not look upon the society as important enough to merit the status of a recognised professional body. I am the vice-chairman of the Conservative Small Business Bureau and secretary of the Back-Bench Committee on Small Businessses, and I am aware of the importance in the high street of relatively small accountancy bodies that are able to provide high quality service to small businesses. The proposals discriminate against the Society of Company and Commercial Accountants and that is unreasonable. I sincerely hope that the inference in the letter that I received from the Minister, that to some extent the door remains open, is something upon which we can build in the future. Many of the society's members hold important positions in industry and commerce and should receive the kind of recognition that they deserve.(a) regulate the practice of a profession in the exercise of statutory powers;".
I am a little anxious about what my hon. Friend the Member for Stafford (Mr. Cash) said because if we go down the road that he suggests we could say that all sorts of bodies ought to be included. Those bodies might be unsuitable and might not have members who are sufficiently well qualified. Does my hon. Friend think that the approval given to the Royal Institution of Chartered Surveyors should be extended to include the National Association of Estate Agents? There are worthy people in that association, but I am not sure that they are qualified to give investment advice. As far as I am aware, the accountancy body about which my hon. Friend speaks is not recognised under the Companies Acts and might therefore be considered unsuitable.
I should now like to pose a question to the Minister. My institution now allows corporate bodies to practise. I am a little worried that we may reach the stage where some institutional bodies may acquire shares in a partnership and use them as a means to gain recognition because they might not otherwise be able to gain recognition. That may be prevented by these proposals, but they are rather complex. Perhaps my hon. and learned Friend could enlighten me.I shall begin by responding to the point raised by the hon. Member for Dagenham (Mr. Gould). He asked what the situation would be in the event of a mistake being made in the granting of a certificate by a recognised professional body, thereby enabling the holder of that certificate to carry out investment business. He also asked what action could be taken if mistakes like that were made repeatedly. In an isolated incident the certificate could be withdrawn as soon as the mistake was discovered. If a recognised professional body were consistently to issue certificates to people who were not in the specified classes that the hon. Gentleman spoke about, or if it failed to withdraw such certificates when the facts came to its attention, there would be grounds for the exercise of the powers contained in clause 19, which deals with the revocation of recognition of a professional body.
New clause 3, which we shall be debating later, provides for the obtaining of a compliance order to deal with the recognised professional body. Those safeguards are built into the Bill and they would deal with the matters to which the hon. Gentleman drew attention. My hon. Friend the Member for Croydon, South (Sir W. Clark) and my other hon. Friends raised the matter of acceptable limits for the purpose of the clause, as did the hon. Member for St. Helens, South (Mr. Bermingham). It would be for the Secretary of State or the designated agency to determine whether the rules of a particular professional body imposed acceptable limits for the purposes of the clause. New subsection (2A) of amendment No. 21 states:The rules must preclude a person certified by the body from carrying on investment business outside those limits unless he is authorised otherwise than by virtue of that certification or exempt in respect of that business under any of the provisions of chapter 4. This requirement for a scope rule is analogous to the corresponding requirements for self-regulating organisations, but the reference to circumstances reflects the intention that investment business carried on under the supervision of a recognised professional body will be limited to that carried on incidentally to the practise of the profession. There is no requirement in the Bill for a percentage limit or any other form of limit. What is appropriate will depend upon the circumstances. What is acceptable will depend especially on the type of business which a recognised professional body regulates and its capability for enforcing its rules effectively. The rules will have to be equivalent to those of the designated agency. That test of equivalence is common to the professional bodies and to the self-regulating organisations. There can therefore be no question of recognised professional bodies being a soft option in comparison with self-regulating organisations. My hon. Friend the Member for Stafford (Mr. Cash) dealt with a different point, which he said that I had answered in a letter which he received today. As that letter was sent in reply to a letter which I received from my hon. Friend yesterday, that is not altogether bad going. Some of the difficulties which arise in the context of his point were answered by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill). I suspect that this might be what is sometimes termed "an ongoing issue" between my hon. Friend the Member for Stafford and I. I cannot give him any further comfort this evening than I gave in the letter that he received earlier today. In relation to the final point raised by my hon. Friend the Member for Bournemouth, West, the new schedule provides that a recognised professional body may issue a certificate only to a person managed and controlled by individuals who are members of the recognised professional body. My hon. Friend will see that the authority for that lies in paragraph 2(2)(b) of the new schedule proposed in amendment No. 433. I can tell my hon. Friend the Member for Beaconsfield (Mr. Smith), in answer to his second point, that it is already possible in the terms of the Bill at present for the monitoring authority to be delegated in part."The body must have rules which impose acceptable limits on the kinds of investment business which may be carried on by persons certified by it and the circumstances in which they may carry on such business…"
Question put and agreed to.
Subsequent Lords amendments agreed to.
Clause 26
Grant And Refusal Of Authorisation
Lords amendments made: No. 28, in page 16, line 33, at end insert—
(aa) if the applicant is a partnership, to any of the partners;".
No. 29, in page 17, line 5, leave out subsection (6) and insert
"(6) An authorisation granted to a partnership—(a) shall be granted in the partnership name; and (b) shall authorise the carrying on of investment business in that name (or with the Secretary of State's consent in any other name) by the partnership to which the authorisation is granted, by any partnership which succeeds to that business or by any person who succeeds to that business having previously carried it on in partnership; and, in relation to an authorisation granted to a partnership constituted under the law of England and Wales or Northern Ireland or the law of any other country or territory under which a partnership is not a legal person, references in this Act to the holder of the authorisation or the authorised person shall be construed as references to the persons or person for the time being authorised by the authorisation to carry on investment business as mentioned in paragraph (b) above.".—[Mr. Howard.]
Clause 27
Withdrawal And Suspension Of Authorisation
Lords amendments made: No. 30, in page 17, line 30, at end insert
"or has contravened any prohibition or requirement imposed under this Act"
No. 31, in page 17, line 33, at end insert—
"() Where the holder of the authorisation is a member of a recognised self-regulating organisation the rules, prohibitions and requirements referred to in paragraph (b) of subsection (1) above include the rules of that organisation and any prohibition or requirement imposed by virtue of those rules; and where he is a person certified by a recognised professional body the rules, prohibitions and requirements referred to in that paragraph include the rules of that body which regulate the carrying on by him of investment business and any prohibition or requirement imposed by virtue of those rules."—[Mr. Howard.]
Clause 30
Authorisation In Other Member State
Lords amendment made: No. 32, in page 19, line 27, after "business" insert "maintained by him" — [Mr. Howard.]
Clause 32
Termination And Suspension Of Authorisation
Lords amendments made: No. 33, in page 21, line 10, after "information" insert
"or has contravened any prohibition or requirement imposed under this Act"
No. 34, in page 21, line 19, leave out from "rules" to end of line 21 and insert
",prohibitions and requirements referred to in subsection (1) above include the rules of that organisation and any prohibition or requirement imposed by virtue of those rules; and in the case of a person who is certified by a recognised professional body the rules, prohibitions and requirements referred to in that subsection include the rules of that body which regulate the carrying on by him of investment business and any prohibition or requirement imposed by virtue of those rules."
No. 35, in page 21, line 41, leave out subsection (7).— [Mr. Howard.]
Clause 37
Clearing Houses
Lords amendment made: No. 36, in page 24, line 28, leave out
"the facilities provided by it"
and insert
"anything done by it in its capacity as a person providing clearing services".—[Mr. Howard.]
Clause 38
Grant And Revocation Of Recognition
Lords amendments made: No. 37, in page 25, line 27, leave out "and" and insert—
"(aa) has adequate arrangements and resources for the effective monitoring and enforcement of compliance with its rules or, as respects monitoring, arrangements providing for that function to be performed on behalf of the clearing house (and without affecting its responsibility) by another body or person who is able and willing to perform it;"
No. 38, in page 25, line 28, after "provides" insert "or is able to provide"
No. 39, in page 25, line 31, at end insert
"; and
() is able and willing to comply with duties corresponding to those imposed in the case of recognised investment exchange by paragraph 5 of that Schedule.'— [Mr. Howard.]
New Clause
Overseas Investment Exchanges And Clearing Houses
Lords amendment: No. 40, after clause 38, insert the following new clause—
"(1) Any application under section 36(1) or 38(1) above by a body or association whose head office is situated in a country outside the United Kingdom shall contain the address of a place in the United Kingdom for the service on that body or association of notices or other documents required or authorised to be served on it under this Act.
(2) In relation to any such body or association sections 36(4) and 38(4) above shall have effect with the substitution for the requirements there mentioned of the following requirements, that is to say—(a) that the body or associations is, in the country in which its head office is situated, subject to supervision which, together with the rules and practices of that body or association, is such that investors in the United Kingdom are afforded protection in relation to the body or association at least equivalent to that provided by the provisions of this Act in relation to investment exchanges and clearing houses in respect of which recognition orders are made otherwise than by virtue of this subjection; and (b) that the body or association is able and willing to co-operate, by the sharing of information and otherwise, with the authorities, bodies and persons responsible in the United Kingdom for the supervision and regulation of investment business or other financial services; and (c) that adequate arrangements exist for such co-operation between those responsible for the supervision of the body or association in the country mentioned in paragraph (a) above and the authorities, bodies and persons mentioned in paragraph (b) above.
(3) In determining whether to make a recognition order by virtue of subsection (2) above the Secretary of State may have regard to the extent to which persons in the United Kingdom and persons in the country mentioned in that subsection have access to the financial markets in each other's countries.
(4) In relation to a body or association declared to be a recognised investment exchange or recognised clearing house by a recognition order made by virtue of subsection (2) above—(a) the reference in section 35(2) above to the matters dealt with in Schedule 3 to this Act shall be construed as a reference to corresponding matters; (b) sections 36(7) and (8) and 38(7) and (8) above shall have effect as if the requirements mentioned in section 36(7)(a) and in section 38(7)(a) were those of subsection (2)(a) and (b) above; and (c) the grounds on which the order may be revoked under section 36(7) or 38(7) above shall include the ground that it appears to the Secretary of State that revocation is desirable in the interests of investors and potential investors in the United Kingdom.
(5) In this section "country" includes any territory or any part of a country or territory.
(6) A body or association declared to be a recognised investment exchange or recognised clearing house by a recognition order made by virtue of subsection (2) above is in this Act referred to as an "overseas investment exchange" or an "overseas clearing house".".
7.15 pm
I beg to move, That this House doth agree with the Lords in the said amendment.
With this we may discuss the following Lords amendments: No. 183, in clause 96, page 76, line 7, leave out "subsection (5)" and insert
No. 188, page 76, line 16, at end insert—"subsections (5) and (5A)".
No. 190, page 81, line 9, at end insert—"(5A) This section does not apply to the making or revocation of a recognition order in respect of an overseas investment exchange or overseas clearing house or the making of an application to the court under section 12 above in respect of any such exchange or clearing house."
No. 311, page 112, line 21, after "exchange" insert"() Subsection (3)(c) above does not apply to an overseas investment exchange or overseas clearing house."
No. 369, page 133, line 25, after "exchange" insert"other than an overseas investment exchange".
No. 374, page 134, line 6, after "exchange" insert"other than an overseas investment exchange".
No. 387, page 142, line 8, at end insert—"other than an overseas investment exchange".
""overseas investment exchange" and "overseas clearing house" mean a recognised investment exchange or recognised clearing house in the case of which the recognition order was made by virtue of section (Overseas investment exchanges and clearing houses) above;".
These amendments will facilitate the proposed trading links between exchanges in clearing houses in the United Kingdom and those overseas. This is especially desirable in view of the increasingly international nature of the financial services industry. A number of links are being planned between exchanges and clearing houses here and overseas which will enable investors in the United Kingdom to benefit from the increasingly diverse variety of investment services available throughout the world and will help to promote to foreign investors the services provided by investment businesses in the United Kingdom.
The amendments reflect the fact that some overseas investment exchanges and clearing houses may not, because of a special feature in the regulatory regime in their home state, be able to meet all the requirements for recognition in the Bill. Nevertheless, if one takes account of the exchange or clearing house rule as to the supervision to which it is subject and its ability and willingness to cooperate with the relevant authorities here, the interests of investors using its facilities are as well protected as the interests of an investor using the facilities in a domestic exchange or clearing house recognised under the Bill. The amendments therefore provide that if the Secretary of State is satisfied that the conditions are met, and if there are adequate arrangements for mutual co-operation in the sharing of information between the regulatory authorities in the country concerned and the authorities here, he may recognise an overseas exchange or clearing house even though it does not meet the strict letter of the requirements imposed on domestic exchanges or clearing houses. This is not a soft option. It is a sensible and pragmatic approach to recognising and building on the regulatory regimes in other countries. This should be a mutual process. The clause provides that in deciding whether to recognise an overseas exchange or clearing house the Secretary of State may have regard to the extent to which persons in the United Kingdom have access to the financial markets in the country concerned. The amendments respond to the need for the Bill to reflect the increasingly international nature of financial services. They make the appropriate provisions for overseas investment exchanges and overseas clearing houses and I commend them to the House.I hope that the Minister can put my mind at rest about these amendments. The original idea was that we should recognise only those exchanges which had rules and controls comparable with the proposed rules and controls in our markets. There appears to have been a little wavering at the edges in the interests of promoting international trade, to use the Minister's words. It would appear that if some rules and controls are a little below our standards we may still recognise those exchanges and clearing houses, especially if people of our country are dealing in or involved with those exchanges. That is a recipe for trouble. We have only to look back over the past few years to see the flow of funds around the world dodging in and out of various tax havens such as the Cayman Islands and falling ultimately into the hands of British citizens who then rather rapidly depart for foreign parts. We never seem to extradite them from abroad.
I am very worried about how investors and investments can be moved around the world and about the idea of recognising international exchanges if they do not have the same controls and regulations as ours. At the end of the day, we must be looking after one person. As the Bill has trundled its weary way through the various Committees and passages in another place, and as it has grown in size, the importance of that one person has diminished. That person is the investor. There are so many complications and we now appear to be easing off the little international agreements which we were to have so that the controls and regulations of those we recognise should at least be as good as the controls and regulations which we ourselves may establish. I hope that the Minister will comment on that point.The Minister rightly referred to the reciprocal aspect of the amendments and drew attention to something which I warmly endorse—the importance of obtaining international agreements on common standards. I have supported from afar his efforts with the American authorities. This is an opportunity for him to explain to the House what progress has been made in that direction since we last discussed the matter.
Since these matters were last debated a memorandum of understanding has been agreed between the United States and Britain which provides in detail for the circumstances in which information is to be exchanged between regulators in the two countries. It is a far-reaching agreement of considerable significance. I hope that it will provide the basis for a treaty between both countries in the near future.
We are hoping to build upon that precedent and we are discussing with the Japanese on the basis that it might be possible to come to an agreement with them. We hope that in due course it will be possible to come to agreements with yet other countries. We are aware of the importance of co-operation between international regulators. I believe that the key to that operation is the mutual exchange of information, because that information is the key to discovering who is responsible for misbehaviour. We have made a good deal of progress and we shall continue to pursue the matter. The hon. Member for St. Helens, South (Mr. Bermingham) will forgive me if I say that I have already dealt with his questions. I said that it was essential that such investors' interests should be as well protected as the interests of an investor using the facilities of a domestic exchange or clearing house recognised under the Bill. This provision does not detract from that important requirement for the provision of proper protection for investors. However, circumstances, perhaps arising out of the law of the country concerned, for other reasons might prevent the clearing house or investment exchange overseas from complying with all the provisions which would apply to clearing houses and investment exchanges in Britain. It is not necessary to insist on compliance with each of those requirements, as long as the essential safeguard of adequate investor protection, commensurate with that provided by the arrangements in Britain, is available. Only if that protection is available do these provisions come into operation.I agree with the Minister, but perhaps he has misunderstood my point. Some countries might not meet every criterion of our regulations, but the Minister said that when the regulations were as good as ours they would still he considered. Who will judge how well an investor is protected under regulations which are not equivalent to ours and which are operated in a country whose laws are different from ours?
The Secretary of State. It is not a transferable power.
Perhaps we should keep a close watch on the extent to which, when other countries are acquiring interests in investment exchanges, the equivalent rules or the way in which misbehaviour can occur is related to the activities of countries which do not have the same attitudes as we have. I know that such exchanges will be covered by the Bill, but I hope that those who come into the country will be carefully monitored and a check will be made of which companies are owned by which countries.
That is a different point and is not related to the provisions which deal with the recognition of overseas investors. There is no intention of accepting any less investor protection in terms of the recognition of such bodies than applies to domestic bodies.
Question put and agreed to.
New Clause
Listed Money Market Institutions
Lords amendment: No. 41, after clause 40, insert the following new clause—
.—(1) A person for the time being included in a list maintained by the Bank of England for the purposes of this section "a listed institution" is an exempted person in respect of, and of anything done for the purposes of, any transaction to which Part I or Part II of Schedule (Listed money market institutions) to this Act applies and in respect of any arrangements made by him with a view to other persons entering into a transaction to which Part III of that Schedule applies.
(2) The conditions imposed by the Bank of England for admission to the list referred to in this section and the arrangements made by it for a person's admission to and removal from the list shall require the approval of the Treasury; and this section shall cease to have effect if that approval is withdrawn but without prejudice to its again having effect if approval is given for fresh conditions or arrangements.
(3) The Bank of England shall publish the list as for the time being in force and provide a certified copy of it at the request of any person wishing to refer to it in legal proceedings.
(4) Such a certified copy shall be evidence or, in Scotland, sufficient evidence of the contents of the list; and a copy purporting to be certified by or on behalf of the Bank shall be deemed to have been duly certified unless the contrary is shown."
I beg to move, That this House doth agree with the Lords in the said amendment.
With this it will be convenient to discuss the following amendments: No. 57, page 29, line 24, after "40" insert ", (Listed money market institutions". No. 435, after schedule 3, insert the following new schedule—
Listed Money Market Institutions
Part I
Transactions Not Subject To Monetary Limit
"1. This Part of this Schedule applies to any transaction entered into by the listed institution as principal (or as agent for another listed institution) with another listed institution or the Bank of England (whether acting as principal or agent) if the transaction falls within paragraph 2 or 3 belowe.
2.—(1) A transaction falls within this paragraph if it is in respect of an investment specified in sub-paragraph (2) below and(a) in the case of an investment within any of paragraphs (a) to (d) of that sub-paragraph the transaction is not regulated by the rules of a recognised investment exchange; and (b) in the case of any other investment specified in that sub-paragraph, the transaction is not made on such an exchange or expressed to be as so made.
(2) The investments referred to above are—(a) a debenture or other instrument falling within paragraph 2 of Schedule 1 to this Act which is issued— (i) by a recognised bank or licensed institution within the meaning of the Banking Act 1979 or a building society incorporated in, or in any part of, the United Kingdom; and (ii) on terms requiring repayment not later than five years from the date of issue; (b) any other debenture or instrument falling within paragraph 2 of Schedule 1 to this Act which is issued on terms requiring repayment not later than one year from the date of issue; (c) loan stock, or any other instrument, falling within paragraph 3 of Schedule 1 to this Act which is issued on terms requiring repayment not later than one year or, if issued by a local authority in the United Kingdom, five years from the date of issue; (d) a warrant or other instrument falling within paragraph 4 of Schedule 1 to this Act which entitles the holder to subscribe for an investment within paragraph (a),(b) or (c) above; (e) any certificate or other instrument falling within paragraph 5 or 1I of Schedule I to this Act and relating to an investment within paragraph (a),(b) or (c) above; (f) an option falling within paragraph 7 of Schedule 1 to this Act and relating to— (i) an investment within paragraph (a),(b) or (c) above; (ii) currency of the United Kingdom or of any other country or territory; or (iii) gold or silver; (g) rights under a contract falling within paragraph 8 of Schedule 1 to this Act for the sale of— (i) an investment within paragraph (a),(b) or (c) above; (ii) currency of the United Kingdom or of any other country or territory; or (iii) gold or silver; (h) rights under a contract falling within paragraph 9 of Schedule 1 to this Act by reference to fluctuations in— (i) the value or price of any investment falling within any of the foregoing paragraphs; or (ii) currency of the United Kingdom or of any other country or territory; or (iii) the rate of interest on loans in any such currency or any index of such rates; (i) an option to acquire or dispose of an investment within paragraph (f),(g) or (h) above.
3.—(1) A transaction falls within this paragraph if it is a transaction by which one of the parties agrees to sell or transfer an investment falling within paragraph 2 or 3 of Schedule 1 to this Act and by the same or a collateral agreement that party agrees, or acquires an option, to buy back or re-acquire that investment or an equivalent amount of a similar investment within twelve months of the sale or transfer.
(2) For the purposes of this paragraph investments shall be regarded as similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights.
Part Ii
Transactions Subject To Monetary Limit
4. — (1) This Part of this Schedule applies to any transaction entered into by the listed institution—(a) as principal (or as agent for another listed institution) with an unlisted person (whether acting as principal or agent); (b) as agent for an unlisted person with a listed institution or the Bank of England (whether acting as principal or agent); or (c) as agent for an unlisted person with another unlisted person (whether acting as principal or agent), if the transaction falls within paragraph 2 or 3 above and the conditions in paragraph 5 or, as the case may be, paragraph 7 below are satisfied.
(2) In this Part of this Schedule and in Part III below "unlisted person" means a person who is neither a listed institution nor the Bank of England.
5. — (1) In the case of a transaction falling within paragraph 2 above the conditions referred to above are as follows but are subject to paragraph 6 below.
(2) The consideration for a transaction in respect of an investment falling within paragraph 2(2)(a),(b) or (c) above must be not less than £100,000.
(3) The consideration payable on subscription in the case of an investment falling within paragraph 2(2)(d) must be not less than £500,000.
(4) The value or price of the property in respect of which an option within paragraph 2(2)(f) above is granted must be not less than £500,000.
(5) The price payable under a contract within paragraph 2(2)(g) above must be not less than £500,000.
(6) The value or price the fluctation in which, or the amount the fluctuation in the interest on which, is relevant for the purposes of a contract within paragraph 2(2)(h) above must be not less than £500,000.
(7) In the case of an option falling within paragraph 2(2)(i) above the condition in sub-paragraph (4), (5) or (6) above, as the case may be, must be satisfied in respect of the Investment to which the option relates.
6. The conditions in paragraph 5 above do not apply to a transaction entered into by the listed institution as mentioned in paragraph (a),(b) or (c) of paragraph 4(1) above if—(a) the unlisted person mentioned in paragraph (a) or (b) or, as the case may be, each of the unlisted persons mentioned in paragraph (c) has in the previous eighteen months entered into another transaction in respect of an investment specified in paragraph 2(2) above; (b) those conditions were satisfied in the case of that other transaction; and (c) that other transaction was entered into by that person (whether acting as principal or agent) with the listed institution (whether acting as principal or agent) or was entered into by that person through the agency of that institution or was entered into by him (whether acting as principal or agent) as a result of arrangements made by that institution.
7. In the case of a transaction falling within paragraph 3 above the condition referred to in paragraph 4 above is that the consideration for the sale or transfer must be not less than £100,000.
8. The monetary limits mentioned in this Part of this Schedule refer to the time when the transaction is entered into; and where the consideration, value, price or amount referred to above is not in sterling it shall be converted at the rate of exchange prevailing at that time.
Part Iii
Transactions Arranged By Listed Institutions
9. Subject to paragraphs 10 and 11 below, this part of this Schedule applies to any transaction arranged by the listed institution which—(a) is entered into by another listed institution as principal (or as agent for another listed institution) with another listed institution or the Bank of England (whether acting as principal or agent); (b) is entered into by another listed institution (whether acting as principal or agent) with an unlisted person (whether acting as principal or agent); or (c) is entered into between unlisted persons (whether acting as principal or agent), if the transaction falls within paragraph 2 or 3 above.
10. In the case of a transaction falling within paragraph 2 above paragraph 9(b) and (c) above do not apply unless either the conditions in paragraph 5 above are satisfied or(a) the unlisted person mentioned in paragraph (b) or, as the case may be, each of the unlisted persons mentioned on paragraph (c) has in the previous eighteen months entered into another transaction in respect of an investment specified in paragraph 2(2) above; (b) those conditions were satisfied in the case of that other transaction; and (c) that other transaction was entered into by that person (whether acting as principal or agent) with the listed institution making the arrangements (whether acting as principal or agent) or through the agency of that institution or was entered into by that person (whether acting as principal or agent) as a result of arrangements made by that institution.
11. In the case of a transaction falling within paragraph 3 above paragraph 9(b) and (c) above do not apply unless the condition in paragraph 7 above is satisfied."
These amendments reflect the decision announced by my hon. Friend the Economic Secretary, in May, that the Bank of England should regulate the wholesale money, bullion and foreign currency markets. The behaviour of these markets is closely connected with the money supply and the Bank of England, as part of its economic responsibilities, has by tradition been closely involved with them and has generally supervised them. Under the Bill as originally drafted, some of the activities in these markets were covered by the Bill, and others were not. This was not an altogether satisfactory position and on reflection it was decided that the bank should be made responsible for these markets. The Government will be publishing a consultative document about their future regulation later this year.
As a consequence of this decision and in order to reduce supervisory overlap, the Economic Secretary announced that the Bill would be amended so as to remove from regulation under it certain transactions in the wholesale markets undertaken or arranged by institutions subject to supervision by the bank under the new arrangements. These amendments implement that undertaking. They have been the subject of widespread consultation with interested parties. The general approach has been widely welcomed and we have been able to meet the detailed difficulties which have been drawn to our attention. I commend the amendments to the House.The Minister will accept that this is an important innovation and that the House should pause to register what is happening.
The amendments deal with the problem that has bedevilled the Bill in different areas. I refer to drawing a distinction between those areas of investment business which affect the small, unprofessional investor and those which are in the hands of professionals. The wholesale money markets fall within that latter category. I can accept the broad argument for treating the two categories in slightly different ways, or in a substantially different way, by removing one category from the supervisory framework in the Bill. I am less convinced by the argument about a supervisory overlap. That has never been regarded as a reason for exempting other forms of investment activity from the Bill's provisions. Almost every form of business covered by the Bill is supervised in one form or another by a supervisory authority. It is, therefore, hard to see why the argument should carry any weight. I am not persuaded by that argument. Even if one accepted the argument, there is one peculiarity about the way in which the new provision is drafted. The list of exempted money market institutions is entirely within the discretion of the Bank of England, subject to the Treasury's approval. That is a peculiar feature in a Bill sponsored by the Department of Trade and Industry. A major hole, or vacuum, has suddenly appeared in the Bill, the dimensions of which are in the hands of the Bank of England and the Treasury. On many occasions the Minister has argued effectively that his objective is to remove such regulations from the dead hand of the Treasury. That was the argument before making the Securities and Investments Board a private body. The suggestion that it should he a public body brought forth the argument that—horror of horrors—its budget and resources would be under the control of the Treasury. I am not particularly persuaded by that argument, but it seems to be the only argument that the Government can advance on that point. If the Treasury's role is so inimical to what the Department of Trade and Industry wants to achieve, how can the Minister, apparently without demur, stand at that Dispatch Box and say that, with Treasury approval, the Bank of England can remove wholesale a vast chunk of investment activity from the Bill's purview? Do we not have yet another example — and there may be others—of the Treasury having muscled in and outgunned the Department of Trade and Industry? Is the Minister happy with that?7.30 pm
The transactions that will be subject to these arrangements appear to be listed in the new schedule to come after schedule 3. I am not sure whether that schedule can be altered by the Bank of England without further authority. Was the hon. Member for Dagenham (Mr. Gould) saying that the schedule could be changed on the say-so of the Bank of England? If so, I share his concern.
Moreover, the distinction between debt and equity is not as clear as it was. It is now possible to issue an instrument that begins as straightforward debt but which, because it has conversion rights, can end up being straightforward equity. I am not sure how these arrangements deal with that. An instrument that started off as a money market instrument would end up as a security which should be regulated by the Bill.I support what the hon. Member for Beaconsfield (Mr. Smith) has said. There are so many converted and new types of stock coming on to the market which change their shape and format over a period of time that one wonders what is being covered by what.
Who in the Treasury will authorise the Bankof England altering the list rather than schedule 3 itself? It seems to be rather like one's left hand shaking one's right hand to congratulate it on what one has done. If there is no regulation, one begins to wonder what is going on. Is there an ongoing battle with the dead hand of the Treasury crawling once more from its grave to throttle our institutions? I thought that we had been promised that all that would go with this new, wonderful set of securities regulations. But perhaps I am once again being a little cynical in thinking that the words that first accompanied this Bill at the Dispatch Box will not be those that will be uttered at the end of its passage. I am making a serious point. Who at the Treasury will control? How will there be any accountability when the Treasury authorises the bank? Who controls the bank? The answer is the Treasury.The hon. Member for Dagenham (Mr. Gould) uncharacteristically misconstrued the arguments that I have been advancing on another issue. I am certain that I never used the phrase "the dead hand of the Treasury", although I drew the attention of the House, in another context, to the importance of ensuring that the regulatory structure set up by the Bill is free from the public sector financial constraints that would have been a feature of the statutory system that is so beloved by the hon. Gentleman and his hon. Friends.
I do not accept that there is a hole in the regulation or a vacuum. Indeed, the hon. Gentleman recognised the good sense of taking these wholesale instruments out of the regulatory regime of the legislation. These amendments seek to move the dividing line between the areas regulated by the Bank of England and those regulated by the Bill. The principle behind the move is widely supported. The dividing line is somewhat pragmatic, and no doubt people will have their views about the details, and things will change. That is why amendment No. 57 adds a new provision to those listed in clause 43 in order to ensure that amendments can be made by order if they prove necessary. But those amendments to the list of instruments now found in the new schedule are to be made by the Secretary of State and not by the Bank of England or the Treasury. The Treasury's role is in approving criteria for admission to, and removal from, the bank's list of institutions—not of instruments. It is important that the Treasury should have that role, because it ensures proper accountability to the Government and Parliament in that regard. Therefore, we are talking about a sensible distinction in recognising the reality of the distinctions to be made between the wholesale money markets and those areas that more properly come within the ambit of the Bill. The changes reflect that distinction.Question put and agreed to.
Clause 41
Appointed Representatives
Lords amendment: No.42, in page 27, line 18 leave out "subsection (4)" and insert "subsections (4) and (4A)".
Read a Second time.
With this it will be convenient to discuss the following Lords amendments: No. 43, in page 27, line 19, after "on" insert
No. 44, in page 27, leave out lines 21 and 22 and insert"the whole or part of".
No. 45, in page 27, line 28, leave out "authorised". No. 46, in page 27, line 28, leave out "or". No. 47, in page 27, line 32, leave out "authorised". No. 48, in page 27, line 32, at end insert"writing and the investment business carried on by an appointed representative as such is the investment business for which his principal has accepted responsibility".
";or
No. 49, in page 27, line 36, leave out "authorised". No. 50, in page 27, line 39, leave out "authorised". No. 51, in page 27, line 40, at end insert—(c) giving advice as to the sale of investments issued by his principal or as to the exercise of rights conferred by an investment whether or not issued as aforesaid."
No. 52, in page 28, line 1, leave out subsection (5). No. 53, in page 28, line 9, after "done" insert "or omitted". No. 54, in page 28, line 12, leave out from "with" to end of line 15 and insert—"(4A) If the contract between an appointed representative and his principal does not prohibit the representative from giving advice about entering into investment agreements with persons other than his principal it must make provision for enabling the principal either to impose such a prohibition or to restrict the kinds of advice which the representative may give by reference to the kinds of investment in relation to which or the persons with whom the representative may advise that investment agreements should be made."
"(a) any provision contained in or made under this Act; or (b) any rules of a recognised self-regulating organisation or recognised professional body, anything which a person who at the material time is or was an appointed representative of the authorised person has said, done, or omitted as respects investment business for which the authorised person has accepted responsibility shall be treated as having been said, done or omitted by the authorised person.
(7A) Nothing in subsection (7) above shall cause the knowledge or intentions of an appointed representative to be attributed to his principal for the purpose of determining whether the principal has committed a criminal offence unless in all the circumstances it is reasonable for them to be attributed to him.
No. 112, in clause 59, page 46, line 5, after "person" insert(8) In this Act "investment agreement" means any agreement the making or performance of which by either party constitutes an activity which falls within any paragraph of Part II of Schedule 1 to this Act or would do so apart from Parts III and IV of that Schedule."
No. 114, in page 46, line 27, leave out "a person" and insert "(a) an authorised person" No. 115, in page 46, line 28, leave out "(a)". No. 117, in page 46, line 30, leave out "(b)". No. 118, in page 46. line 32, at end insert"or, except in the case of the power conferred by section 60 below, any appointed representative of his"
"or
No. 119, in page 46, line 36, leave out(b) an appointed representative whose principal or, in the case of such a representative with more than one principal, each of whose principals is a member of such an organisation or body and is subject to the rules of such an organisation or body in carrying on the investment business in respect of which his principal or each of his principals has accepted responsibility for his activities;".
and insert"or body of which he is a member"
No. 120, in clause 61, page 47, line 8, after "person" insert"of which he or, in the case of an appointed representative, any of his principals is a member or any such body by which he or, as the case may be, any of his principals is certified".
No. 121, in page 47, line 9, after "person" insert"or appointed representative".
No. 122, in clause 62, page 47, line 16, after "person" insert "or appointed representative" No. 123, in page 47, line 18, at end insert "or appointed representative" No. 124, in page 47, line 22, after "person" insert"or, as the case may be, representative"
No. 125, in clause 63, page 47, line 33, after "person" insert "or appointed representative" No. 126, in page 47, line 35, after "person" insert"or, as the case may be, appointed representative".
No. 379, in clause 171, page 139, line 39, at end insert—"or, as the case may be, appointed representative"
No. 385, in clause 173, page 141, line 33, leave out"(d) in the case of an appointed representative, be given to or served on his principal."
No. 479, in schedule 9, page 178, line 17, leave out"5(7)" and insert "41(8)".
and insert—"agreement to acquire or dispose of an investment"
No. 499, in page 180, line 35, at end insert—"investment agreement".
No. 500, in page 180, line 39, after "society" insert "or such a representative". No. 502, in page 181, line 10, leave out from "relation" to "except" and insert—"or the appointed representative of such a society"
No. 503, in page 181, line 13, after "society" insert "or appointed representative". No. 504, in page 181, line 14, leave out"(a) to a member society which is subject to the rules of a recognised self-regulating organisation for friendly societies in carrying on all the investment business carried on by it; or (b) to an appointed representative of a member society if that member society, and each other member society which is his principal, is subject to the rules of such an organisation in carrying on the investment business in respect of which it has accepted responsibility for his activities;".
and insert—"it is a member society"
"the society or, as the case may be, the society which is the representative's principal is a member society".
Perhaps my hon. and learned Friend the Minister can explain the effect of the rather complicated set of amendments to clause 41. How do they affect the principles of polarisation which we discussed in detail in Committee? Numerous representations have been made to us, particularly by the clearing banks.
These amendments are largely technical and correct some defects in the regime of the Bill for appointed representatives. Perhaps the two most important effects of the amendments are to extend the definition of the business that an appointed representative may carry on and—I come to the point that may have given rise to my hon. Friend's concern—to ensure that an appointed representative is allowed to have a number of principals.
The reason behind the provision permitting an appointed representative to have more than one principal relates to the problems created for insurance companies by the fact that section 16 of the Insurance Companies Act 1982 prohibits them from carrying on any activity otherwise than in connection with, or for the purposes of, their insurance business. It follows that an insurance company could not lawfully accept responsibility for an appointed representative when he was selling non-insurance products, such as unit trusts offered by a unit trust company in the same group. It is undesirable that an insurance company's appointed representative should not be able to sell other products offered by companies in the same group if the contract between the company and the representative permits it. The amendments therefore make it possible for a principal to be able to accept responsibility for part of his representative's activities. But this should not prevent polarisation being instituted by a designated agency. Rules can be made under clause 45(2) (f) restricting the sort of principals a particular appointed representative may have. Indeed, the change would facilitate what the SIB has proposed in this area. As my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) will know, it has always envisaged that an appointed representative should be restricted to selling not just the products of a single company but the products of a single company or group. The amendments do nothing to make it more difficult for rules to that effect to be promulgated. Indeed, they facilitate that.The House will be grateful to my hon. and learned Friend the Minister for his elucidation of the purpose behind the amendments. But the amendments are a little more than technical, and raise an issue which was the subject of an important debate both in Committee and on Report. Many hon. Members have taken an interest in this subject. We are enlarging, in a desirable way, the range of investment insurance products that an authorised representative can offer to members of the investing public.
Therefore, in yet another material way we are perhaps granting a facility, privilege, freedom or authorised right to that group of people who are competing against independent intermediaries in the offering of a variety of different products. It may be that in the former case we are talking about a variety of insurance or investment products within a group of companies, offered through a range of subsidiaries. That is wholly desirable. I am sure that this does not in any way undermine the principle of polarisation. What progress has been made to ensure that the provision of these services will he free and fair and that many of the uncertainties which independent intermediaries fear would arise as a result of this proposal of polarisation will not occur? I am referring, in particular, to a commission agreement. Although that is not directly relevant to the technical import of these amendments, it is relevant because the question of polarisation and what authorised representatives, as well as independent intermediaries, are allowed to do must be considered together. Before we seek to ratify what their Lordships did in the other place, I wish to know what progress has been made with regard to the commission agreement. May we reassure the many enterprising companies and individuals who are involved as independent intermediaries and who provide these investment services? We hear varying tales of the extent to which these parties will be subject to the commission agreement and will be protected by the arrangements envisaged. I should be grateful for the Minister's comments on this.I support the general remarks made by the hon. Members for Chichester (Mr. Nelson) and for Bournemouth, West (Mr. Butterfill).
Is it possible for the Minister to tell us what is likely to emerge in terms of commission agreements, disclosure of charges and so on about which there has been a great deal of speculation and press comment? That is one important issue. An equally important, related issue is the alarm which many of us felt at the strong indications front the other place that a great deal of pressure was being put on the Government to unravel—that is how I see it—the whole structure which the Standing Committee had worked hard to establish. An important plank of that work was the principle of polarisation. If, at any time, the Government were tempted to accede to pressure put upon them, presumably by the clearing banks, and were in some way to weaken or modify the principle of polarisation, the whole structure of the regulation of the sale of life insurance would come to pieces. I was encouraged by what happened in the other place and I congratulate the Government on standing firm on this point. The Minister is obliged to answer for the Securities and Investments Board. The draft rules and activities of the SIB are not easily accessible from debates and I wonder whether the Minister can give us a further assurance, if that is possible, that the SIB is intent upon adhering, in its rules, to the principle of polarisation. I seek an assurance that, even at this late stage, the principle of polarisation will not be lost sight of in the SIB's rules.The House will be aware, as the hon. Member for Dagenham (Mr. Gould) said, that the Government have not acceded to any suggestion for any changes in legislation which would eat away at the principle of polarisation. During the course of many debates in Committee I have made my views clear on the desirability of the general terms of polarisation.
The SIB, in the course of its preparation for application for designation, must draw up its own rules governing this topic. It is for the SIB to consider whether there is any scope for considering how those rules can apply to particular institutions. That is a matter for the designated agency and it is one which the Secretary of State will wish to take into account when he decides whether those rules are appropriate and sufficient to enable him to designate the agency.I am especially glad to have heard the Minister's last few sentence because this was a matter that the Government were pressed upon, not least by my colleagues in another place, who take a different view on polarisation.
I expressed that view in relation to insurance agents and tied and independent intermediaries. At the end of that debate—I recall that the amendment was withdrawn—the Government conceded that there was a considerable amount of discussion yet to take place in relation to the clearing banks. On the basis of that assurance, my colleagues and indeed Conservative Members of the other place who had raised objections withdrew their amendments. Will the Minister confirm that the matter is still open for discussion?7.45 pm
This is not a discussion in which the Government are taking part. It is a discussion between the SIB and those institutions which are affected. Clearly the SIB is having a number of discussions with interested parties and it is right that it should do so.
It is the responsibility of the SIB to draw up its rules and it is right and proper that, in the course of that task, it should engage in discussions. The Government's role begins when the SIB makes its application for designation. It would be wrong and quite inappropriate for me to be drawn into detailed questions, which inevitably would form the basis of detailed rules drawn up by the SIB.Are we right in concluding from the Minister's earlier remarks that the shape and direction of the rules in relation to polarisation is something in which the Secretary of State, and indeed the Under-Secretary of State, will take a close interest?
I think it is well accepted that the Minister and the SIB talk from time to time and that they will indeed discuss polarisation. Are we right to conclude that, in the course of those conversations, the Minister will bear in mind the decision—jointly arrived at by the Standing Committee —in respect of the importance of polarisation?I have already said that I have not departed from the views I expressed in Standing Committee. The detailed application of the principle of polarisation in particular circumstances must be a matter for the SIB. I do not propose to be drawn any further on the matter this evening.
I understand that and, of course, it would be quite wrong of me to press my hon. Friend on detailed points.
When the Secretary of State comes to consider designated agencies, will he be satisfied with a set of rules, contemplated by the agency, by which a conglomerate financial institution would hold itself out as offering objective investment advice to the small investor and yet at the same time be marketing to that small investor its in-house products?I understand my hon. Friend's concern. When the time for designation arrives the Secretary of State will certainly pay close attention to such rules.
My hon. Friend the Member for Chichester (Mr. Nelson) asked about the likelihood of a commission agreement. He will appreciate that it is not within my power to guarantee that there will be such an agreement, although the signs suggest this. Ever since the publication, in January 1985, of the White Paper on financial services in the United Kingdom the Government have made their position clear. The Government believe that commissions received by independent intermediaries from insurance companies should be disclosed—either by disclosure of the commission received or in accordance with the proposition that the remuneration is within the terms of a voluntary, industry-wide agreement. Such an agreement would need to be examined in relation to its impact on competition. Arrangements would have to be made to provide investors with ready access to details of the agreement. The Government envisage that there might be such an agreement. The Life Assurance and Unit Trust Regulatory Organisation, which is seeking to become the recognised self-regulating organisation for life offices and unit trusts, is strongly committed to the idea of a commissions agreement. It is already working on the form of such an agreement involving consumer and intermediary interests in the work and I think that those indications provide a strong answer to the question posed by my hon. Friend as to the likelihood of such an agreement.Question put and agreed to.
Subsequent Lords amendment agreed to.
Clause 42
Miscellaneous Exemptions
Lords amendment: No. 55, in page 29, line 13, leave out
"222 of the Insolvency Act 1985"
and insert
"399 of the Insolvency Act 1986"
I beg to move, That this House doth agree with the Lords in the said amendment.
With this it will be convenient to consider the following amendments: No. 56, in page 29, line 16, at end insert
"(2) Where a bankruptcy order is made in respect of an authorised person or of a person whose authorisation is suspended under section 27 above or who is the subject of a direction under section 32(1)(b) above or a winding-up order is made in respect of a partnership which is such a person, the trustee in bankruptcy or liquidator acting in his capacity as such is an exempted person but—(a) sections 45 to 66 below and, so far as relevant to any of those provisions, Chapter IX of this Part of this Act; and (b) sections 91, 92 and 93 below. shall apply to him to the same extent as they applied to the bankrupt or partnership and, if the bankrupt or partnership was subject to the rules of a recognised self-regulating organisation or recognised professional body, he shall himself also be subject to those rules.
(3) In the application of subsection (2) above to Scotland—(a) for the reference to a bankruptcy order being made in respect of a person there shall be substituted a reference to the estate of that person being sequestrated; (b) the reference to a winding up order in respect of a partnership is a reference to such an order made under section (Power to petition for winding-up orders) below; (c) for the reference to the trustee in bankruptcy there shall be substituted a reference to the interim trustee or permanent trustee within the meaning of the Bankruptcy (Scotland) Act 1985; and (d) for the references to the bankrupt there shall be substituted references to the debtor.
No. 132, after clause 66 insert the following new clause—(4) In the application of subsection (2) above to Northern Ireland for the reference to a bankruptcy order there shall be substituted a reference to an order of adjudication of bankruptcy and the reference to a trustee in bankruptcy shall include a reference to an assignee in bankruptcy."
"Chapter Via
Winding Up And Administration Orders
Power to petition for winding up orders
(1) On a petition presented by the Secretary of State by virtue of this section, the court having jurisdiction under the Insolvency Act 1986 may wind up an authorised person or appointed representative to whom this subsection applies if—
(2) Subsection (1) above applies to any authorised person, any person whose authorisation is suspended under section 27 above or who is the subject of a direction under section 32(1)(b) above or any person or appointed representative who is—
(3) For the purposes of a petition under subsection (1) above a person who defaults in an obligation to pay any sum due and payable under any investment agreement shall be deemed to be unable to pay his debts.
(4) Where a petition is presented under subsection (1) above for the winding up of a partnership on the ground mentioned in paragraph (b) of subsection (1) above or, in Scotland, on a ground mentioned in paragraph (a) or (b) of that subsection, the court shall have jurisdiction arid the Insolvency Act 1986 shall have effect as if the partnership were an unregistered company within the meaning of section 220 of that Act.
(5) The Secretary of State shall not present a petition under subsection (1) above for the winding up of any person who is an authorised person by virtue of membership of a recognised self-regulating organisation or certification by a recognised professional body and is subject to the rules of the organisation or body in the carrying on of all investment business carried on by him, unless that organisation or body has consented to his doing so."
No. 133, after clause 66, insert the following new clause—
"Winding up orders: Northern Ireland.
.—(1) On a petition presented by the Secretary of State by virtue of this section, the High Court in Northern Ireland may wind up an authorised person or appointed representative to whom this subsection applies if—(a) the person is unable to pay his debts within the meaning of Article 480 or, as the case may be, Article 616 of the Companies (Northern Ireland) Order 1986; or (b) the court is of the opinion that it is just and equitable that the person should be wound up.
(2) Subsection (1) above applies to any authorised person, any person whose authorisation is suspended under section 27 above or who is the subject of a direction under section 32(1) (b) above or any appointed representative who is—(a) a company within the meaning of Article 3 of the Companies (Northern Ireland) Order 1986; (b) an unregistered company within the meaning of Article 615 of that Order; or (c) a Part XXIII company within the meaning of Article 2 of that Order; or (d) a partnership.
(3) For the purposes of a petition under subsection (1) above a person who defaults in an obligation to pay any sum due and payable under any investment agreement shall be deemed to be unable to pay his debts.
(4) Where a petition is presented under subsection (1) above for the winding up of a partnership on the ground mentioned in paragraph (b) of subsection (1) above, the High Court in Northern Ireland shall have jurisdiction and the Companies (Northern Ireland) Order 1986 shall have effect as if the partnership were an unregistered company within the meaning of Article 615 of that Order.
(5) The Secretary of State shall not present a petition under subsection (1) above for the winding up of any person who is an authorised person by virtue of membership of a recognised self-regulating organisation or certification by a recognised professional body and is subject to the rules of the organisation or body in the carrying on of all investment business carried on by him, unless that organisation or body has consented to his doing so."
No. 134, after clause 66, insert the following new clause—
("Power to petition for administration orders.
A petition may be presented under section 9 of the Insolvency Act 1986 (applications for administration orders) in relation to a company to which section 8 of that Act applies which is an authorised person, a person whose authorisation is suspended under section 27 above or who is the subject of a direction under section 32(1)(b) above or an appointed representative—(a) in the case of an authorised person who is an authorised person by virtue of membership of a recognised self-regulating organisation or certification by a recognised professional body, by that organisation or body; and (b) in the case of an appointed representative or an authorised person who is not authorised as mentioned in paragraph (a) above or is so authorised but is not subject to the rules of the organisation or body in question in the carrying on of all investment business carried on by him, by the Secretary of State."
No. 189, in clause 96, page 76, line 16, at end insert—
"(f) section (Communication by auditor with supervisory authorities) (2) above;".
No. 331, in clause 150, page 119, line 13, leave out
"3 of the Insolvency Act 1985")
and insert
"391 of the Insolvency Act 1986".
No. 377, after clause 165, insert the following new clause—
"Power to petition for winding up or administration order on information obtained under Act 1985 c.6
.—(1) In section 440 of the Companies Act 1985—(a) after the words "section 437" there shall be inserted the words "above or section 81 of the Financial Services Act 1986; and (b) after the words "448 below" there shall be inserted the words "or section 92 of that Act".
(2) In section 8 of the Company Directors Disqualification Act 1986—(a) after the words "the Companies Act" there shall be inserted the words "or section 81 or 147 of the Financial Services Act 1986"; and (b) for that words "the Act" there shall be substituted the words "the Companies Act or section 92 of the Financial Services Act 1986".
(3) In Article 433 of the Companies (Northern Ireland) Order 1986—(a) after the words "Article 430" there shall be inserted the words "or section 81 of the Financial Services Act 1986"; and (b) after the word "441" there shall be inserted the words "or section 92 of that Act"."
No. 446, in schedule 8, page 168, line 5, at end insert—
"() The powers conferred by section [Power to petition for winding up orders] of this Act shall not be exercisable in relation to a regulated insurance company."
No. 527, in schedule 9, page 199, line 10, leave out
"1985" and insert
"1986, the Company Directors Disqualification Act 1986".
No. 528, in page 199, line 41, leave out
"3 of the Insolvency Act 1985"
and insert—
"391 of the Insolvency Act 1986".
This group of amendments concerns the position of authorised businesses which become insolvent. The first amendment, to clause 42, concerns a bankruptcy order or winding-up order relating to an authorised person who operates as a sole trader or partnership. In these circumstances, the authorisation to carry on investment business under which that firm has operated will not be transferable with the business to the trustee in bankruptcy or liquidator appointed by the court. As the trustee will already have satisfied the "fit and proper" test imposed by the Insolvency Act 1986 to qualify as an insolvency practitioner, an exemption from any authorisation requirement in these limited circumstances is reasonable.
Amendments in this group also enable the Secretary of State or agency to petition the court for the winding-up of an authorised person which is a company or partnership, if it cannot pay its debts or if the court considers that it is just and equitable to do so. Provision is also made to enable any regulator to petition the court for appointment of an administrator under the Insolvency Act 1986 to take over the affairs of an authorised business which is a company. The court will have to be satisfied that the criteria set out in the Insolvency Act 1986 for the appointment of an administrator are fulfilled before it grants such an application. The new clause after clause 165 contains technical amendments to allow information obtained under powers given in this Bill to be used in the exercise of powers conferred by the Companies Act.Question put and agreed to.
Subsequent Lords amendments agreed to.
Clause 45
Conduct Of Business Rules
Lords amendment: No. 61, in page 31, leave out lines 41 to 44 and insert—
"(i) as to the circumstances and manner in which and the time when or the period during which action may be taken for the purpose of stabilising the price of investments of any specified description; ".
I beg to move, That this House doth agree with the Lords in the said amendment.
It will be convenient to consider the following Lords amendments: No. 63, in page 32, line 23, leave out subsection (6).
No. 64, in page 32, line 34, leave out from first "of' to end of line 37 and insert"section 44 above.
(6A) Section 44(2) above shall not be regarded as contravened by anything done for the purpose of stabilising the price of investments if it is done in conformity with rules made under this section and—(a) in respect of investments which fall within any of paragraphs 1 to 5 of Schedule 1 to this Act and are specified by the rules; and (b) during such period before or after the issue of those investments as is specified by the rules.
(6B) The Secretary of State may by order amend subsection (6A) above—(a) by restricting or extending the kinds of investment to which it applies; (b) by restricting it so as to apply only in relation to the issue of investments in specified circumstances or by extending it, in respect of investments of any kind specified in the order, so as to apply to things done during a specified period before or after events other than the issue of those investments.
No. 186, in clause 96, page 76, line 13, at end insert—(6C) No order shall be made under subsection (6B) above unless a draft of it has been laid before and approved by a resolution of each House of Parliament."
No 312, in clause 145 page 112, line 36, leave out from beginning to end of line 2 on page 113 and insert—"(bb) section 45 (6B);"
"Price stabilisation.
6. No provision of section 1, 2, 4 or 5 prohibits an individual from doing anything for the purpose of stabilising the price of securities if it is done in conformity with rules made under section 45 of the Financial Services Act 1986 and —(a) in respect of securities which fall within any of paragraphs 1 to 5 of Schedule 1 to that Act and are specified by the rules; and (b) during such period before or after the issue of those securities as is specified by the rules.
(2) Any order under subsection (6B) of section 45 of that Act shall apply also in relation to subsection (I) of this section."
No 440, in schedule 6 page 161, line 11, at end insert—
"7A. Rules made under section 45 of this Act regulating action for the purpose of stabilising the price of investments must make proper provision for ensuring that where action is or is to be taken in conformity with the rules adequate arrangements exist for making known that the price of the investments in respect of which the action is or is to be taken (and, where relevant, of any other investments) may be affected by that action and the period during which it may be affected; and where a transaction is or is to be entered into during a period when it is known that the price of the investment to which it relates may be affected by any such action the information referred to in paragraph 7 above includes information to that effect".
No. 475, in schedule 9 page 178, line 7, leave out from beginning to "in" in line 8 and insert
"Section 46 of this Act shall apply in relation to rules under this paragraph as it applies".
No. 476, in page 178, line 10, leave out "references"and insert "reference". No. 477, in page 178, line 11, leave out "references" and insert "a reference". No. 478, in page 178, line 13, leave out "of section 46".
These amendments are the result of extensive discussions with a number of interested parties, including the International Securities Regulatory Organisation. It was argued in those discussions that the original exemption from the market manipulation offence for stabilisation, which was confined to action intended to stabilise the market price of international bonds in the period before or during an issue of such bonds, was too narrowly drawn. It was put to us that there is an increasing market in international equities and if stabilisation techniques accepted elsewhere in respect of such issues were not permitted in the United Kingdom, we would be put at a considerable competitive disadvantage.
At a late stage, a further argument was advanced in another place that stabilisation should be permitted in circumstances unconnected with new issues, for instance, the sale or dispersal of a large, existing shareholding. The Government have accepted the case for extending to the stabilisation of equities the exemption from the market manipulation offence currently shown in clause 45(7) provided it is in conformity with rules made under that clause. I stress that last qualification. As elsewhere in the Bill, it is the rules themselves which will set out the detailed requirements for protecting investors. In extending the provisions to equities, it has been necessary to look again at the protections available to ordinary investors. Given the increasingly international nature of the securities market, it does not seem practicable, once we include equities, to identify those securities which are distinctively international or likely to be traded on a "professional only" basis. Instead, we specifically provide that the rules to be made under clause 45 should provide that there is adequate disclosure to investors of the fact that the price of investments in which they may be dealing may be affected by stabilisation. Amendment No. 440 introduces a new principle into schedule 6 to make this point clear. I turn now to the argument that stabilisation should be permitted in circumstances quite unrelated to the issue of investments. This argument was advanced at a very late stage. I have no wish to close the door on such arguments if they prove to be well-founded, but equally I believe we should be very careful before we rush to legislative conclusions in what has proved a very complex and technical area. I have thought it right, therefore, that we should meet this point by introducing the possibility of changing both the range of investments which may be stabilised without falling foul of clause 44(2) and the circumstances in which such stabilisation may take place provided that it is in conformity with the rules. This is the effect of subsections (6B) and (6C) of amendment No. 64. The order-making power will be subject to the affirmative resolution procedure and will not be delegatable to a designated agency. The remaining amendments are consequential. Amendment No. 312 to clause 145 reflects the fact that we have always intended that where stabilisation is permitted for the purpose of clause 44(2) it should also be exempt from the relevant provisions of the insider dealing legislation. Amendments Nos. 475 to 478 to schedule 9 stem from the fact that the defence against being found to have contravened clause 44(2) is available to anyone who acts in conformity with the rules made under clause 45 governing matters within the scope of the exemption in the new subsection 45(6A). The defence is not confined to authorised persons who are subject to clause 45 rules. This would include registered friendly societies. Separate provision in schedule 9 is therefore unnecessary and the amendments to that schedule reflect that.Mr. Gould
: The Minister will have some sympathy with me when I say that this is one of the most difficult areas in the Bill. It is made more difficult by the fact, as he conceded, that some of the pressure for change has come late in the day, certainly long since we last had the opportunity to consider this matter.
The problem as I see it — I speak as a layman as these matters are esoteric by most people's standards—is that the thrust and object of the Bill is to provide a substantial level of investor protection. One of the most important provisions to that effect is that which makes a criminal offence of market manipulation. It is one of the cardinal principles and planks of the Bill that there is a clearly defined criminal offence so that the ordinary person operating in the ordinary market who attempts to mislead other operators as to the true market price of an investment will commit an offence.
There are also, however, apparently powerful arguments in exactly the opposite direction. They state that in the Eurobond market — although we now see the argument being extended to international securities of all sorts, including equities, and from new issues to dealings in a secondary market of such equities—far from being a criminal offence, manipulation is to be authorised and welcomed as an essential feature of the proper operation of those markets. The fact that it is called market stabilisation in that context is mere labelling. It is most unsatisfactory that what is a criminal offence in one market should be authorised and welcomed in another. I am sure that the Minister must have wrestled long and hard with some of those problems over the past few weeks and months.
I had the benefit of a brief from ISRO on this matter and I understand that the case made is a very familiar one in so many regulatory matters. If the regulations are thought to be excessively rigid or inappropriate, then the threat is that the business being done will go elsewhere. We are essentially describing an offshore market in many respects. There is no particular reason, although I sometimes think that the reasons are stronger than people believe why the business should be done in London. Therefore, the argument is that if what is universally regarded in those markets as acceptable practice is
outlawed by the British regulatory regime, business will simply go elsewhere. That would be a pity. We derive benefit from having that market located in London. If the business is to be done, let it be done in London. If it is not done here we lose foreign exchange earnings, a certain amount of employment, and so on.
I understand the Minister's dilemma. However, the problem is that we are confronted with permissive provisions which cast the ultimate responsibility for resolving the dilemma upon the body which makes the rules. We have the benefit of having seen some draft rules on the question, and the Securities and Investments Board has done an admirable job in trying to establish what safeguards and criteria ought to apply in this difficult area.
8 pm
Nevertheless, it is still of considerable concern that the boundaries of the exemption are pretty unclear. We know that the distinction between an international market and a domestic market is not likely to remain fixed or concrete; it will change over time. The whole thrust of what is happening in the City of London right now is to break down that distinction substantially. For example, the merger between the SROs and the stock exchange shows that the old distinctions which used to be drawn between the domestic market and the international market in securities and equities is simply no longer likely to be either permanent or meaningful.
The question facing the Minister is that, given that he accepts the case for stabilisation in one area while still regarding market manipulation in another area as a criminal offence, how will he prevent the one area leaking into the other? Where is his sticking point? He has apparently already gone a long way towards conceding that stabilisation should be permitted in the secondary market in international securities. If that is the case, we are perilously close—
No.
The hon. and learned Gentleman says no, but there is provision in the Bill which makes it possible for rules to provide for that. Where are we to stop? The ordinary investor will want to participate in such a secondary market in international equities and that is largely the purpose of providing such a market. The notion that one can always rely on the concept of the experienced or business investor being exclusively engaged in this market is misleading.
There are further, more technical problems which are equally difficult to resolve. For example, if the international syndicates which have underwritten a new issue, or even a secondary issue — a large volume of shares are dealt in the secondary market—stabilise the market in accordance with the rules but do so a little more enthusiastically than should really be permitted by the rules, in other words, if in addition to the permitted stabilisation there is in the same transaction or series of transactions, in the same mopping up by the underwriters of spare shares, a further element of what might in other terms be regarded as market manipulation, how will that distinction be made? Where will the limit be applied as to the degree of stabilisation permitted? How will it be identified in the course of the one series of transactions in respect of the same issue of securities? These are immensely difficult problems. I confess that I do not have a solution to them, but then I am not the Minister. The Minister is obliged to offer some guidance to the House as to how these matters are to be resolved. At present, one of the most important principles underlying the Bill is in danger of substantial erosion. I want to be clear as to where the limits of that erosion will be.The hon. Member for Dagenham (Mr. Gould) has raised legitimate issues of concern. The line between what would be legitimate stabilisation and what would be misleading the market is an extremely fine and difficult one to draw. I can well understand why my hon. and learned Friend the Under-Secretary of State has, I believe, only reluctantly been persuaded to accept that stabilisation should be legitimised in the way that he contemplates.
His opening remarks helped me to clarify what was in his mind. I had been a little concerned that the provision for extending the categories of transactions in which stabilisation would be legitimate by means of affirmative resolution of both Houses was an extraordinarily cumbersome one if it was to be applied in active market conditions. It clearly would not work. If I have interpreted him correctly, he is merely giving the Government time to consider further what categories of transactions should be so legitimised. It will be impossible to avoid extending the categories to include secondary offerings. A signal case which is likely to arise before long will be the Government's offer of a further tranche of its holding of British Petroleum shares. As I understand it, under the Bill as amended stabilisation would not be permitted in the instance of such an offer. Yet I would have thought that that was typical of the sort of case of secondary offering where stabilisation would clearly be necessary to ensure orderly market conditions. We should not restrict ourselves to contemplating that only offerings of Government shareholdings would create such a situation. One can also imagine, perfectly respectably and properly, that a large private shareholding might be brought on to the market and that it would be in the interests of investor protection to have some stabilisation. Therefore, the class of categories covered will have to be extended. This is quintessentially the sort of matter that ought to be determined by the Securities and Investments Board. I fully concur with the hon. Member for Dagenham in recognising how extremely difficult and technical it will be to make the judgments, and that it will be a problem to provide regulatory provisions to meet specific circumstances. However, it cannot be avoided, and surely the Bill's strategy is to ensure a flexible and highly competent regulatory authority which can adapt to altering market circumstances of the kind that my hon. and learned Friend the Under-Secretary of State has recognised.In this series of amendments we have reached the heart of what is going on in the Bill. Whereas we had been going to pay lip service to investor protection, in fact we shall no longer do anything of the sort. When one starts to ask oneself certain questions about the proposals contained in these clauses, one begins to get a series of answers which are not very nice.
For example, who will decide what is or is not a domestic or international share, bond or security? When does the one change to the other? Who will make the decisions? Will there be someone standing at arm's length and looking in, or will it pass to the same old body which deals in those matters? Of course, as the Bill stands it will be done by people within the industry. Who will decide what is manipulation and what is merely stabilisation? The hon. Member for Stratford-on-Avon (Mr. Howarth) made a good point with regard to the placing of a large shareholding, perhaps in a fairly small company, which is in the hands of a single person and if put in its entirety on the market at any given moment will automatically depress the price. That follows as night follows day. Who will decide such cases? Will it be someone at arm's length, or someone who is actually involved in making the markets? Again, the answer falls in the latter category, self-regulation becomes self-evaluation and protection is denied. The Bill then begins to show many areas for grave worry. Even after all these amendments, the Government have not thought things through. For months, if not years, there has been pressure and comment from people within the City and elsewhere that there was much to learn from the Securities Exchange Commission across the Atlantic. But the Government would have none of that. They wanted self-regulation and they placed their offering upon the altar of that god. The small investor will ultimately pay because many of these deals will take place in in-house arrangements, where both buyer and seller, or trader on behalf of buyer and seller, are within the same building and the same company. We talk as though investors will somehow be protected by the mythical Chinese walls, but we have had enough experience of what can go wrong in the City in the past few years. For instance, we all know that insider dealing goes on. It is disapproved of, rarely if ever investigated, and even less frequently prosecuted. Yet it it criminal and investors suffer—and it is never the big boys, always the little people. What does the Minister intend to do about that? He has done nothing in the past. At least under the American system investigations are going on and lawyers and other persons involved are being prosecuted and the money recovered. What is happening in the City of London? The Minister knows as well as I do that the answer is nothing. No one is prosecuted and investors suffer. How great a charter is there for the crooks and the charlatans whom no one wants in the City because they are poison to the whole system'? The amendments do naught to tackle the cancer there. I ask the Minister one last time: Will the Government ever listen to anyone? Will they not listen to the experts in America and elsewhere? Will they not look again at that aspect? At the end of the day it will be the small investor who pays the price for paper-thin walls that do not hold secrets, for manipulation that is classically called stabilisation, and for the creation of international markets when they are really domestic markets. It will be the small shareholder, the small investor, who will ultimately lose because the protection is not there.The amendments are a good example of where the Government have listened to people and where they have shown great ability to come to terms with an exceedingly complex problem. The amendments are welcome. They respond in exactly the right way and strike exactly the right balance between the need to protect investors and the need to allow important business to be retained in the City of London and our economy. I pay tribute to my hon. and learned Friend the Minister and those others who have been involved in drafting the legislation.
We should emphasise the importance of this market to our economy and to financial services in particular. Whether hon. Members like it or not, the reality is that such is the nature of the international securities business that operators and market makers within that area will go elsewhere if they find the rules here inhibiting. The business will be done on behalf of investors in Britain and elsewhere outside Britain if rules and regulations impinge improperly and in a prejudicial way on the market. Although it is difficult to define them, there are material differences between what might loosely be called the domestic and international securities markets which justify the differential treatment which the amendments seek to achieve. First, the lines of stock involved in the international securities market are considerably larger than those involved in the domestic market. Secondly, the number of market makers and dealers within that market is much smaller than is the case with the domestic securities market. There are far fewer participants even if the eventual beneficial ownership of lines of stock ends up in a multiciplicity of hands or, indeed, in institutional or mutual funds, unit trusts or whatever. The nature of the market, in terms of financial size, large lines of stock and small numbers of dealers, undoubtedly means that some of the procedures, whether they are called, somewhat euphemistically, stabilisation procedures, or whether they are called, somewhat ingloriously, market manipulation, arguably act in the interests of investor protection. It is through stability in the market that one can, in certain instances, in international securities dealings, shift large lines of stock and acquire them. It is a mutual technique used by the participants in those markets which we should not seek to outlaw. It would be against the interests of both our economy and investors to do so. The hon. Member for Dagenham (Mr. Gould) asked who will scrutinise and monitor the situation. My understanding—I am open to correction—is that that will be the responsibility of the SROs and the SIB. We look to them, in their daily scrutiny of the markets and the operation of the stabilisation techniques, to ensure that the parameters of the legislation are not exceeded and that many of the detailed requirements of the amendments are complied with. 8.15 pm For example, amendment No. 440 ensures that where action is to be taken in conformity with the rules adequate arrangements exist for making it known that the price of investments may be affected by that action and the period during which it may be affected. That is a material and proper piece of information made available which is a real attempt to overcome the difficulties which undoubtedly exist in defining the dichotomy between the domestic and international securities market. Communication, the provision of information and the clear setting out that there is less than a perfect market, and, necessarily, a situation where the client's interest will be dealt with at best is an important safeguard.I fully understand the importance of the safeguard provided by the disclosure provisions, but why should not a similar safeguard provide a similar regime in any securities market? Why should there still be such a substantial difference between the domestic market and the international market when, as I think he concedes, that distinction will be increasingly difficult to draw?
It is common ground that we should seek to achieve as perfect, as efficient and as accurate a market as possible — a market where deals are done at best, where the market price is established by the forces of demand and supply in the simplest terms and where the provision and disclosure of information in conducting those deals and in striking the prices is done on an honourable and fair basis, not on a basis which seeks to mislead people about the market price or what might be the direction of the market in a particular stock, be it up or down. It is undisputed that that is the objective and that is in the interests of investors. That is what rules elsewhere in the legislation have sought to enhance.
In this specific instance I have argued that the matter is different because of the size of the lines of stock, which are of such magnitude and dealt with in isolation by a small number of dealers, say in London, which form a significant part of the international securities markets operations. But the technical market operations are materially different and if one is seeking to protect, say, the interests of a client of a major investment bank who wishes to sell or to buy into a large line of stock, such mechanisms are an essential means of ensuring that he is able either to sell all that line of stock without driving down the price substantially, or acquire it without, conversely, driving it up. It can be argued in purely theoretical terms that that can be against the interests of the other side to the bargain, but such has been the experience over a period that the movement of stock generally tends to reflect fundamentally in those international markets rather more than does the short-term effect of large amounts of demand or supply that take place in a domestic market. In simple terms, a large line of stock in a domestic market, being sold or acquired, can materially affect the price in the short term, whereas in the international market it need not necessarily do so. One reason for that is the stabilisation processes that have been established by dealers. I readily accept that this matter is difficult to explain other than in the most technical way, but the House should recognise that it happens because dealers on all sides of the bargains in the international securities market want it to happen and perceive it to be in their interests in dealing on behalf of others in enabling them to acquire large amounts of stock or to dispose of them. I welcome these amendments. My hon. and learned Friend and the Department have tried hard to respond to the legitimate anxieties of those concerned. The House would be well advised to accept the Minister's advice.I shall speak briefly and with special reference to the remarks of the hon. Member for St. Helens, South (Mr. Bermingham). The international securities market will be traded in. We must be involved in that and ensure that it is done effectively. But is there sufficient control over how that will be carried out? That takes one back immediately to the matter of the self-regulating organisations and how the market will be regulated through the control it exercises over those persons who are members of the SROs.
Some hon. Members may have had the opportunity to watch an extremely interesting programme, which lasted for about two and a half hours, called "Moneyspinners"—It was very boring.
The programme was extremely interesting, despite the remark made by the hon. Member for Great Grimsby (Mr. Mitchell), in that it illustrated the expectation of predatory activities by some foreign-owned companies, especially Japanese companies. It seems clear that the sheer volume of money accumulated in their savings in Japan, if transferred to Britain, would, in the medium to long term, have a significant effect upon activities in the City of London. That is before we consider the activities of America and other overseas companies.
Referring to the remarks of the hon. Member for St. Helens, South, the real issue is whether the SROs will be able to control the activities of those companies which are operating from abroad as we would wish them to be controlled. The object of the Bill is to achieve sensible control over their activities. I have had, and continue to have, grave reservations about the conferring of legal immunity on the SROs, because, as I said on Report, there is no reason why it should be conferred. The right people must be appointed to the SROs. In Committee I discussed this matter several times with the Minister. We have discussed the fit and proper person test many times and we have decided that it is possible to appoint the right people. I strongly request the Minister and the Securities and Investments Board to exert all the influence that they can to ensure that the right people are appointed to the SROs. That is the acid test. I was delighted to hear—I should like the Minister to confirm this point — that, following an amendment which I tabled in Committee and further discussions on the matter, a significant number of independent persons will be appointed to the SROs. Ultimately, to avoid any suggestion of cosy clubs, it is essential that the people appointed to the SROs should be able to question the behaviour of their colleagues.I agree with many of the points made by the hon. Gentleman. Looking back over the history of Lloyd's underwriting, the self-regulation at Lloyd's and the messes that have occurred involving Ian Posgate, Peter Cameron-Webb and others, does the hon. Gentleman agree that that should be an object lesson to us in the sort of person whom we appoint to the SROs? Unless we have the strength and independence of character to do that, people can look within from without and the securities industry may be in the position that Lloyd's was in some years ago.
The hon. Gentleman seizes upon a point with which I am familiar, in that some years ago I was asked to advise Lloyd's on self-regulation after Mr. Davison took over. In my memorandum, I drew attention to several matters which caused me some anxiety. However, the point to which I wish to draw attention is that Lloyd's has gone through the exercise required to sort out its affairs. That exercise will have been noted by the people who will run the SROs and I am optimistic that they will be run properly.
If a large proportion of the members who effectively represent foreign-owned companies are in the business of monitoring and running the SROs, it is essential that we ensure that those people are themselves monitored by independent persons and that they work effectively. If one were to sum up the Bill in one sentence, it would be, "Will the SROs work effectively or not?"I thank my hon. Friends the Members for Chichester (Mr. Nelson) and for Stafford (Mr. Cash) for their support for these amendments, and express my appreciation of the sympathetic observations made by my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) and the hon. Member for Dagenham (Mr. Gould) about the difficult decisions which had to be made on this matter. I agreed with much of what they said. The decisions were difficult and there was a dilemma. The issues are not clear-cut. It is of notable interest that there was considerable pressure in another place from hon. Members of all parties for the Government to make the changes which form the basis of these amendments. It is lair to say that the Opposition Front Bench in another place was in the van of those requests.
It is no secret that I pondered long and hard on the issue before acceding to the representations. One circumstance which weighed with me in eventually reaching the conclusion that there was a case for an extension was the need not to preclude or inhibit the ability of industry to raise finance. Stabilisation is an accepted and widely-used technique in the new issues of securities, and such issues would be substantially inhibited if that technique were not available. That is why the extension in these amendments is limited, broadly speaking, in that direction. The securities to which these exemptions will apply are strictly defined in the legislation. Although we recognise the case for an extension for new issues of securities and we do not wish to close the door now against the possibility of there being other categories of securities to which the exemption should apply, and to which these techniques should be applied, we are not at the moment persuaded that that is so. That is why the order-making procedure is set out in the legislation. That is the balanced way in which we sought to approach the matter. The categories of securities are identified in the legislation. The rules which will govern the application of the technique are provided by the Securities and Investments Board. The House will not have failed to observe the striking discrepancy in the tone in which these matters were observed by the hon. Member for Dagenham, leading for the Opposition in this matter, and the wildly inaccurate statements made by the hon. Member for St. Helens, South (Mr. Bermingham), which bore absolutely no relation to the text of the legislation. The inaccuracy of the hon. Gentleman's remarks is matched only by the lack of interest in this legislation which he displayed before this evening. I invite the House to treat his remarks with the utter contempt which they merit.Question put and agreed to.
Clause 45
Conduct Of Business Rules
Lords amendment made: No. 62, in page 31, line 45, at end insert—
"(jj) requiring the keeping of accounts and other records, as to their form and content and for their inspection;"—[Mr. Howard.]
Subsequent Lords amendments agreed to.
Lords amendment: No. 65, insert the following the new clause—
"Financial resources rules
(1) The Secretary of State may make rules requiring persons authorised to carry on investment business by virtue of section 24 or 30 above to have and maintain in respect of that business such financial resources as are required by the rules.
(2) Without prejudice to the generality of subsection (I) above, rules under this section may—(a) impose requirements which are absolute or which are to vary from time to time by reference to such factors as are specified in or determined in accordance with the rules; (b) impose requirements which take account of any business (whether or not investment business) carried on by the person concerned in conjunction with or in addition to the business mentioned in subsection (1) above; (c) make provision as to the assets, liabilities and other matters to be taken into account in determining a person's financial resources for the purposes of the rules and the extent to which arid the manner in which they are to be taken into account for that purpose."
8.30 pm
I beg to move, That this House doth agree with the Lords in the said amendment.
With this it will he convenient to take the following Lords amendments: No. 66, in clause 46, page 32, line 42, after "45" insert "or (Financial resources rules)". No. 108, in clause 57, page 45, line 24, at end insert—
No. 109, in clause 57 page 45, line 26, leave out "this section" and insert"(2A) Subsection (1) above does not apply—(a) to a contravention of rules made under section (Financial resources rules) or conditions imposed under section 46 in connection with an alteration of the requirements of those rules; or (b) by virtue of subsection (2) above to a contravention of rules relating to a matter in respect of which rules have been or could be made under section (Financial resources rules)."
No. 444, in schedule 8 page 166, line 26, at end insert—"subsection (1) above applies or of a contravention of rules made under section (Financial resources rules) above or such conditions as are mentioned in subsection (2A)(a) above".
"() The rules under section (Financial resources rules) of this Act shall not apply to an insurance company which is an authorised person by virtue of section 30 of this Act."
This new clause provides an explicit power to make financial resources or capital adequacy rules. Requirements as to capital adequacy are recognised as an important safeguard for investors, both directly in helping to head off financial problems in the firms they are dealing with and more generally in helping to avoid knock-on problems in the market as a whole. They are a feature of the banking and insurance regimes and of existing self-regulation, for instance, in the stock exchange.
It has always been the Government's intention that regulators should be able to set capital adequacy requirements. Doubts were expressed in Standing Committee by the hon. Member for Dagenham (Mr. Gould) about whether the "fit and proper" test for authorisation and the general power to make conduct of business rules were a sufficient basis. We have now concluded that it is desirable to put the matter beyond doubt by introducing an explicit power. That is the effect of the amendments.In view of the Minister's concluding remarks, the House will not be surprised to hear that I welcome the new clause. Before I extend that welcome and ask a brief question, I shall defend my hon. Friend the Member for St. Helens, South (Mr. Bermingham). According to my recollection—he will correct me if I am wrong—he spoke at both the Second and Third Reading stages. I assure the House that he would have dearly wished to be on the Committee but for the fact that his services were so much in demand and he was on the Finance Bill Committee. His credentials are beyond attack.
I welcome the new clause. I am delighted that the Minister has recognised—it was a view shared by all members of the Committee, not simply a view expressed by Labour Members — the importance of making a specific reference to an important requirement. I am intrigued about one aspect. Perhaps there is an obvious answer that I do not immediately see. The provision applies to those who secure authorisation by direct application under clause 24 and to those who secure authorisation under clause 30 by virtue of being authorised in another member state. That opens up the possibility that a person who is authorised under clause 30 and authorised, therefore, in his own native country might well be subject—if I read the clause correctly—to a set of different requirements which may have no equivalent in his home country but which lay down minimum capital adequacy rules. What would be the position if a person otherwise qualified for authorisation under clause 30 but failed to meet the rules which would prevail? Perhaps there is an obvious answer, but I do not see it. I am sure that there must be a straightforward answer.The rules may also apply to persons authorised under clause 30. Rules may make different provisions for different cases. It would be possible for rules to be made under the provisions to persons authorised under clause 30.
Is the Minister saying that somebody who would be authorised under the general provisions laid down in clause 30 could, nevertheless, be precluded from carrying out investment business if his capital base was inadequate to meet the requirements laid down under the new clause?
That is the effect of what I have just said.
Could the general requirements of obligations under the treaty of Rome, and so on, which require us to accept without let or hindrance, as it were, the right of professional people to practise their profession throughout the Community therefore be put in jeopardy by what the Minister has just said?
I would not want to speculate on the consequences in Community law of what we are doing. Clearly, we would not have introduced the provision and enabled it to apply in the manner that I have suggested if the view was taken that it fell foul of the treaty. I do not accept that there would necessarily be any difficulties of that kind. Clearly, in applying the provisions, regard must be had to the provisions of the treaty. The clause permits the test to be applied to persons authorised under clause 30.
I hope that the amount which will be prescribed under the rules will be adequate—that is the acid test—and that the amount of financial resources to be required will cover the amount of contingent liability that could arise. I dare say that that is a big question. We have some experience of professional bodies such as the Law Society where there is a significant amount of money at stake. It is important that people should be aware of how much liability they may have to incur. I should be grateful if, in the course of time, the Minister would be good enough to drop me a line saying how the rules might be devised.
Question put and agreed to.
Subsequent Lords amendments agreed to.
Clause 49
Indemnity Rules
Lords amendment: No. 69, in page 34, line 30, at end insert
"; and any such request shall not be capable of being withdrawn after rules giving effect to it have been made but wittout prejudice to the power of the Secretary of State to revoke the rules if he thinks fit."
I beg to move, That this House doth agree with the Lords in the said amendment.
With this it will be convenient to take the following Lords amendments: No. 69A in page 35, line 26 leave out subsection (5).
No. 70, after clause 49, insert the following new clause—"Compensation fund.
.(1) The Secretary of State may by rules establish a scheme for compensating investors in cases where persons who are or have been authorised persons arc unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred by them in connection with their investment businesses.
(2) Without prejudice to the generality of subsection (1) above, rules under this section may—(a) provide for the administration of the scheme and, subject to the rules, the determination and regulation of any matter relating to its operation by a body appearing to the Secretary of State to be representative of, or of any class of, authorised persons;. (b) establish a fund out of which compensation is to be paid; (c) provide for the levying of contributions from, or from any class of, authorised persons and otherwise for financing the scheme and for the payment of contributions and other money into the fund; (d) specify the terms and conditions on which, and the extent to which, compensation is to be payable and any circumstances in which the right to compensation is to be excluded or modified; (e) provide for treating compensation payable under the scheme in respect of a claim against any person as extinguishing or reducing the liability of that person in respect of the claim and for conferring on the body administering the scheme a right of recovery against that person being, in the event of his insolvency, a right not exceeding such right, if any, as the claimant would have had in that event; and (f) contain incidental and supplementary provisions.
(3) A scheme under this section shall not be made so as to apply to persons who are members of a recognised self-regulating organisation except after consultation with that organisation or except at the request of a recognised professional body to persons who are certified by it and subject to its rules in carrying on all the investment business carried on by them; and no scheme applying to such persons shall be made unless the Secretary of State is satisfied that the rules establishing it make sufficient provision—(a) for the administration of the scheme by a body on which the interests of those persons are adequately represented; and (b) for securing that the amounts which they are liable to contribute reflect, so far as practicable, the amount of the claims made or likely to be made in respect of those persons.
(4) Where a scheme applies to such persons as are mentioned in subsection (3) above the rules under this section may—(a) constitute the recognised self-regulating organisation or recognised professional body in question as the body administering the scheme in relation to those persons; (b) provide for the levying of contributions from that organisation or body instead of from those persons; and (c) establish a separate fund for the contributions and compensation payable in respect of those persons, with or without provision for payments and repayments in specified circumstances between that and any other fund established by the scheme.
(5) A request by a recognised professional body under subsection (3) above shall not be capable of being withdrawn after rules giving effect to it have been made but without prejudice to the power of the Secretary of State to revoke the rules if he thinks fit.
(6) Rules may be made—(a) for England and Wales, under sections 411 and 412 of the Insolvency Act 1986; (b) for Scotland— (i) under the said section 411; and (ii) in relation to the application of this section where the persons who are or have been authorised persons are persons whose estates may be sequestrated under the Bankruptcy (Scotland) Act 1985, by the Secretary of State under this section; and (c) for Northern Ireland, under Article 613 of the Companies (Northern Ireland) Order 1986 and section 65 of the Judicature (Northern Ireland) Act 1978. for the purpose of integrating any procedure for which provision is made by virtue of subsection (2)(e) above into the general procedure on a winding-up, bankruptcy or sequestration.".
Amendment to the Lords amendment, in page 16, line 15, leave out 'reflect' and insert
'are fair and reasonable in all the circumstances and take into account all relevant factors including'.
No. 220, after clause 118, insert the following new clause—
Indemnity schemes
No. 327, in clause 149, page 117, line 24, leave out "or transferee body" and insert
", transferee body or body administering a scheme under section (Compensation fluid) above".
No. 330, in clause 150, page 118, line 34, at end insert
"or of enabling or assisting the body administrating a scheme under section (Compensation fund) above to discharge its functions under the scheme".
No. 428, in schedule 1, page 154, line 25, at end insert—
"(1A) The rules under that Chapter to be taken into account for the purposes of sub-paragraph (1) above include the rules made under section (Financial resources rules) and under section 49 and (Compensation fund) so far as not themselves applying to the members of the organisation."
No. 441, in schedule 6, page 161, line 17, leave out
"section 49" and insert
"sections 49 and (Compensation fiend)".
No. 442, in schedule 6, page 161, line 18, leave out "that section" and insert "those sections".
No. 445, in page 166, line 27, leave out "section 49" and insert
"sections 49 and (Compensation fund)".
No. 480, in page 178, line 41, leave out
"other than a member society".
No. 481, in page 178, line 42, at end insert—
"() Such rules shall not apply to a member society of a recognised self-regulating organisation for friendly societies unless that organisation has requested that such rules should apply to it; and any such request shall not be capable of being withdrawn after rules giving effect to it have been made but without prejudice to the power of the Registrar to revoke the rules if he and the Secretary of State think fit."
No. 482, in page 178, line 46, at end insert—
"17A. — (1) No scheme established by rules under section (Compensation fund) shall apply in cases where persons who are or have been regulated friendly societies are unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred by them in connection with any regulated business but the Registrar may, with the consent of the Secretary of State, by rules establish a scheme for compensating investors in such cases.
(2) Subject to sub-paragraph (3) below, subsections (2) to (4) and (6) of that section shall apply in relation to such rules as they apply to rules under that section but with the substitution for the references to the Secretary of State, authorised persons, members and a recognised self-regulating organisation of references respectively to the Registrar, regulated friendly societies, member societies and a recognised self-regulating organisation for friendly societies.
(3) Subsection (3) of that section shall have effect with the substitution for the words "the Secretary of State is satisfied" of the words "the Registrar and the Secretary of State arc satisfied.
(4) The references in section 149(3)(b) and 150(1)(e) of this Act to the body administering a scheme established under section (Compensation fund) of this Act shall include the body administering a scheme established under this paragraph".
No. 521, in page 188, line 18, leave out "and 17" and insert "17 and 17A".
No. 529, in page 200, line 50, at end insert—
"() the body administering a scheme under section (Compensation fund) of or paragraph 17A of Schedule 9 to that Act and any officer or servant of such a body,".
These amendments follow a reappraisal of the way the compensation provisions in the Bill are constructed. There are two main issues. The first concerns the machinery which the Bill provides. Existing clause 49 is based on the concept of compulsory indemnity along the lines of the Solicitors Act. This certainly provides a means by which investors can benefit from payments. However, on further reflection, the Government have concluded that additional powers, involving the ability to set up a compensation scheme, such as those established under the Banking and Building Societies Acts, should be taken if the objective of the January 1985 White Paper is to be realised. This envisaged arrangements to compensate investors directly when an investment business could not do so. The new clause which we have tabled therefore follows the provisions of the Banking and Building Societies Acts.
The second issue was whether businesses authorised through membership of recognised self-regulating organisations should, in some circumstances, be obliged to participate in a central scheme established under the Bill. This issue was raised during consideration of the Bill at an earlier stage, and since then the SIB has argued persuasively that a scheme which is restricted to a possibly small and variegated range of directly authorised businesses may not be able to provide the level of protection for investors which we would wish to see as the basic standard in the industry. The SIB has argued that the larger the coverage of a central fund, the easier it will be to obtain adequate finance and thus the better will be the compensation which investors can expect and the less will be the cost of making compensation available. I have considered these arguments carefully. I acknowledge the excellent record, for instance, of the existing stock exchange compensation scheme. However, I believe that the fundamental objective is that investors generally should be protected by compensation arrangements which are the best which can be reasonably made. Our approach to this question has been based on the policy set out in the January 1985 White Paper, which stated:Hon. Members will be aware that the SIB put forward last year the idea of a scheme offering compensation of up to £30,000 to private clients of businesses in default. In a recent speech, the chairman of the SIB, welcoming the Government's proposal as one which was"Compensation should be available for investors in the event of loss arising from investment businesses' fraud, negligence, or failure to comply with requirements for the protection of clients' assets — The aim should be for the private investors to receive full compensation."
said that it might be possible to raise that top limit in a broadly based scheme. I am sure this will be contrasted with the higher notional limits available under, say, the existing stock exchange scheme. On that I would make three observations. First, not even the stock exchange scheme covers the range of liabilities mentioned in the White Paper. It would not, for instance, cover liabilities arising from an award of damages for negligence. Secondly, there is nothing to stop an SRO establishing a more generous scheme. The SIB proposals for a "federal" structure are designed to assist this. Thirdly, a high limit on a compensation fund operating in one area is no comfort to the investor who has lost perhaps his entire life savings in another area. Having considered the various factors, I concluded that it would be right to provide for the rules to allow, subject to certain conditions being met, the establishment of a central compensation scheme. This will allow the creation of an effective and well-funded scheme. It will not be a feather-bedding scheme — the value of investments can go down as well as up and there is no intention of relieving the investor of the responsibility to exercise judgment and care in deciding how to invest his money. Where an investment fails for straightforward commercial reasons he cannot look to any regulator to make good his losses. However, the scheme should protect the interests of small investors who lose their money through an investment business's fraud, negligence or failure to comply with the rules. I have at the same time recognised the concern that some SROs feel at the possibility of their members paying for claims on other businesses and the loss of independence in running their own schemes. Therefore, the new clause incorporates special safeguards in respect of cross-subsidisation and requires there to be adequate representation on the body administering a central scheme of the interests of members of participating SROs. As I have already pointed out, there is nothing to prevent an SRO from making arrangements for extra compensation to be available. I recognise that this approach has not been universally welcomed by all the self-regulating organisations. However, the issue turns on one question alone: are we to have an efficient and well-funded scheme for protecting investors generally, or are we to settle for a compensation scheme which for many investors may frankly prove to be second best and lead to a level of protection overall lower than we could otherwise achieve? My view on this is that second best is not good enough. We must provide the machinery to allow investors to enjoy, in the words used in schedule 6,"essential in order to provide the level of protection which small investors have every right to expect",
I have been persuaded that our approach provides this and that the alternatives do not. The other amendments in this group are consequential to the policy that I have outlined. Hon. Members will note that the existing clause 49 has been retained, since I believe there may still be scope for compulsory insurance arrangements to play a part in this area. However, the clause has been amended to deal with the point on precipitate withdrawal of SROs or RPBs raised by the hon. Member for Dagenham (Mr. Gould) in Standing Committee. We have also altered the way the clause is applied to persons authorised under clause 30 in order that we may have more flexibility on how we meet our Community obligations."the best provision which can reasonably by made".
I find myself in the somewhat unusual position of enthusiastically endorsing almost every word that the Parliamentary Under-Secretary uttered on this group of amendments. He will recognise that his persuasive and forceful argument is a skilled elaboration of a case that I attempted to make in the Standing Committee. If I recall correctly, there was support for that case elsewhere. I particularly endorse the Parliamentary Under-Secretary's remarks—despite the reservations of the stock exchange, which I fully understand—about the importance of there being a comprehensive and guaranteed scheme so that the investor does not find different standards applying according to whichever part of the investment industry he happens to be dealing with.
A recent example which shows exactly why these provisions are necessary involves the collapse of a firm called McDonald Wheeler. The firm was a member of FIMBRA, formerly NASDIM. It would thus have been authorised under this legislation. The investor will have adequate protection under the new regime. Unfortunately, McDonald Wheeler collapsed. It seems inevitable, I am sorry to say, that a number of investors will lose a good deal of money—certainly a good deal to them, at any rate. It also emerges that Mr. Wheeler, the man concerned in setting up the firm, had, to say the least, somewhat doubtful antecedents. FIMBRA, formerly NASDIM, was unable, for reasons one can understand, to check him out in an adequate fashion. This gives rise to a range of other concerns about the readiness of SROs to take on what will clearly be an onerous responsibility. IfFIMBRA, for which I have good regard — I certainly do not intend to attack it — has difficulties in fulfilling its potential responsibilities when the Bill becomes an Act, one can imagine that other SROs with even shorter histories than FIMBRA's will have equal or greater difficulties. The point of recounting that story is to emphasise, as I am sure the Parliamentary Under-Secretary immediately recognises, that if such a situation were to arise under the legislation, the investors concerned would rightly expect, given these circumstances, to be compensated for at least part of their loss. They would turn to an adequate compensation fund which properly protected them. I pay tribute to the Government. Their proposals ought to put such a mechanism in place. I also pay tribute to the SIB which has campaigned long and hard for this outcome. 8.45 pm I was interested to hear the comments of the Parliamentary Under-Secretary on the maximum limit of any individual payment. I take the view—I am sure that my hon. Friends will share it — that any maximum payment of £30,000 or £35,000 would be far too low. In regard to the instance that I described—McDonald Wheeler — I am already in touch with investors who have lost substantially in excess of that sum. In today's values, particularly in terms of redundancy payments and the prices that can be obtained for residential property, £30,000 is pitifully small. An amount of £100,000 is more appropriate. The Parliamentary Under-Secretary, if not directly involved in setting the limit, might at least use all his influence to ensure that a more sensible limit eventually finds its way into the scheme. I welcome the provision as a very important step towards the objective of proper investment protection.I welcome the amendments, with the reservation that the hon. Member for Dagenham (Mr. Gould) mentioned about the limit that should be set. The losses that can be incurred as a result of fraud and the uncertainty and devastating impact on individual lives should not be ignored in the consideration of a Bill whose principal objective is investor protection. We should, above all, be concerned to ensure that ordinary, legitimate members of the public who engage not in bad investment judgment but in reasonable judgment about with whom they place their moneys in certain markets are protected and compensated if, for a variety of reasons, whether due to fraud or whatever, a firm subsequently collapses.
We should bring these matters to a personal level and demonstrate their importance. I should like to read to the House an extract from a letter from one of my constituents, which clearly shows the need for a central compensation fund and adequate compensation for people who lose out in situations of this kind. My constituent, whose name I shall not mention, wrote:McDonald Wheeler Fund Management. He continued:"I am writing to you in sheer despair concerning funds which myself, my wife and my daughter have invested in the above firm"—
"Over the last two years myself and members of my family have invested over £25,000 with McDonald Wheeler, at the end of July 1986, the Department of Trade stepped in, Wheelers went into liquidation, with the firm of Grant Thornton under Mr. Nick Lyle, being appointed by the Receiver to investigate.
We the clients were informed that it would take a fortnight to sort matters out, then later we were told it would take a while longer. Three months have now passed and what few reports we have received leave us in despair and feeling helpless and hopeless. The only information that can be collected, or heard, is from the newspapers, financial reports and T.V. and Radio Money Programmes, all of which continuously harp on about — McDONALD WHEELER THE CRASHED INVESTMENT FIRM — CLIENTS HAVE LOST ALL OF THEIR MONEY.
In view of our despair, I have tried in all directions to obtain correct information, but no one will help. FIMBRA utterly refused to step in and assist on behalf of clients, they in fact don't wish to know, in spite of McDonald Wheeler being a member and fully vouched and investigated by them.
Grant Thornton tell me they are completely unable to help, or offer information as they forward facts on]) to the Official Receiver, he in turn says he can do nothing, as he is required to supply all findings to the Courts. We the clients and investors, the real people who matter are simply left high and dry.
I feel so sick about this matter, particularly so as the bulk of our investments are owned by my wife and were providing her with a necessary monthly income, from which she has been completely cut off and lived in a most restricted situation, all through no fault of her own making and sheer default on Wheeler's part.
Unfortunately, we in common with all Wheeler's clients and incidentally as thousands of other investors also feel, invest funds in an investment firm that is a member of FIMBRA. How wrong we all were and are!!! FIMBRA is utterly useless, it is thoroughly unable to do anything, the same organisation investigated McDonald Wheeler when he first applied for membership in the early 1980s, they did not discover that Wheeler had twice previously been bankrupt … a compensation fund must be set up to protect investors, it will take a year to come into force.—So much for that—Now, twelve years later 1986, they are saying the same old thing over again, namely a compensation fund will start next year. I can foresee any such compensation remaining well clear of the McDonald Wheeler case, involving sonic £15,000,000 of clients' investments.
I consider it a disgrace on the part of Parliament, after all this time—12 years and still having done nothing to protect investors and people such as my wife, whose particular funds were hard saved life earnings on her own efforts, also including her only legacy, from her father, who served for 30 years in the British Army through two wars as an RSM, Military Medal and Bar … We do so desperately wish to know if our money will he recovered and when, the facts must be known somewhere.
I apologise to the House for the length of my quotation from that letter, but I hope that all hon. Members will understand that when it comes down to an individual level it is a real tragedy and disaster for those concerned. We have a responsibility to protect those people. Another thing that comes out of that letter is the desperate lack of information for people in such a situation, with the worry and loneliness that they experience. Any funds or regulatory systems that we set up should provide not only funds to compensate but much more and immediate information to those who lose out. As for the amount of compensation that should be provided, I feel that it is not adequate to replace an open-ended limitless compensation figure before with a £30,000 figure now. At the very least, it should be a six-figure sum. It is very important to recognise that the obligation of members of self regulation organisations to contribute toward a compensation fund, either within the SRO or centrally, imposes a discipline on those members to report suspect cases in the market in which they are operating. If members have to contribute to a central fund or an SRO fund, they will be watching much more carefully the activities, risk and vulnerability of other firms operating in the same market, and will have the incentive and initiative to report to the SRO that a firm in their market place is suspect because they know that if that firm goes to the wall, they may be on line to pay compensation funds. I therefore take with a pinch of salt some of the whinnying and carping of individual firms about the contribution that they will have to pay because it will be a good discipline for them to report to the SRO situations in which a risk is involved. It will also enhance the authority and right of the SRO to intervene and check out at an early stage cases that are suspect and thus to act in the interests of the protection of investors and of the market as a whole. I do not believe that the debate can be seen in isolation from the subject of separation of clients' money. I think that it is fair to say that if the rest of the provisions are complied with and adequately enforced, particularly with regard to the separation of clients' funds, there will be less need for the compensation funds to be claimed upon by individuals who have lost out. All the provisions must therefore hang together. I hope that my hon. and learned Friend the Minister, in replying to the debate, will go further than he went earlier. It is not enough to hope that an adequate limit will be agreed at some stage in future. Under these provisions, the Secretary of State may make rules, so he can establish within the scheme a limit considerably higher than £30,000 or ensure that in the administration of the scheme by the SIB there is a limit substantially higher than £30,000. It is not an adequate answer to say, "Before we delegate the running of the compensation fund to the SIB, we would have to be assured that it would be adequate and that the limit set for compensation was sufficiently high". My hon. and learned Friend can ensure that now. He can provide a much more generous and appropriate limit before he hands down the administration of the compensation fund to the SIB. We look to him to do that. The public and investors such as my constituents look to him. I hope that in winding up the debate he will be able to provide some much-needed assurance to past and potential investors.In a situation such as this, surely the government cart take some action to assist us, the investors who placed funds in an accepted responsible organisation, namely FIMBRA."
I associate myself strongly with what the hon. Member for Chichester (Mr. Nelson) has said, particularly his last words.
I welcome the Minister's change of mind on this occasion. I ask him, gently, to contrast that welcome with his sharp, caustic, uncalled-for and unpleasant comments when I sought to exercise the same judgment earlier in the debate. A change of view caused him to say that my party was an expert on changing its mind. That comes strangely from the mouth of a Minister who has brought before the House a Bill that is widely regarded as disorganised and a dog's breakfast, as well as having close to 1,000 amendments, 20 new clauses and four new schedules. In its present form the Bill commands the confidence of only some 20 per cent. of the City, so it is said. It is regarded by myself and many others—I suspect on Conservative Benches, too—as a Bill that will have to return for amendment within the next few years, probably two or three, which is the figure that I have heard. If the Minister had any self-respect he would not mention other people's change of mind, bearing in mind that the Bill stands as an appalling indictment, if not on his judgment, on the judgment of the Government. I shall come to happier matters — that is, the amendment before us. If the Minister had been wiser, kept his mouth shut and had more self-restraint, those matters might not have been thrown at him in that fashion, for that has not been the tone of the debate that we have been conducting. The comments which have been made about limitation are important and the Minister has it in his power to make it clear that the limit of £30,000 is inadequate. If he cannot set a precise sum, let him make it clear that he regards the limit of £30,000 as inadequate. He need not necessarily set a figure if he finds that too difficult a task. This matter was raised in another place and in discussing a probing amendment Lord Ezra said that perhaps there was not a case for an industry-wide compensation fund. I believe that such a fund is extremely important, and I subscribe to what has been said by the Minister, the hon. Member for Dagenham (Mr. Gould) and others. There is a case for an industry-wide compensation fund and that case becomes stronger when surveillance and monitoring services are federated. That means a unified compensation fund along with surveillance and monitoring services operating between SROs and the SIB. 9 pm That argument has been advanced in a number of letters whcih the Minister has recieved and which I have seen, and I am sorry that he has set his face against a federated structure for surveillance and monitoring. I think that such a system would have offered an advantage. We have an industry-like unified compensation fund, which is a good thing, but a fragmented surveillance service. One of the bases upon which the Bill is founded is the need for effective rules, effective surveillance and effective compensation. When these three elements are together in the same body, they provide what might be described as an incentive. It is one which works in a virtuous circle. Effective rules and effective surveillance will mean that it is likely at the end of the day that less will be paid out in compensation, but if responsibility for compensation lies with someone else, there will be no incentive. In some circumstances — this is not inevitable — the incentive could operate the other way round. If those who have lower costs because of less adequate surveillance and easier rules receive an advantage if the cost of compensation is shared equally with those who have fewer claims because of more stringent rules and better surveillance, that could lead to a vicious circle instead of a virtuous one. In other words, the rain raineth on the just and the unjust, but chiefly on the just because the unjust have stolen the umbrellas. In this instance the unjust will have to pay less for umbrellas. The Minister has said that there are provisions in the Bill which prevent this cross-subsidisation. I presume that he is referring to subsection (3)(b) of the new clause, which states:I would welcome an arrangement where the premiums to the compensation fund were related directly to the sums paid out in respect of each SRO. That would be possible within the terms of the Bill, and certainly the concept of variable premiums for different SROs is possible. Why should that correlation between premiums and the compensation that is paid out not be precise mathematically and why should the arrangement not be conducted in that fashion? Why do we have to use the term "so far as practicable"? I shall be grateful if the Minister explains to us precisely how the brake on cross-subsidisation will be put into effect so as not to build in the vicious circle that will tend to drag standards down."for securing that the amounts which they are liable to contribute reflect, so far as practicable, the amount of claims made, or likely to be made, in respect of those persons."
I wish to ask my hon. and learned Friend the Minister two questions. Under the scheme of compensation which he and the SIB envisage, will it be necessary for fraud or negligence to be proved before compensation is activated? If that is necessary, it could be some years before the defrauded investor received compensation. Secondly, if an investment business were to lose authorisation — for example, as a result of being expelled from an SRO — would compensation be available subsequently to an investor who, it later transpired, had lost money because of the practices of the firm before it lost membership?
The next time the Minister cares to attack me personally—I am grateful to my hon. Friend the Member for Dagenham (Mr. Gould) for coming to my defence — I ask him to check his facts. As a good, cautious and learned lawyer of the past, he should know that the first thing to do before launching out is to check one's facts. Long before the Minister was appointed, when he was a Back Bencher, he will recall that the House debated the Gower report and stock exchange arrangements with a view to a cessation of the various actions which were then current in the courts. If the Minister reads the record of our proceedings, he will find that on each and every occasion I took part in those debates. I invite him at an appropriate stage to withdraw his remark about my interests in this subject.
I may, for once, get an apology, if the Minister's shoulders are broad enough, when he discovers that I agree with him about the compensation provisions, save for the reservation that the hon. Member for Chichester (Mr. Nelson) entered with regard to the £30,000. I do so on the basis of my experience as a former member of the Law Society. The Law Society has a limitless compensation scheme, and rightly so. It is not the client's fault that the broker or dealer is crooked or that the solicitor is crooked. There is no way in which to foresee that a solicitor will, in middle life, run off with the funds. One can sometimes get a warning sign.The secretary comes first.
We will ignore my hon. Friend's ignorant comment.
There are warning signs which can be seen in the everyday way in which they deal with their practice. Warning signs could be seen in the City with certain types of transaction occurring or shares being unloaded. If every member in an SRO knows that, if somebody were to make off with the funds, they would have to contribute towards the compensation fund, they would be put on guard. I am sure that hon. Members who are members of the Law Society will confirm that that society's experience is that one of the best forms of watchdog is fellow members who see things happening. They are put on notice because they have a personal interest in the integrity, honour and good practice of their fellow members. If the City believes that it consists of people of the highest calibre and personal integrity, what does it have o fear from a compensation fund that is 100 per cent. safe for its investors? If they cry, "The sums are so great, we cannot meet them" they are saying that there are people in the City who will make away with millions of pounds which the City cannot afford to meet. If we maintain that our City is equal in integrity to anything in the world, what better way is there to demonstrate that fact than to have a compensation fund which meets every claim in full? That has the advantage of policing and of demonstrating belief in the City's integrity. The Bill would empower the Minister to intervene and make the necessary regulations. If he believes that the investor has rights and ought to be protected, what better way is there to fulfil that belief than to ensure that when an investor is faced with fraud or negligence he is protected 100 per cent? It is not too much to leave as the hallmark of the Bill a compensation scheme which embraces full protection. That is within the Minister's power. I challenge him to cover the client in full, bearing in mind the fact that the law and accountancy, for example, have such indemnity schemes. If the Minister believes that the Bill exists to protect the City because it is a City of integrity, he will act and the compensation level will be 100 per cent.I warmly welcome this group of amendments on the compensation fund. Like my hon. Friend the Member for Chichester (Mr. Nelson) and the hon. Member for Dagenham (Mr. Gould), I should like to refer to the case of McDonald Wheeler as it highlights the need for a compensation fund.
If there had been positive vetting of Mr. Wheeler's application, it would have been discovered that he had previously made an arrangement with his creditors, but it is estimated that it would cost between £1,000 and £1,500 to vet each application. As a result, the process is a negative one—the applicant fills in the form and, if he tells lies, that is merely the beginning of the fraud. There are also demands for references, and Mr. Wheeler would' have supplied those.I apologise for interrupting my hon. Friend at this stage. Will he confirm that, if the legislation goes through, such a situation should not and would not recur, because to carry on business as an authorised person one would expect a self-regulating organisation to make reasonable inquiries? I do not know whether the cost is £1,000. There must be some criterion attached to authorisation and the sort of questions supplied by my hon. Friend should be basic to such a process.
That is obviously a matter for the SIB. In practice, the SRO would have to monitor every court and every judgment made and keep a list of all those people who had made an arrangement with their creditors. That would be a substantial operation, so it is likely that checking would be carried out on the basis of negative vetting. Therefore, fraudsters will still get through the net. Mr. Wheeler is obviously a crook. At the end of the day, it does not matter what rules and regulations there are about the prevention of fraud, we cannot prevent everybody from committing fraud. There will always be fraudsters and people who tell lies. The case highlights the need for a compensation scheme.
Although we were colleagues in the Committee, I find my hon. Friend's comments startling. The whole basis of a "fit and proper person" test is that persons who become members of SROs are fit and proper. There never is, nor has been, any intention that this should be conducted on the basis of a negative clearance.
I am surprised at that, because it seems to me that there will always be people who are able to persuade the body in question that they are fit and proper people when they are not. There will always be crooks and there will always be people who are prepared to deceive the body in question. To pretend that we are setting up a system that will prevent all fraud is absurd. That is why it is essential to have a compensation fund.
The McDonald Wheeler case has a lot in common with the Norton-Warburg case, and is a useful reminder of why we had this legislation. It is to protect small investors. I am clear about McDonald Wheeler. The man is a crook. He told lies to the Financial Intermediaries, Managers and Brokers Regulatory Association. It has been said that FIMBRA should have conducted an earlier spot check, but it conducts spot checks on one in five members a year. Again, it is a question of resources and how much money and manpower that will be put into this. It was a spot check by FIMBRA that revealed what was going on at McDonald Wheeler. Presumably that was in response to complaints, but it is at least possible that if the spot check had not been made McDonald Wheeler would still be trading. It is important to appreciate that FIMBRA does not have the powers it will have once the Bill becomes law. For example, it was not able simply to suspend its member from trading but had to go to the Department of Trade and Industry and get it to take the necessary action. My hon. Friend said that investors were being kept in the dark, but the official receiver appointed on 6 August wrote a three-page letter setting out the circumstances and describing the situation, and sent it on 19 September to all investors. He has done what he can to keep people informed.Does my hon. Friend agree that some of the criticism directed at FIMBRA in relation to the McDonald Wheeler case is unfair in that it changed its name from NASDIM, which was a different operation from the future SRO that is likely to operate under the name FIMBRA? Would it not be as well to underline the fact that FIMBRA, as now constituted, is a different body to the FIMBRA, assuming that it keeps that name, that becomes an official SRO as designated under the Bill?
My hon. Friend is right. It is perhaps inevitable that when legislation such as this is going through Parliament, some people think that, because we have discussed this in large measure, it is in operation. Unfortunately for investors in McDonald Wheeler, that is not the case. We are talking about a compensation scheme which we hope will deal with such cases in the future. That is why it is so very important. My modest amendment addresses itself to the point to which reference has already been made: the degree to which contributions relate to subsequent claims. That should not be the only consideration to be taken into account when contributions are calculated.
9.15 pm
I hesitate to intervene in this bitter internecine war. Indeed, I hesitate to speak at all, given the Minister's unkind and hostile response to my hon. Friend the Member for St. Helens, South (Mr. Bermingham). I do not want to bring similar retribution down on my head. I understand why the Minister is somewhat ratty, given this dog's breakfast of a Bill that he has to see through the House in the dying stages of the Session. However, it was unkind to speak thus to my hon. Friend.
The compensation fund casts a curious light on the Minister's approach to the Bill. I did not attend all of the Standing Committee sittings because I broke my arm, but I recollect that in Standing Committee the Opposition supported the establishment of a compensation fund. Indeed, they urged it on the Minister. However, he was full of all kinds of negative arguments about the difficulties, and why it was not possible to establish such a fund. He would not accept the idea. Now he has accepted it. He has told us what a good idea it is and why it is so marvellous. If the Minister has had this volte face on the compensation fund, I wonder how many other amendments he should have accepted in Committee. Should he not have accepted a statutory basis for the whole system? It ought to have been accepted, and it would be accepted now, if there were time. Instead there is an impetuous rush to get the Bill on to the statute book. We ought to start all over again. The Bill will have to come back to the House, not for a respray but for complete reconstruction —and fairly soon, too. Its prospects for success look about the same as the prospects for success of the stock exchange computer. If the compensation fund is such a good idea now, why was the Minister so cool and hostile about it in Standing Committee? It is deeply worrying. It is right that a compensation fund should be established. The only argument is over its size. It is a shame that the Minister is being cautious about its size. The Opposition's view is that the bigger it is the better. It would give confidence to the industry. A sizeable compensation fund would give psychological confidence to the industry. Our first requirement is to provide protection to the investor, in particular to the small investor. He will be under more pressure because of the attempt to regulate. Yesterday a number of hon. Members went to a lunch that was given by the home service insurance industry, which has always enjoyed a good relationship with its customers. Because it must have a long and continuous relationship with its customers, it visits them month in, month out. Therefore, the industry does not indulge in sharp practice and put pressure on its customers. Now it is being forced, because of the sins of others, to operate within a legislative framework that will impose costs on the industry, which will result in pressure to oversell. It is right that the investor should be protected, but in some respects the close relationship between the investor and that section of the industry will be weakened by the Bill. It is imperative that we provide effective protection if we propose to interfere in the relationship. The Opposition support the principle of the fund because the danger of the intense competition that will be liberated is that people will cut corners and go in for undesirable and unacceptable practices. There are also the dangers that fraud, negligence and failure to comply with the rules, those things that the Minister gave as the basic causes for compensation, will become more common. That will be as a result of the extremely intense competition that will occur. There will not only he a threat from foreign instititions and firms coming to Britain; there will be a threat from the natives as well. They will face intense competition that will expose all investors, but especially the small investor, to fraud. It is right to highlight the case of McDonald Wheeler once again because of the points that were tellingly made about one small investor but which, of course, affect a large number of such investors. I congratulate my hon. Friend the Member for Dagenham (Mr. Gould) on his election to the shadow Cabinet and therefore to the next Government. He defended FIMBRA, but there has been a steady stream of criticism of FIMBRA because of its role in the McDonald Wheeler affair. The "Post", which is the United Kingdom insurance journal, says that the whole affair "makes sad and disturbing reading." It says:But he was still accepted by FIMBRA nee NASDIM for membership. Not only that, but the warning signals about which my hon. Friend the Member for St. Helens, South spoke had been transmitted to FIMBRA because several worried investors had contacted it in the months leading up to all this. However, FIMBRA said:"John Wheeler had been a director of two companies put into liquidation."
What is "acting capriciously" in the face of representation on this scale?"it is not possible to send an inspector into a company as soon as a complaint is made. `SROs cannot be seen to be acting capriciously.'"
The first complaint came from a former employee, and one has to be a little circumspect about former employees. Later, investors complained and at that point action was taken.
The trigger point must be the complaint from the worried investors and it came quite early on. I agree that a complaint from an employee could be made from malicious motives and for that reason the FIMBRA rebuttal was perhaps accurate in that instance. It also had several subsequent complaints from investors and those should have triggered the action. For FIMBRA to say:
casts a curious light on its own procedures, given the casual nature with which it seems to have accepted the firm for membership."We must be sure of our facts before we send in the heavy mob"
Does my hon. Friend agree that the system of intermittent or spot auditing of members from time to time might be a safeguard? That happens in other professions.
My hon. Friend is right. What worries me is the casual nature of FIMBRA. It says that it vets "all potential members", but the vetting procedure is carried out on a negative basis. It says:
As the hon. Member for Beaconsfield (Mr. Smith) said, it is possible for people to lie and deceive. The SROs have to provide for that and must have more stringent checks rather than just accept a casual declaration in answer to a casual question. This firm used the NASDIM logo on its advertising material and presumably that gave it some credibility. If people believed—and this belief appears to be widespread — that these organisations will provide effective protection for the investor, to allow a doubtful firm to use the logo on its advertising is wrong and must require more stringent checks than those which have previously been made. That is an example in which no one appears in a good light. However, it should prove a ghastly warning for us. It shows the need for the compensation fund. Even the Minister — recalcitrant learner though he is in these instances—with the blandishments and in the face of the brilliant adult education course given to him on these matters by my hon. Friend the Member for Dagenham over the months, has, thanks to the class, been slowly brought up to scratch. However, it has not brought him far enough up to scratch. We want the Minister to pass his 0-levels in this subject. That means accepting the principle of a larger fund. When it comes to the principle of extra compensation funds for the SROs, he should give these a somewhat more enthusiastic endorsement. The Minister said, in relation to the extra compensation funds, that "there is nothing to prevent them". That is a ringing invocation to get out there and establish the fund. That was a classic reply, written by a civil servant on whose doormat it must say "Not unwelcome". There is nothing to prevent the setting up of extra compensation funds. I believe that it is essential that these supplementary funds be created. However, I end by welcoming the Minister's belated conversion to the principles that have been urged on him so strenuously by the Opposition. I hope that he goes further in his educational process."We ask all potential members a whole range of questions, including whether they have ever been bankrupt."
These amendments make a worthwhile contribution to the improvement of the Bill. I understand and sympathise with the concerns of the stock exchange and the clearing banks and others who for a long time have been maintaining well-regulated markets, and providing more than adequate compensation for investors. They might be called upon to contribute in a scheme in which some of the participants were not as well regulated and did not cover their members adequately for the losses which might be sustained. That is a legitimate concern which is met in part by the proposal.
We must have more stringent policing. The examples that have been quoted about McDonald Wheeler and the present requirements of FIMBRA illustrate that all too clearly. It would not be unreasonable for FIMBRA to be expected to have details of county court records— for example, of bankruptcies. Such details are already available to all credit organisations, banks and hire: purchase companies which subscribe to a service which exists at relatively modest cost to provide that information. All SROs should also subscribe to that service and ensure that they know more about the people whom they accept for membership. Those of us who are members of professional bodies will know that we already accept an enormous cost by way of insurance for the right to be able to practise. Those members or putative members of SROs who are squealing about the cost of being permitted to trade in future do not have a case. We are talking about protecting investors and they must be prepared to pay an adequate price if they want to be in business. I have a suggestion for those SROs. By way of compensation fund, they should require individual members to insure themselves as the price of membership. If they are dodgy enough, they will not get insurance, and if they are relatively dodgy they will have to pay a large premium. That should be the basis on which the compensation fund is assessed.We in the Conservative party put an enormous premium on the small investor. The flotation of British Gas and TSB and other activities fall into the general context of the private investment activity in which members of the SROs engage. It is of vital concern to us, therefore, that the small investor has adequate protection. I welcome the provision for compensation. Because the SROs provide an imprimatur to the investor, he knows that when he deals with a member of one of those organisations he will receive the advice that he requires and that the organisation is fit and proper and—as I argued in the Committee—competent. The compensation question is extremely important to the proper running of the City in the future. The example given relates to the situation before the rules are brought into effect and shows the extreme difficulty and danger which apply without proper rules and compensation.
The clause provides that the Secretary of State may, among other things, specify the terms and conditions and the extent to which compensation is payable, and the circumstances in which the right to compensation is excluded or modified. If the Minister cannot do so, I hope that the SIB will indicate where the right to compensation might be excluded or modified under the rules. Reference has already been made to the comparable professional bodies engaged in investment activity and advice. They have limitless compensation provision. There is no reason why there should not be extemely effective compensation provision. A limit of £30,000 for any one claim is derisory. I recommed a revision of the thoughts expressed by the SIB on that matter. I understand that it might increase the limit. I have expressed my concern about the "cosy club." I am worried that people can be blackballed out of some organsiations without due cause. I deplore the notion that people should be accepted, or not accepted, on the basis of negative clearance. That is the nearest thing to total nonsense that I have heard tonight. I hope that in applying the fit and proper person test in conjunction with compensation we shall ensure that the small investor is properly protected. I am confident that the Minister will monitor the provision and that it will work effectively.I am grateful for the general welcome for the provisions. It is impossible not to have sympathy with the constituent mentioned by my hon. Friend the Member for Chichester (Mr. Nelson). One of my constituents came to my surgery on Saturday with a similar tale. It is impossible not to feel sympathy for those who have suffered losses in similar circumstances. Clearly, the legislation must prevent such losses occurring in the future without the benefit of compensation. Our objective is to provide for the best protection reasonable. That is a requirement of schedule 6. The Bill does not set a maximum limit on the payments that can be made to an individual investor. That is provided for in the rules contained in the new clauses.
The SIB has indicated its policy and is considering a limit higher than that found in other financial sectors. For example, for banking the limit is 75 per cent. of up to £10,000 and for building societies the limit is 90 per cent. of up to £30,000. The Law Society compensation fund is not as extensive or generous as was suggested by the hon. Member for St. Helens, South (Mr. Bermingham). There is a discretionary compensation fund covering fraud only. Indeed, I believe that it is popularly referred to as the swindle fund. That body's scheme has limits, but other professional bodies have no compensation scheme at all, so one should not lightly assume that it is easy to make very generous arrangements. Any compensation provvision can be made only by levying investment firms. It is the investor who ultimately pays, and it is not to the benefit of investors if an extremely high notional limit is achieved by levies which drive many firms out of business or result in very high charges to investors. Nevertheless, I am sure that the SIB, in arriving at what it will regard as the best provision that can reasonably be made, will have regard to the observations made in the debate by hon. Members on both sides of the House, and will pay serious attention to them. My hon. Friend the Member for Stratford-upon-Avon (Mr. Howarth) raised two points. The first related to whether it was necessary for fraud or negligence to be proved. That is a matter for the rules of the SIB and of the SROs in relation to their schemes, which will define the cases in which money can be paid. They would also be able to provide for provisional payments to be made in advance. To some extent, that will meet the concern that my hon. Friend expressed about the difficulties that would arise if formal proof had to be provided. My hon. Friend also raised a point about the circumstances that could arise if a firm left an SRO. A firm that has once been authorised will be subject to the compensation rules. Those rules will determine exactly how investors will be compensated, and the clause provides expressly for the situation described by my hon. Friend. If I understood the hon. Member for Yeovil (Mr. Ashdown) correctly, he wanted to know why subsidisation could not be prevented altogether. All compensation arrangements involve an element of cross-subsidy, and the safeguards in the clause mean that in normal circumstances members of an SRO participating in the scheme will meet the cost of the claims on their fellow members. Thus cross-subsidisation will arise only in extremis, when an SRO demonstrates that a major default or series of defaults means that its members cannot bear the full cost of the compensation required, even over an extended period of years. If the body running the scheme is convinced of that, however, the affected SRO can receive a grant from the fund, which might well be repayable and which can be raised by levying the members of all the other SROs and any businesses directly authorised by the SIB. On top of that, participating SROs and RPBs would be represented on the body making that decision. With those safeguards, I do not think that it is unreasonable for other businesses to contribute. The alternative is that investors might not be compensated. The view expressed in all quarters of the House is that that should not happen. My hon. Friend the Member for Stafford (Mr. Cash) asked about the circumstances in which exclusion from the right to recover compensation might be made. One such example might be where the person suffering the loss was involved in a conspiracy with the investment business concerned. It would not be unreasonable in those circumstances to provide for an exclusion. I am sure that the Bill's compensation provisions represent a substantial improvement for the protection of investors, and I am grateful to hon. Members on both sides of the House for the welcome that the provisions have received.Question put and agreed to.
Subsequent Lords amendments agreed to.
Clause 52
Restrictions On Advertising
Lords amendments Nos.79 to 87 agreed to.
Clause 53
Exceptions From Restrictions On Advertising
Lords amendments Nos. 88 to 96 agreed to.
Clause 55
Public Statement As To Person's Misconduct
Lords amendment No. 97 agreed to.
Clause 56
Injunctions And Restitution Orders
Lords amendments Nos 98 to 103 agreed to.
Clause 57
Actions For Damages
Lords amendments Nos. 104 and 106 to 109 agreed to.
Clause 58
Gaming Contracts
Lords amendments Nos. 110 and 111 agreed to.
Clause 59
Scope Of Powers
Lords amendments Nos: 112 to 119 agreed to.
Clause 61
Restriction On Dealing With Assets
Lords amendments Nos. 120 and 121 agreed to.
Clause 62
Vesting Of Assets In Trustee
Lords amendments Nos. 122 to 124 agreed to.
Clause 63
Maintenance Of Assets In United Kingdom
Lords amendments Nos. 125 and 126 agreed to.
Clause 65
Notices
Lords amendment No. 127 agreed to.
Clause 66
Breach Of Prohibition Or Requirement
Lords amendments Nos. 128 to 139 agreed to. Clause 68
Clause 68
Restrictions On Promotion
Lords amendment: No. 140, in page 51, line 32, leave out "and (3)" and insert ", (3) and (3A)".
I beg to move, That this House doth agree with the Lords in the said amendment.
With this we will discuss Lords amendment No. 141, in page 52, line 13, at end insert—
"(3A) The Secretary of State may by regulations make provision for exempting single property schemes from subsection (1) above.
(3B) For the purposes of subsection (3A) above a single property scheme is a scheme which has the characteristics mentioned in subsection (3C) below and satisfies such other requirements as are specified in the regulations conferring the exemption.
(3C) The characteristics referred to above are—(a) that the property subject to the scheme (apart from cash or other assets held for management purposes) consists of— (i) a single building (or a single building with ancillary buildings) managed by or on behalf of the operator of the scheme; or (ii) a group of adjacent or contiguous buildings managed by him or on his behalf as a single enterprise, with or without ancillary land and with or without furniture, fittings or other contents of the building or buildings in question; and(b) that the units of the participants in the scheme are either dealt in on a recognised investment exchange or offered on terms such that any agreement for their acquisition is conditional on their admission to dealings on such an exchange.
(3D) Regulations under subsection (3A) above may contain such supplementary and transitional provisions as the Secretary of State thinks necessary and may also contain provisions imposing obligations or liabilities on the operator and trustee (if any) of an exempted scheme, including, to such extent as he thinks appropriate, provisions for purposes corresponding to those for which provision can be made under section 77 below in relation to authorised unit trust schemes."
I apologise for interrupting this rapid succession of amendments, but at this juncture I wish to say how pleased I am to see amendments Nos. 140 and 141 and to know that many people outside the Chamber will be gratified that they provide a basis for establishing a unitised market in properties. That is especially important with regard to urban renewal.
I am aware that many people—some eminent—have made criticisms of our failure both in industry and in general to carry out sufficient urban renewal. The whole concept of property unitisation will go a long way to facilitate urban renewal. One of the problems of major projects of urban renewal is that when they are carried out by the private sector, such projects are extremely expensive and complex and also risky with the result that very few individual firms have been prepared to carry them out. Under the concept of unitisation such large and relatively risky projects can be split up among a large number of investors and will therefore become more feasible propositions. The other attraction of the proposal is that it will make liquidity within the market very much better and generally facilitate the ownership of property by a much wider group of individuals. For all those reasons, I warmly congratulate my hon. and learned Friend the Minister on the proposals contained in the amendment.9.45 pm
I express my gratitude to my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) for the welcome he has given to these provisions. He raised the matter in Committee and I should like to express my gratitude for the constructive role he played in enabling us to reach a satisfactory solution.
Question put and agreed to.
Lords amendments Nos. 142 to 177 agreed to.
New Clause
Chapter Ixa
Lords amendment: No. 178, after clause 93, to insert
"AUDITORS
Appointment of auditors
.—(1) The Secretary of State may make rules requiring a person who is authorised to carry on investment business by virtue of section 24 or 30 above and who, apart from the rules, is not required by or under any enactment to appoint an auditor to appoint as an auditor a person satisfying such conditions as to qualifications and otherwise as may be specified in or imposed under the rules.
(2) Rules under this section may make provision—(a) specifying the manner in which and the time within which an auditor is to be appointed; (b)requiring the Secretary of State to be notified of any such appointment and enabling the Secretary of State to make an appointment if no appointment is made or notified as required by the rules; (c) with respect to the remuneration of an auditor appointed under the rules; (d) with respect to the term of office, removal and resignation of any such auditor; (e) requiring any such auditor who is removed, resigns or not reappointed to notify the Secretary of State whether there are any circumstances connected with his ceasing to hold office which he considers should be brought to the Secretary of State's attention.
(3) An auditor appointed under the rules shall in accordance with the rules examine and report on the accounts of the authorised person in question and shall for that purpose have such duties and powers as are specified in the rules."
Read a Second time.
I beg to move, as an amendment to the Lords amendment, in line 6, leave out from "above" to second "to" in line 8.
It will be convenient also to take Lords amendments Nos. 179 to 182, 187, 210, 333 and 381.
This group of amendments deals with the provision for auditors now in the Bill. I welcome the provisions which I think strengthen and reinforce the Bill. I have only one concern, which is that amendment No. 178, which introduces the new clause about auditors, is limited to the appointment of auditors by the designated agency to investment businesses which are not otherwise audited, that is, unincorporated, businesses.
One aspect of the McDonald Wheeler case which has been given insufficient attention is the position of the auditors to that company. They published a clean audit report for the 1984 accounts and shared the building in Canterbury with McDonald Wheeler. That gives some idea of their relationship with the company. No doubt they are being investigated along with the company, but it may be sensible to extend the clause so that the Securities and Investments Board could take a more general interest in who was appointed auditors. We might reach the point where, rather as in the case of Lloyd's, it would be appropriate to have a panel of auditors who were approved as having the necessary experience and qualifications to audit authorised investment businesses particularly as it would be something of an extended audit, not a Companies Act audit. They will have to report as accountants on whether the business has complied with the conduct of business rules, or at least some of them. That will require some special expertise and experience. Therefore, it might be sensible to extend the clause in the way that my amendment proposes and I hope that my hon. and learned Friend will consider doing that.I am slightly worried about the provisions of subsection (5) of the new clause introduced by Lords amendment No. 180, which appears to say that auditors would effectively have the right to determine who is or is not
in many circumstances. It is somewhat incongruous—to complete a point I made in Committee—that qualified auditors should have that kind of control over the members of SROs. The competence of an auditor, as defined for statutory purposes, is related to his qualifications under the Companies Act 1985, and that does not necessarily give him any right to determine a person's competence to give investment advice. My hon. and learned Friend the Minister is aware of my reservations, and I should be glad to hear his comments on that."a fit and proper person"
The broad content of these provisions has already been given to the House in a written answer to my hon. Friend the Member for Suffolk, South (Mr. Yeo) on 9 June. They are intended to provide a framework within which a constructive relationship between auditors and supervisors can develop, without undermining the auditor's relationship with his client or transferring responsibility for regulation from the supervisor to the auditor. But the supervisor can do his job more effectively if communications with the auditor are facilitated so that the supervisor can benefit from the knowledge of an investment business which the auditor, in the course of his work, will develop.
Lords amendment No. 178 provides that rules may be made requiring those businesses authorised directly by the Secretary of State or under the clause 30 arrangement in the Bill to appoint an auditor. The intention is to ensure that all such investment businesses, however they are constituted, can be required to appoint an auditor who will be able to enter into that constructive relationship with a supervisor to which I have referred. Those rules will not apply to those investment businesses already required to appoint auditors under other statutes, such as the Companies Act. So this provision will apply to investment businesses which are not companies. The new clause also sets out what the rules concerning the appointment of such auditors may contain. Their scope parallels those provisions concerning the appointment of auditors in the Companies Act. It is not intended that an entirely new set of provisions concerning the appointment and role of auditors should be created. There are some adaptations to those requirements for overseas businesses which are contained in the fourth new clause. The power contained in the second new clause enables the Secretary of State to require a second examination of information supplied by a business on which an auditor has reported; it is intended to enable work of an apparently sub-standard nature to be checked by another person. That goes a long way towards meeting the point made by my hon. Friend the Member for Beaconsfield (Mr. Smith). This is not intended to reflect on the high standard of professionalism set by the major accountancy bodies in the United Kingdom. But the Bill does not enable the Secretary of State or agency to dictate who shall be an auditor of an investment business and there should be some route open to the regulator to take a second opinion if he has any suspicion about the data given to him. The clause introduced by Lords amendment No. 180 concerns communication made by the auditor to the Secretary of State or, if appropriate, to an SRO or RPB. Information may be given at the request of the appropriate supervisor, in response to a question put by him or, occasionally, at the auditor's initiative. Usually such reports will be made with the knowledge of the business concerned—but on rare occasions it may be appropriate for the business not to be informed, for example, if senior management fraud is suspected. The clause provides that the auditor in making such a report in good faith will not contravene any duty to which he may be subject. So the auditor will not be liable for any loss suffered as a result of his report. This provision is intended to remove any inhibition which an auditor might otherwise consider kept him from discussing matters with a supervisor. It is intended that the circumstances in which an auditor should be expected to give information to a supervisor — especially on his own initiative — will be defined carefully. This will ensure that the individual auditor knows where he stands and will not feel obliged to volunteer much irrelevant information to the supervisor to safeguard his position. It is expected that these circumstances will be set out in professional guidance agreed between the supervisor and the professional bodies. I know that both sides are approaching the task of agreeing this guidance positively. Contravention of the terms of such guidance would be subject to whatever disciplinary proceedings the relevant professional body decided to impose. In the event that some professional bodies do not want to or cannot agree on the terms of guidance, it will be possible for the Secretary of State to make rules, subject to affirmative resolution, specifying the circumstances in which auditors should communicate with a supervisor. If an auditor fails to make reports in accordance with these rules, he may be disqualified from auditing authorised businesses as laid down in the new clause introduced by Lords amendment No. 182. But I emphasise that this sanction applies when the auditor is subject to rules made by the Secretary of State and not when satisfactory guidance is given. The Bill also makes provision for the auditors of insurance companies to report to the Secretary of State matters relevant to his function under the Insurance Companies Act 1981, in a manner parallel to that being introduced for matters covered by this Bill. The Government intend that there should be a broadly similar approach to the role of auditors across the financial sector. The provisions which I have outlined will create the right relationship between auditor and supervisor and will contribute to the effectiveness of the regulatory system. On the point raised by my hon. Friend the Member for Stafford (Mr. Cash), the auditor can give information to a supervisor if it is relevant to whether a person subject to supervision by that supervisor is fit and proper, but it will be for the supervisor to decide whether the person is fit and proper on the basis, among other factors, of the information supplied by the auditor.I welcome what the Government have achieved with these new provisions. In broad terms, they have struck a sensible balance and have gone a long way towards resolving what has clearly been a difficult problem, not least for the professional bodies and for the accountants and auditors involved.
The first thing which the new clause embodied in amendment No. 180 does is to remove or set aside the duty of confidentiality. Clearly that is the first step that is required to remove what would otherwise be an obstacle to the auditor making any report to the supervisor if he considered that something was wrong. I hope that the Minister can answer a question on subsection (2). That subsection, having removed the duty of confidentiality, goes some way towards putting in place a duty to report, but it does so by virtue of two separate provisions covering two separate circumstances: one where the recognised professional body lays down the rules and gives guidance to its members, and the other where the professional body does not do so and the Secretary of State has a reserve power. What bothers me is that, in the first part of that subsection, the language is not that of duty. Where the rules are laid down, they are described as rules of guidance which specify circumstances in which matters are to be communicated. Later in the subsection, where the rules are imposed by the Secretary of State, the language of duty is used. That is a crucial question. Perhaps the Minister can assure me that the two parts are equivalent in this respect, but, if not, there is a problem. It is always a problem for auditors, unless they are told that they must—in every circumstance—choose between the duty which they owe to their client and the duty which they owe to the supervisory authority. Unless that is made clear, not just in the rather exceptional circumstances where the Secretary of State imposes the rules, but in the more usual circumstances where the guidance is provided by the professional body, we may run into problems. Will the Minister comment on that, or at least assure me that it is intended, and that the language secures the intention, that a duty should be imposed by those guidance rules issued by the professional bodies?The answer to the point raised by the hon. Member for Dagenham (Mr. Gould) is to be found in subsection (2) of the new clause which gives the Secretary of State power to intervene if any auditor or class of auditor to whom subsection (1) applies is not subject to satisfactory rules made or guidance issued by a professional body.
It being Ten o'clock, the debate stood adjourned.Business Of The House
Ordered,
That, at this day's sitting, the Lords amendments to the Financial Services Bill may be proceeded with, though opposed, until any hour.—[Mr. Lightbown.]
Lords amendments again considered.
The Secretary of State, in considering whether to exercise that reserve power, may have regard to the precise terms in which the rules made or guidance issued by a professional body are framed. He has the power to intervene and to make use of the reserve power if those rules and that guidance are not satisfactory. That encompasses the point made by the hon. Gentleman.
I am grateful to the Minister. I do not doubt that that is his intention and the intention of the current Secretary of State. Of course, his statements to the House will be of no avail if the matter is ever litigated. As the hon. and learned Gentleman knows, the courts will restrict themselves to interpreting the words in the statute. I cannot see that the words in the statute secure the objective or the effect that the Minister described to us. I wonder whether he will consider that point further. If that is indeed the intention, I do not think that the words secure it.
I do not think that I can add anything to what I said previously. The Secretary of State must decide, in coming to a conclusion on whether he should exercise the reserve power that is provided, whether the rules or guidance are satisfactory from the point of view of the effect and purpose of the provision. If they are not, the Secretary of State has available the option of using his reserve powers which, as the hon. Gentleman concedes, give rise to an expressly provided duty. I suggest that the language used achieves the objective giving rise to the hon. Gentleman's concern.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lords amendment agreed to. [Special entry.]
Subsequent Lords amendments agreed to, some with Special Entry.
New Clause
Arrangements To Avoid Unfairness Between Separate Insurance Funds Etc 1982 C50
Lords amendment: No. 211, after clause 115 insert the following new clause—
"(1) After section 31 of the Insurance Companies Act 1982 there shall be inserted—
Arrangements to avoid unfairness between separate insurance funds etc.
31A. — (1) An insurance company to which this Part of this Act applies which carries on long term business in the United Kingdom shall secure that adequate arrangements are in force for securing that transactions affecting assets of the company (other than transactions outside its control do not operate unfairly between the section 28 fund or funds and the other assets of the company or, in a case where the company has more than one identified fund, between those funds.
(2) In this section—
"the section 28 fund or funds" means the assets representing the fund or funds maintained by the company under section 28(1)(b) above; and
"identified fund", in relation to a company, means assets representing the company's receipts from a particular part of its long term business which can be identified as such by virtue of accounting or other records maintained by the company.".
(2) In section 71(7) of that Act (which lists the provisions of that Act default in complying with which is not an offence) before the word "or" there shall be inserted the word "31A"."
Read a Second time.
Hon. Members may recall that in Committee I was concerned that we might be failing to establish a regime fully adequate to supervise the investment management of long-term funds of life assurance companies. I contended that that was not a negligible consideration, given that they manage the premiums of a large number of small savers and the premiums total, in aggregate, some £125 billion. It is of major importance that we should be satisfied as to the regime of investment supervision. The objective had to be to achieve—this is Professor Gower's phrase—the level playing field, the principle of equivalence of treatment which the Bill articulates.
I am grateful for the consideration that the Government gave to the amendments that I put forward. I accept that insurance policies are a distinct class of investment and that insurance is covered by a distinct body of law. I have noted the extensive analysis given by Lord Lucas of Chilworth in another place. I appreciate that amendment No. 211 provides that companies must have arrangements to ensure that they do not act unfairly as between different funds. That is an important point. I am grateful to the Government for introducing the amendment. I note that the reports that companies are asked to make will be subject to audit. That is an additional valuable safeguard. It is fair to acknowledge, of course, that under the Insurance Companies Act and various EEC directives the solvency of insurance companies is regulated. I come to a lingering anxiety. The monitoring of solvency is not the same as supervision to ensure that there is the best investment performance in the interests of investors. The United Kingdom Provident Institution debacle demonstrates that even the monitoring of solvency can be somewhat laggardly, although it is fair to acknowledge that the Department spotted that problem. Will the Parliamentary Under-Secretary of State assure us that the Department of Trade and Industry will be empowered and directed to ensure that the investment policy of insurance companies aims consistently to achieve the best return for policy holders? Will the Department of Trade and Industry operate a regime of supervision of investment managers of the funds of long-term insurance policies that is truly comparable to the regime operated by the SIB and SROs in respect of investor protection elsewhere? The principles of best execution, prohibition on dealing with connected persons and the maintenance of proper records should be common to investment managers wherever they operate. Will the regime that the Department of Trade and Industry will apply in the case of insurance companies be at least as rigorous as the regime that the SIB and SROs will operate elsewhere?The amendment was a response to concerns put to us in Committee which arose from comments by the city capital markets committee. Unlike other forms of pre-packaged investments, such as unit trusts, policy holders of long-term insurance policies do not own the underlying assets. Instead, insurance companies own assets and manage the investments. Since they manage their own investments, it is not an investment business and is not covered by the Bill.
It was put to us that the economic realities of insurance companies, in managing their long-term funds, are managing the assets of their policy holders. If we broadly accept the justice of this argument, the purpose of the new clause is to cover the principal abuse that can arise when a fund manager has a number of investment clients. The clause provides that where an insurance company has identified funds in different parts of its long-term business, it must have arrangements to ensure that it does not act unfairly as between those funds. That will be a new provision in the Insurance Companies Act. It goes a long way towards meeting the concern expressed by my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth).Question put and agreed to.
Lords amendments Nos. 212 to 339 agreed to.
Clause 154
Banking Business
Lords amendment: No. 340, in page 126, line 32, after "5)(49" insert
",(Winding up orders) (5), (Winding up orders: Northern Ireland) (5)".
I beg to move, That this House doth agree with the Lords in the said amendment.
With this it will be convenient to take amendments Nos. 341 to 343, 345, 346, 389, 443 and 505.
I hope that it will not come as too great a disappointment to those who have been waiting in anticipation for amendment No. 340, which I have been asked to open fully, if I begin by saying that the amendment and the others grouped with it are all relatively minor.
Amendment No. 443 to schedule 8 arises from the fact that a recognised SRO with potential or actual insurance company members has an additional requirement to take account in its rules of the regulation of insurance companies under part II of the Insurance Companies Act or the corresponding provisions in the law of another EC member state. That requirement might prevent an SRO from taking action against an insurance company because that action was reserved to the Secretary of State. Clearly it would be wrong if in those circumstances the SRO were liable for its inaction, and the amendment would grant it immunity from actions for damages in the discharge of those functions as for its other functions. The other amendments are consequential on the new procedure for winding-up investment businesses introduced in Committee in another place or are consequential on an amendment made on Report in this House which moved the provision conferring immunity on the designated agency from schedule 7 to clause 156. Amendment No. 346 reflects the fact that arrangements made by a recognised clearing house for the monitoring function to be carried out by another person or body are entirely analogous to similar arrangements made under the relevant provisions relating to recognised self-regulating organisations, recognised professional bodies, registered investment exchanges and the designated agency.Question put and agreed to.
Lords amendments Nos. 341 to 346 agreed to.
Lords amendment: No. 347, in page 127, line 9, at end insert—
"(6) A recognised professional body may make it a condition of any certificate issued by it for the purposes of Part I of this Act that neither the body nor any of its officers or servants or members of its governing body is to be liable in damages for anything done or omitted in the discharge or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in bad faith.
(7) The functions to which subsection (6) above applies are the functions of the body so far as relating to, or to matters arising out of—(a) the rules, practices and arrangements of the body to which the requirements in paragraphs 2 to 5 of Schedule 3 to this Act apply; (b) the obligations with which paragraph 6 of that Schedule requires the body to comply; (c) any guidance issued by the body in respect of any matters dealt with by such rules as are mentioned in paragraph (a) above; (d) the powers of the body under the provisions mentioned in subsection (2)(d) above or under section [Compensation fund] (3) above; or (e) the obligations to which the body is subject by virtue of this Act."
Read a Second time.
I beg to move, as an amendment to the Lords amendment, in line 3, after "Act", insert
The amendment deals with immunity from action for damages of recognised professional bodies. We have been over that ground on several occasions before, so I shall not go over the history of the argument. At present under the Bill the SIB itself has an exemption from liability for damages, and so will self-regulating organisations in relation to suits or damages that might come from their own members or any member of the public. It has always seemed to me that the logical provision for recognised professional bodies would have been to give them exactly the same treatment as the self-regulating organisations, but we have been over that ground, as I said. I do not want to open up the argument again, except to say that I have never found the ministerial answers on that point at all persuasive. But we are now in a different situation because an amendment was moved in the other place earlier this week to provide at least immunity from suits, from actions by members of recognised professional bodies. The Government were not willing to accept even that, but there have been discussions with some of the professional bodies concerned, including the Institute of Chartered Accountants, and the Government have come up with an amendment of their own, No. 347. As I understand it, Ministers have been saying that it is not necessary to have anything of the sort in the Bill and that the certification procedure of recognised professional bodies is sufficient. As a non-lawyer, may I say that that seems a rather dangerous course. It means that professional bodies would be doing by their own rules what the Government and the House had specifically prevented them from doing, something which would have been subject to legal challenge. The professional bodies rightly said, "If it is to be done through the certification procedure, at least a procedure should be written in the Bill", and that is what we have in amendment No. 347. That is a summary of the history. 10.15 pm The difficulty with the certification procedure is that it bites only when a certificate has been issued, and there may be a dispute between a recognised professional body and one of its members over whether a certificate should have been issued in the first place. In other words, the member may object that he has been refused a certificate. There is nothing in the new provision which would prevent him suing the professional body on that ground. As I have said, the provision will not bite in those circumstances. No certificate will have been issued and, therefore, the conditions will not be applicable. I do not understand why the Government have been so stubborn over this matter and why they should not have had a provision for recognised professional bodies, even if it were limited only to immunity from suit from their own members and expressed in exactly the same terms the provisions that apply to SROs. The provision would be limited to the professional bodies' own members. That is what was attempted in another place at a late stage and the Government have not, for reasons which I find odd, been willing to go along that route. Instead, they have produced their own provision, which, unfortunately, I believe is defective. The purpose of the amendment is to fill the gap that will be left if amendment No. 347 is accepted as it stands. I do not know whether the Minister believes that a recognised professional body should automatically give a certificate of authorisation to any of its members who apply for one, and who are only engaging in investment business within the scope of the authorisation of the recognised professional body, but I think that that would be too automatic a procedure. There are certain conditions which have to be met before a certificate can be issued, and that must be right. It must be right in terms of the Government's approach to these matters. If there are certain conditions to be met, there are bound to be circumstances in which a certificate will be refused to a member. A member may feel aggrieved in those circumstances and may wish to take legal action against the professional body. If we are not to give immunity from legal action generally, it should cover these circumstances, and that is the purpose of this minor and technical amendment to amendment No. 347."or of any application for such certificate".
I regard this provision as yet another sign of the slightly subordinate position, in a sense, which recognised professional bodies, including many distinguished chartered bodies, will face. I notice that my hon. and learned Friend the Minister is shaking his head, but there are distinctions in legal immunity which have to be considered. I can see some difficulties arising in the context of which the right hon. Member for Glasgow, Govan (Mr. Millan) spoke. I ask for my hon. and learned Friend's assurance that this matter has been given the most careful consideration and that there will not be any problems arising in future.
After long debates on this subject, I thought that my hon. and learned Friend the Minister might be interested to hear the legal opinion which my institute, the Institute of Chartered Accountants in England and Wales, has received. It deals with both members of the public claiming in respect of investments and practitioners. It reads:
practitioners—"Our advice is that in the second category"—
investors—"the Institute's exposure is very limited and can probably be eliminated by appropriate changes to its bye-laws. In the first category"—
I suspect that, after all the debates on this subject, the practical problems that will be created by the fact that my hon. and learned Friend has not been prepared to concede immunity to the recognised professional bodies, mainly because he was not happy about conceding it to the self-regulating organisations in the first place, will not be a great difficulty."the legislation does somewhat increase the scope for actions against the Institute, particularly in relation to acts carried out in the course of investigating complaints. There are, however, few cases in which such actions seem likely to be successful."
I am grateful to my hon. Friend the Member for Beaconsfield (Mr. Smith) for drawing that distinguished legal opinion to my attention. I was previously unaware of it, and I hope that it will go a long way toallaying some of the fears that have been expressed.
In regard to what my hon. Friend the Member for Stafford (Mr. Cash) said, it is not envisaged that professional bodies should in any way be subordinated to self-regulating organisations—they are simply different. If they were not different, the need for a separate regime would not have arisen. The differences are effected in several different ways in the Bill. They are not, for example, subject to the direct rule changing power of the SIB. We have not imposed a similar condition on applicants for certification as the right hon. Member for Glasgow, Govan (Mr. Milian) requests because we do not believe that that is necessary. A recognised professional body would not be required to subject applicants for certification to a fit and proper test—certification by a recognised professional body will be a much more straightforward matter than joining a self-regulating organisation. The tests that the professional body would have to apply relate to easily established matters of fact such as whether the people managing and controlling the applicant are members of a professional body. In those circumstances, the risk of a certificate being refused on contentious grounds is very small, and there is no reason, therefore. to provide for immunity in such a case.I hope that I shall not weary the House unduly if I remind hon. Members that the Opposition have been entirely consistent on this matter. It is the Government who have done a minuet around us and changed their stance almost entirely.
We have always argued that for self-regulating organisations, as for recognised professional bodies, some immunity is required, especially against their members, if they are not to be frustrated whenever they try to enforce the rules or conduct inquiries and investigations. We argued strenuously for that in Committee, and the proposition was equally strenuously resisted by the Government. We then discovered to our astonishment on Report that the Government had entirely shifted their stance. They had accepted our case for immunity against members and provided a blanket immunity for self-regulating organisations against everyone. The change substantially alters the nature of self-regulation. Self-regulation was a means which, one assumes, was requested by many City institutions and interests, and by which the investor was to be protected. Self-regulation was touted as the best possible means by which investor protection could be secured, but we now find a regime in which the aggrieved investor, far from being protected, is denied a remedy against the regulatory bodies. That means that the self-regulation that the Opposition were prepared to accept as a desirable element in the regulatory structure has suddenly become an end in itself rather than a means to secure investor protection, and a fundamental objective of the Bill has somehow been lost from sight. I shall take the example of the McDonald Wheeler and FIM BRA affair. It is clear that if the Bill were in force there would be aggrieved people who would have lost as a result of the McDonald Wheeler failure and who would perhaps riot unnaturally — they would have every justification for it — seek a remedy against the self-regulatory organisation involved. As the Bill stands, they would he denied that remedy. I do not believe that that can be justified. For that reason, I am bound to make it clear, if I have not done so already, that this is one of those issues to which a future Labour Government will wish to return when they legislate anew on these matters. I am aware that the amendment concerns recognised professional bodies I entirely agree with my right hon. Friend the Member for Glasgow, Govan (Mr. Milian) that at the very least it is important that, for reasons of consistency—I hope that I have established that we are consistent—we wish to argue, just as we did for the self-regulatory organisations, that recognised professional bodies should he protected for the same reasons against suit by their members. I fully understand the Government's position, and the Minister was kind enough to talk to me and others about these matters within the last week or so. I know that what he is proposing, and will achieve by virtue of this amendment, is not a statutory immunity. He has removed any possible obstacles to achieving immunity by contract between recognised professional bodies and their members. The Minister feels that it is difficult to draw a line between investment business, which may be relatively marginal business, and the other professional activities of members of the bodies. I accept that the line is difficult to draw, but — I have made this point to the Minister before—that problem is not avoided by relegating the matter from statute to contract. The rules still have to do that job. Somehow or other, that line has to be drawn if an immunity is to be secured, so I am not particularly persuaded by that element in the argument. I would go a little further. By relying on contract—in effect, by inviting the professional bodies to secure the position that they want to achieve through the contract — the Minister is giving insufficient weight to the different roles and interests of the recognised professional body as being the body exercising quasi-statutory if not entirely statutory powers of supervision and regulation, and its members. If the interests of the members at the point of joining and the interests of the professional body with the statutory duties laid upon it were identical, there would be no reason why the members should not readily accede to whatever contractual terms were required of them by the recognised professional body, but that is not necessarily the case. There may be a conflict between what the recognised professional body wishes to do in the interests of the profession as a whole and to secure for itself the role that it could conceivably fulfil under the legislation and the interests of the members who say to themselves, "Why are we signing away perfectly good legal rights simply as a condition of joining the body?" The Minister has left a problem for recognised professional bodies which might, in certain circumstances, be extremely difficult to resolve. If this matter is to be satisfactorily resolved and the recognised professional bodies are to be given immunity, which I believe the Minister concedes that they will need if they are to do this job—one for which they have volunteered, but which is described and identified in statutory terms—they will need more than the ability to try to secure that objective through contract. They should he given clear statutory immunity. No other solution will achieve what is required. I was persuaded by the speech of my right hon. Friend the Member for Govan that he had hit upon a weakness, even within the limits of the Government's proposal, in the amendment. The Government will be prudent, and I am sure that the advice of the recognised professional bodies would be to accept my right hon. Friend's amendment for the sake of preventing avoidable difficulties.I support the point made by the lion. Member for Dagenham (Mr. Gould) about the requirement to place this immunity on a statutory basis. Although I regret that I did not hear the latter part of his speech, I had seen the amendment and I support the line taken by the right hon. Member for Glasgow, Govan (Mr. Millan).
My view in Standing Committee—and it remains my view today — that to extend immunity from suit to members of the public and investors in the case of self-regulating organisations is going far too far. We were in favour of immunity from suit for members. The Minister will remember that we had long discussions about it. I was as astonished as the hon. Member for Dagenham when, following a long and strenous discussion one morning, this point was given away. I still harbour the strong suspicion that, whatever the Minister may say to the contrary, it was given away more as a result of the pressure that was applied outside this Chamber than as a result of the arguments that he heard inside it. 10.30 pm I recall that the Minister advanced a most remarkable new doctrine, especially for a lawyer. He said that since he had travelled in the direction that the hon. Member for Dagenham and I and others had recommended to him but had passed by our point and gone further, we should not complain; we should be doubly happy. I recall wondering at that time what the Minister's reaction might be if his wife came in with a broken car and said, "You told me to park the car in the garage, but you should be doubly happy because I went right through it and out the other side." The Minister has gone far too far in providing immunity from suit in respect of members of the public. It amounts to a significant destruction of some of the advantages and rights that members of the public should have under the Bill. I do not go as far as the hon. Member for Dagenham. I do not say that automatically this means that we must move to a statutory system. However, it is a very bad move and it should be removed as soon as possible.The hon. Member for Dagenham (Mr. Gould) raised four points, the last of which was endorsed by the hon. Member for Yeovil (Mr. Ashdown). He rightly attributed to me the identification of the difficulties of definition of the boundary line between investment business that members of professional bodies might carry out, and their other professional activities, as one of the reasons why I was reluctant to provide statutory immunity from suit for professional bodies.
The hon. Gentleman is right that that difficult question of definition remains and that it is not avoided if statutory immunity is not provided, but he failed to recollect the point that I made when we met to discuss this matter: that it is a particularly difficult question of definition and that therefore it is more appropriate to leave it for resolution by the professional bodies and their members, because of the scope that they will have to adjust a definition in the light of experience than to enshrine such a definition in statute law. One factor is that it might be appropriate to draw a definition in a different place for different professional bodies. Therefore, the route that the amendment provides offers considerable advantages in relation to that point.I have absolutely no basis for asking this question other than curiosity, but will my hon. and learned Friend tell us whether the professional bodies concerned have agreed to this provision? It is important to know whether the professional bodies agiee with it.
I dare say they might have been happier with a different provision, but I understand that they regard this provision as acceptable and workable.
The hon. Member for Dagenham sought to widen the discussion somewhat by suggesting that the effect of this provision was, in some very serious way, to deny remedy to investors. It is important to understand that investors will not be deprived of remedy. They will still be able to sue an authorised person if he breaches the rules that apply to him, and they will have access to the compensation arrangements, where appropriate. Those compensation arrangements are specifically designed to favour small, private investors. Therefore, I do not believe that the interest of such investors will be seriously affected by the immunity granted under this clause, or under other clauses. The hon. Members for Dagenham and for Yeovil have always failed to take properly into account the extent to which regulatory action by self-regulating organisations might be inhibited if they were liable to suit by investors. Investors do not simply and exclusively consist of Aunt Agatha, an investor who became fondly known to us during our discussions in Standing Committee. Investors will include large and powerful concerns which might well be prepared to use the threat of legal action to inhibit effective regulatory action by self-regulating organisations. That justified the extension of the immunity for those organisations. The hon. Member for Dagenham (Mr. Gould) descended into the detail of the likely reaction of members of professional bodies. I do not share his analysis, because one can possibly divide those members into two categories. There will be those anxious to take advantage of the ability to carry out investment business by being authorised through membership of a professional body. They will have every incentive to enter into an agreement of that kind with the professional body in order to encourage the professional body to become recognised. The other category of members may have no interest in carrying out investment business. Equally, it will be in their interests to confer this power on their professional body because it will mean that they will be much less likely to be held liable at the end of the day to contribute to any liability incurred by that professional body.There is at least the possibility of a third category, professional men carrying out investment business. They may be unwilling to accept, if one tries to impose it on them, a contractual term which denies them remedies against a recognised professional body. Therefore, they would prefer to go for direct authorisation. Would the Government be neutral on that?
I do not entirely follow that argument, since direct authorisation would be a matter for the Securities and Investments Board or designated agency and they would have immunity. The people about whom the hon. Gentleman spoke would be no better off by taking that route. There is no way in which there would be an advantage in terms of securing less immunity by following any of the other routes. The third category of member of a professional body identified by the hon. Gentleman will not exist. For all those reasons, Lords amendment No. 347 provides a satisfactory balance and I commend it to the House.
I am not convinced that the Minister could not quite easily have accepted my amendment which would have improved the Lords amendment. However, it is rather pointless to carry on the argument at this hour and at this stage in the Bill. At least amendment No. 347 as it now stands represents some movement on the part of the Government and we must be a little grateful for that. I beg to ask leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Lords amendment agreed to.
Further consideration of Lords amendments adjourned.— [Mr. Malone.]
To be further considered tomorrow.
West Fife District General Hospital
Motion made, and Question proposed, That this House do now adjourn.— [Mr. Malone.]
10.38 pm
I should like to point out a slight change in the motion before the House. The subject of the debate should be the future development of the west Fife district general hospital and not "Fife West" as on the Order Paper.
I am pleased to see in his place the Parliamentary Under-Secretary of State for Scotland, the hon. Member for Argyll and Bute (Mr. MacKay). He has been translated from responsibilities that he had for the Health Service in Scotland to another post and his place has been taken by Lord Glenarthur. I understand that the Parliamentary Under-Secretary is answering questions on health matters. My hon. Friend the Member for Dunfermline, East (Mr. Brown) and I met the hon. Gentleman to discuss this matter. It is with some diffidence that I raise this matter in the House. It involves some detail and trying to achieve a balance of advantage between certain areas in Fife and other areas outside Fife. It concerns the inter-relationship of the Scottish Home and Health Department with a health board and the health board's area of responsibility. As a Member of Parliament, I have some diffidence about intervening in these activities. I hope, therefore, that I will not bore the House by going over some of the background as I try to set the scene as to what is agreed and where the areas of disagreement may be between the Scottish Home and Health Department and the health board in Fife. I do not think that there would be any disagreement about the shortage of acute beds in Fife. My information is that—and I accept that these are broad brush figures — between 5,000 and 10,000 patients a year have to travel out of Fife for hospital attention. My argument is based on statistics furnished by the health board. There is a requirement, in terms of acute bed provision in Fife, for 938 beds. That is the total requirement for Fife. I am not trying to play my area off against any other area, but in Dunfermline we have certain additional disadvantages in relation to the shortages of acute beds. The problems lie in the fact that there are three different hospitals which cater for specific services: Milesmark, Dunfermline and west Fife hospital and the Dunfermline maternity hospital. That leads to an unsatisfactory situation as there is a duplication of services and unsatisfactory and old facilities. The health board naturally desired to rationalise the position and to concentrate activities on one hospital in Dunfermline. In 1983, the health board tried to resolve the position by making an earnest attempt to examine the overall position and, coincidentally, to determine the content and progress of the acute bed facilities in Dunfermline under the phase II development in the new west Fife district general hospital. I make no criticism of the Government's overall strategy. They have tried to reallocate the resources within hospital expenditure in Scotland and, instead of being one of the disadvantaged areas, Fife has begun—and I say that diffidently— to receive fairer treatment. I have referred to 1983. After many years of unproductive discussion about the new acute hospital for Dunfermline, it became apparent to the board in 1983 that the effort should be made to reach a decision which would lead to approval being given by the Scottish Home and Health Department to the building of a new acute hospital in Dunfermline. That building project was of such a magnitude that it would have to be funded centrally by the Treasury. To obtain approval in principle from the SHHD, the board was obliged to carry out two procedures. As far as I understand it, that was unique. The board was the first to carry out these procedures, what is called an option appraisal exercise and the preparation of an approval in principle submission. These are technical terms and I do not understand the details except to say that the option appraisal exercise consumed a great deal of valuable time—about 18 months — of highly paid officials within the board and elsewhere. Arising from the option appraisal scheme there were five options available to the board. One was to cater for the facilities outside the Fife area and another was to do so within the Fife area. Both options were dismissed for obvious reasons. The options were narrowed to two. Option C was based on an equal distribution of facilities and option D on the balance of population. On 26 June 1984 the board decided to proceed with option C on the basis of advice from the building division that developing the Victoria hospital site was not feasible. I do not want to interfere with any of my hon. Friend's constituency, but that was the advice from the building division. Option D involved a third set of theatre suites. On balance it was decided to proceed with option C in Dunfermline. One would have thought that everything was set and that the Fife board could proceed with option C, subject to other approvals being granted. However, in late autumn 1985 the board received a development plan for the Victoria hospital from the building division which had stated earlier that it would be inappropriate to develop the Victoria site further. The building division suggested that a fairly large new building might be built. Further investigations suggested that it might be possible to provide a larger development, contrary to what had been stated previously by the building division. I do not know about the Minister, but I have seen a sketch plan which reveals a weird and wonderful development and which opened up further study. Advances in engineering and technology could make what was not possible in 1983–84 possible in 1985. Anyway, the hospital board found that it was impelled, if not compelled, to go through the exercise of evaluating whether it was technically possible to expand the Kirkcaldy site. Initially the Scottish Home and Health Department raised a number of queries about the phase II development of the west Fife district general hospital, to which answers were given. Information was given to the SHHD about the feasibility of a larger development on the Victoria site at Kirkcaldy. In April 1986 the Department wrote to the board stating that as there had been recent indications from the building division that further development at Victoria hospital might be feasible, a more detailed study of the apparently abandoned option D— or something like it — was required and it requested a study to be carried out, having regard to capital cost and revenue consequences. This study has been embarked upon. I may not have entirely accurate information—I do not wish to mislead the House—and 1 apologise to the Minister but I am told that, in broad ball park figures and capital costs, there is little to choose between option C and option D. We are talking about figures of between £28 million and £30 million either way. Although full studies have not been completed, there is little to choose, in revenue terms, between the options. My information is that, on Friday 24 October, the Fife health board's senior officers met with officers of the building division of the Common Services Agency to discuss the studies in relation to the design and capital costs involved in option C at the Victoria site and the option D implications of the west Fife district general hospital site. This meeting was reported to the Fife health board on 28 October and there will be a further meeting to discuss the matter. I apologise to the House for the time I have spent in setting out the background. What is at stake is the delay and the disadvantage to constituents — not only mine but constituents throughout Fife. If Treasury money is involved or Treasury sanction is required, it is right that we should go through an evaluation exercise. I do not question that—indeed that would defeat my purpose. The evaluation exercise has been carried out but it has been reopened on the basis of what I consider to be a very flimsy overture by the building division and its architects. No conclusion has been obtained on the basis of a capital evaluation and no conclusion has been obtained on the basis of a revenue evaluation. To put it crudely, we are back to political pressures and a balanced judgment of what could be done on a green field site in Dunfermline and what Can be done on a rather congested site in Kirkcaldy. These are value judgments. I believe that the best organisation to assess these judgments would be the Fife health board. I appeal to the Minister to make it clear that, at the end of the day, which I hope will be soon, we will not have any pressures exerted by the Scottish Home and Health Department on the health board, through various political channels, to accept something which the health board does not want. The health board is strictly adhering to option C, which it initially embarked upon. Other factors interpose themselves. Due to the shortage of acute beds in Fife, many people in my constituency and that of my hon. Friend the Member for Dunfermline, East and other hon. Members have to travel either to Tayside or to the Lothians. We await an evaluation of the cost of option C from the Scottish Home and Health Department. Recently we met Lord Glenarthur and he said that he hoped that this "delayed" survey on the cross-boundary flows would be done quickly. In a letter to my hon. Friend the Member for Dunfermline, East and myself on 22 October he said:We do not necessarily accept that stricture. The assumption on the part of the Fife health board was that, having assessed option C, the exercise of cross-boundary flow was one that it should not concern itself with. However, the letter went on:"On the matter of cross-boundary flow, I must emphasise that Fife Health Board's proposals for West Fife District General Hospital Phase II, together with the option appraisal were only submitted to the Scolttish Home and Health Department in January of this year."
We dispute that. The letter also states:"The work on cross-boundary flow could not, therefore, have commenced prior to that time, as it was not known what the Board's proposals were."
We welcome that. However, I must emphasise that the major concern is delay. I hope that the Minister will accept that what I have said is said with sincerity. Our concern is about the injection, late in the day, of another survey. The File health board was the first to go through an option appraisal scheme. I submit that to open the argument again, however persuasively it may have been put—initially I was not persuaded on the basis of an architect's flimsy drawing—involves delay. That has a cost that no one has been asked to evaluate. Delay involves suffering to people in Fife, especially people in my constituency, who expect to have their needs in terms of acute beds satisfied. We are talking about getting something done that should have taken anything up to nine years. My estimation is that, because oi' the delay, it will be the year 2000 before the problem is resolved. I know that the Minister has difficulties and I understand the problems of intervening. However, I am asking for an assurance that he will give resources to the Fife health board to expedite this and that the board will be left to make the judgment at the end of the day as to what is best for the people of Fife and what the distribution of hospital services should be between one part of the board's area and another. I earnestly look forward to the Minister's reply."Assuming the Health Board are able to resubmit their proposal to me before the end of this year, I would still hope to be in a position to make a decision early in 1987."
10.57 pm
The hon. Member for Dunfermline, West (Mr. Douglas) has illustrated his concern about the delays in building a new acute hospital in Dunfermline. I can understand that. As he mentioned in his speech, he and his hon. Friend the Member for Dunfermline, East (Mr. Brown), who I see is in the Chamber, came to see me while I was the Minister responsible for health and we discussed this matter. I know that they have been to see my noble Friend the Minister of State who has taken over those responsibilities at the Scottish Office and have expressed to him their concern about the delays.
I am afraid that, as I and my noble Friend have said, we cannot agree that the board ignored the new evidence which came to it affecting the choice of the site that it would develop when considering a new hospital investment in Fife amounting to many millions of pounds. I do not think that the board or the Scottish Home and Health Department could have ignored what they heard from the building division. They had to look at the implications of that advice and at the implications for the adjoining health boards of any proposals to build a new hospital in Fife. I shall describe the acute hospital provision in Fife at present and why the Fife health board wishes to provide replacement and additional accommodation. I shall simply be underlining something that the hon. Gentleman and I agree upon, which is that new hospital accommodation is needed in Fife. At present there are some 793 acute beds in Fife, the main concentration being at the Victoria hospital, Kirkcaldy, with 365 beds, and a scattering of eight small and medium-sized hospitals, some in less than ideal condition, making up the balance. The total number of 793 compares with anticipated needs in 1991 of 918 acute beds. The number of acute hospital beds in Fife is therefore significantly short of the number required. At present, the shortfall is in large measure compensated by treatment provided for Fife patients in Edinburgh by the Lothian health board. Fife health board wishes substantially to reduce the cross-boundary flow. The board is also concerned that the proliferation of small units of existing accommodation in Dunfermline and the Kirkcaldy area needs to be rationalised. In 1983 the board embarked on an option appraisal. The hon. Gentleman used the word "unique". It was not unique—it was the first detailed option appraisal on that scale. Now it is a routine procedure. Option appraisal is an important procedure to determine where we should put major capital investments and how best we can make those investments for the benefit of the service into the future. I do not want to repeat what the hon. Gentleman said because I want to try to put the main points in my speech. However, he mentioned the options. Option A involved closing a number of acute beds at Dunfermline and substantially increasing the number of patients treated in Lothian. That, for obvious reasons, was rejected. Option B was essentially a "no change" option. Facilities at Dunfermline would be upgraded and the cross-boundary flow to Lothian slightly increased. Fife health board rightly decided to reject that option. Option C involved a large new hospital at Dunfermline, with the existing acute hospitals there closing down, and a smaller extension to Victoria hospital, Kirkcaldy, replacing the beds at Cameron, Hunter and Randolph Wemyss. It was thought that that option would substantially reduce cross-boundary flow to Lothian. Option D would provide rather less development at Dunfermline but correspondingly more at Kirkcaldy. The fifth option, option E, envisaged substantial development at Kirkcaldy and very little at Dunfermline, with cross-boundary flow to Lothian increasing slightly. Options E and D were quickly ruled out because of what were thought at the time — April 1983 — to be insuperable difficulties on the Kirkcaldy site. In April 1984 option A was also dropped because it would have caused revenue problems for Fife and also, of course, because of the inconvenience to patients and relatives travelling to Edinburgh. Furthermore, it was thought that Lothian health board would have considerable difficulty in absorbing a large increase in acute patients. Option B was rejected as failing to meet the problem, leaving option C as the board's preferred solution. In December 1985 the board presented a submission to the Department for approval in principle to build a second phase of west Fife district general hospital, providing 432 beds. That was followed in January 1986 by the board's option appraisal document. However, at that time it became apparent that further development at Victoria, Kirkcaldy, in addition to the 102 beds proposed by option C, might in fact be possible. That followed on advice provided by the building division of the Scottish Health Service Common Services Agency. It was clear that the board would have to look again at what facilities might be provided at Kirkcaldy, and that option D need not have been deleted purely on the ground that it was not feasible to build additional accommodation at Kirkcaldy.
rose—
I shall give way to the hon. Gentleman, although it will probably mean that I shall not be able to cover all the points.
I want to comment on the precise point which has led to the further consideration of option D. It seems that it was pointed out that it might have been technically feasible to build on the site. Is the Minister aware that the board rejected option D not only because it doubted the technical feasibility but because it regarded the proposal, which would involve three theatre sites, as — to use the board's words — "totally impractical"? Therefore, whether or not the site was technically feasible for building was not the major or only issue in the board's decision when it rejected option D. Why, then, is the board being forced to go through a technical submission on option D when it is clear that it rejected that option as being totally impractical even if technically feasible?
I was not present to hear the board's deliberations. It may not have been the only reason for rejecting option D, but if one is told that there are insuperable building difficulties, that must be a principal reason. One may not like what flows from that, but one does not pass that hurdle if advised that there are insuperable difficulties.
Both hon. Members told me that they would have preferred it if those insuperable difficulties and that position had remained. I understand that point, but we have reached the stage where it appears, from advice from the building division, that it would be possible to provide such facilities at Kirkcaldy. Both hon. Members have asked me why the new advice meant that the board's appraisal of the options had to be reconsidered. It is now clear that further development is feasible at that site, and the board and the department thought that it should be explored. The building division has produced a design solution for the Victoria site which is being considered by the board. I have already stressed the importance of a proper appraisal of options when dealing with capital expenditure. If Fife health board had ignored the new evidence about building possibilities at Kirkcaldy, the basis of the decision-making process leading to the approval in principle submission for phase 2 of the west Fife district general hospital would have been substantially undermined and there could have been no confidence in the board's conclusion. The board was well aware of that. Hon. Members have not sought to introduce into the debate the conflicts between different areas in Fife, but that problem also existed and those who were keen on the Kirkcaldy solution became aware of the possibility of option D, which the board agreed to reconsider. It was not just a matter of the Scottish Home and Health Department delaying matters by telling the board that option D would require further investigation. The board itself first brought the revised development potential of the Victoria site to the attention of the Department. The building division has produced a design solution for the site and comparative figures for the costs of the two options. I can confirm that the latest advice from the building division is that option D is unlikely to cost more in capital terms than option C. That is also contrary to what was originally believed. Indeed, when hon. Members visited me they put that view to me. At the time, I thought that that might be the likely outcome, but that has not been the case. Indeed, option D may be cheaper. Similarly, preliminary information from the health board is that the revenue costs of one option are unlikely to differ significantly from those for the other option. The service implications of option D as opposed to option C are less easy to assess, and I understand that the board is working on them at the moment. Therefore, it does not expect to make a fresh submission to the Department on phase 2 of the hospital before December this year. Of course, there is no longer a possibility that the board can apply to the Department requesting that option D should be dropped on cost grounds. I informed the hon. Gentlemen of that possibility when I met them, but we know that it is no longer a possibility. That means that the board will have to make decisions about the merits of both schemes, if the financial aspects are equal. I do not have time to deal with the cross-boundary flow. It is a factor, but it will not cause any delay —The Question having been proposed after Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.Adjourned at eight minutes past Eleven o'clock.