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parties on not only the draft instructions to parliamentary counsel for the preparation of the Bill but successive drafts of the Bill itself. The Bill has benefited greatly as a result, and I thank all those who took part, particularly the Friendly Societies Liaison Committee and representatives of the actuarial and accountancy professions. All their main concerns have been met, and the Bill therefore has the full endorsement of the friendly societies movement.One of the Bill's most important provisions is to allow friendly societies to incorporate. That is an essential prerequisite for their being able to provide a wider range of financial and other services. For prudential reasons, European Community insurance legislation prohibits an institution providing long-term life or general insurance from engaging directly in other activities. It follows that such other activities must be conducted through separately managed and financed subsidiaries.
Friendly societies are currently unincorporated associations of individuals, and under the present law are effectively unable to own subsidiaries. The Bill therefore provides for societies to incorporate as a new category of friendly society, and to form and acquire subsidiaries. Although there will be no obligation--either legislative or otherwise--for existing friendly societies to incorporate, incorporation does offer advantages.
In particular, it offers societies the ability to own their assets directly rather than through trustees and to have legal personality for contractual and other purposes. We therefore hope that, even where they do not intend to take up the new powers provided by the Bill, societies will take the opportunity to incorporate. We have made special provision to preserve the character of societies with a federal structure, such as the Independent Order of Oddfellows and the Ancient Order of Foresters, if they choose to incorporate--but the decision on whether or not to incorporate will be for the members of each society.
Societies that incorporate will be able to establish subsidiaries or, together with other societies or other institutions, to establish the joint control over companies. Through those subsidiaries and jointly controlled bodies, they will be able to conduct a wide range of financial and other services. Those new activities are set out in schedule 7. They are mostly those put forward in the Green Paper, but, at the request of societies, we have added a number of additional activities.
The services that societies will be able to offer through subsidiaries include the establishment and management of unit trusts and personal equity plans ; arranging for the provision of credit ; carrying on long-term or general insurance business ; the provision of insurance intermediary services ; the administration of estates and the execution of trusts and wills ; and the establishment and management of sheltered housing, residential homes for the elderly, hospitals and nursing homes. Those services can be provided not only for members of the society, but for the public at large.
All the activities listed in the Bill either relate closely to the existing businesses of friendly societies, or are natural areas into which they can diversify. However, the Bill provides for the list of activities conducted by subsidiaries and jointly-controlled bodies to be amended by secondary legislation. That means that, subject to the agreement of Parliament, additional services could be added as
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appropriate in the future by statutory instrument, without the need for fresh primary legislation. That flexible approach will allow the powers of friendly societies to be adapted to changing market conditions, and will ensure that their ability to compete is not unjustifiably restricted by their legislative framework.We are conscious, however, that the basic concept of a friendly society-- existing to provide a service to its members and controlled by them--should not be compromised by the new powers. We would not want a society to diversify to the extent that its new activities became disproportionate to the traditional business of the society. The Bill therefore provides safeguards in that respect. The purposes of an incorporated friendly society must include the provision of traditional friendly society services to its members, and they are set out in an updated form in schedule 2.
Mr. Tim Smith (Beaconsfield) : I have been looking at schedule 3, which deals with the procedure of incorporation. Would it be sufficient for a society's members to vote for incorporation by means of a simple majority, or will there be some higher hurdle, as there is in the case of building societies? If members do vote for incorporation, who will be the members of the society when it is incorporated? Who will be the shareholders?
Mr. Maples : There will not be shareholders. Although the society will then be an incorporated body, it will not be a Companies Act company ; it will be incorporated specifically under the Bill. A friendly society will need to amend its rules to bring them into line with the requirements for incorporation that are made in the Bill. The resolutions required for such amendments will be those that are required by the friendly society's rules. I understand that, on the whole, rules can be amended by a simple majority, but I shall check that and confirm the position when I reply to the debate. It will be for the friendly society to amend its rules in accordance with its own procedures for amending rules--if that is not tautological. There are powers to regulate the scale and nature of the activities of a society's subsidiaries if they are considerd to be unsuitable or disproportionate to the activities of the friendly society group as a whole. Societies will, as now, have the option of converting into companies if they wish to diversify further. That, I think, deals with the point made by my hon. Friend the Member for Beaconsfield (Mr. Smith) : I was not talking about incorporation into a Companies Act company, but that further option is available to friendly societies now. If they find the legislation too constricting, either now or in the future, they can take such action ; and, in such circumstances, they would be normal Companies Act companies with shareholders.
The second major element of the Bill is the establishment of a regulatory framework for friendly societies, in line with the best current standards. The prime responsibility for protecting the reputation of friendly societies for soundness will continue to rest with the committees of management of the societies themselves. The Bill tightens the requirements in that regard, including the requirement for at least two members of the committee of management, and the requirement that the committee be subject to re-election at regular intervals.
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Clearly, however, we also need to strengthen and modernise the arrangements for the prudential supervision of societies as their business becomes less restricted, and to ensure that members of declining societies are protected appropriately. Although the problems that have arisen in relation to friendly societies in recent years have not been serious--indeed, the movement has a very good record--we must not neglect the need for their proper supervision. The supervisory system for friendly societies provided by the Bill therefore reflects and responds to the developments in regulation which have taken place elsewhere in the financial services sector. Accordingly, under this legislation we propose to establish a friendly societies commission, to exercise and extend the functions at present carried on by the Chief Registrar of Friendly Societies. The new commission will include people with suitable experience outside the public service and the supervisory staff dealing with friendly societies will be strengthened. In parallel with that, the commission will have new powers, based on a requirement for all active friendly societies to be authorised.The main power of the supervisor will rest in the granting or revocation of authorisation to carry on insurance or other contractual business, and in the imposition of conditions on it. A society carrying on such business without authorisation will be guilty of an offence. Authorisation is, of course, the standard procedure elsewhere in the financial services sector.
The Bill also sets out criteria of prudent management, with which all friendly societies--regardless of whether they require authorisation or are closed societies not conducting new business--will have to comply. The main criteria include the maintenance of any required solvency margin and of requisite accounting records and systems of control ; direction and management by sufficient fit and proper persons ; and conduct of the society's business with adequate professional skills, and in relation to the insurance business, so as to meet the reasonable expectations of members. In addition, those incorporated societies with subsidiaries will be required to ensure that they supervise the activities of those subsidiaries with due care and diligence.
If the commission considers that a society is failing to comply with the criteria of prudent management or if it thinks that action is needed to protect the interests of the members of a society for other reasons, it will be able to exercise a range of prudential powers. It can forbid a society to accept new members or withdraw or impose conditions on its authorisation. In addition, there will be a general power in relation to closed societies to direct a society to take such action as the commission considers appropriate. The commission will also be able to petition for the winding up of a society on a just and equitable ground, and to order a society to transfer its engagements.
The commission will have accompanying powers to obtain from societies and their subsidiaries the information necessary for its supervisory functions and to conduct inspections and investigations into societies.
The Bill therefore provides a flexible and wide-ranging regulatory structure to protect members' interests. That was the reason why we considered it appropriate to vest these powers in a commission, including independent members, rather than one person--the Chief Registrar of Friendly Societies--as at present. However, in line with
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building societies and banking legislation, the Bill also makes provision for an independent appeals procedure against the supervisor's decisions.The commission's prudential powers are not the only safeguard for friendly society members. The Bill also requires all societies carrying on long-term life insurance business to appoint an actuary for the society. And all societies transacting insurance business will be required to have regular actuarial valuations of their liabilities, with checks taking place in intervening years. In addition, new provisions relating to the preparation of the accounts of friendly societies and the duties of auditors are included in the Bill. The provisions reflect those in companies and building societies legislation. They require friendly societies to maintain proper accounting records and systems of control. Each year, the auditors of a society will have to make a report to the commission on whether the society has complied with the statutory requirements. The auditors are also empowered to furnish other information to the commission on the conduct of the activity of the society or the business of any subsidiaries.
Effective management, subject to appropriate supervision, is the best means of providing for the integrity and soundness of friendly societies. But to underpin all that the Bill makes fresh provision for investor protection. There is currently a voluntary scheme to protect friendly society members. However, although all the large societies, which account for the vast proportion of friendly society business, belong to the scheme, a number of the smaller societies have not joined it. It is accordingly desirable--as with banks, building societies, insurance companies and other financial services institutions--that there should be a statutory scheme, which is mandatory on any society which gives its members contractual rights. Although it would have been possible to establish a statutory scheme just for friendly societies, it makes more sense to bring societies within the existing arrangements provided by the Policyholders Protection Act 1975, which covers the insurance industry. Accordingly the Bill provides for the amendment of that Act so that policyholders of friendly societies are brought within its scope on the same terms as those of insurance companies. Responsibility for the 1975 Act lies, of course, with my right hon. Friend the Secretary of State for Trade and Industry, and it is outwith the scope of the Friendly Societies Bill to make any more general amendments to that legislation.
We are removing the responsibilities of the Registry of Friendly Societies for hearing disputes between friendly societies and their members. Very few such disputes have been referred to the registry in recent years. In future, if a dispute cannot be settled under the rules of a society, it may be referred to the courts. We consider that the role of arbitrator under the disputes provisions does not sit easily with that of being supervisor of the institution which is one of the parties involved. However, although the commission will have no formal responsibilities in this area, it will continue the registry's role of using its good offices to resolve complaints. Friendly societies will also be encouraged to join one of the existing voluntary complaints schemes which cover insurance companies such as the insurance ombudsman bureau.
We are also taking the opportunity to rationalise the other disputes functions of the chief registrar. In particular, responsibility for determining disputes between the Department for National Savings and its investors will
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be transferred to an independent adjudicator. Although the independence and objectivity of the registry in handling these disputes has not been called into question, we have been conscious that it is rather anomalous for one of the Chancellor's Departments to determine disputes involving another.The Bill also makes fresh provision in relation to amalgamations, transfers of engagements by and to friendly societies and their conversion into companies. As I said, a number of declining societies have ceased to take on new business. If a society is in terminal decline or if a management void appears, the interests of its members may be better served by a transfer of its engagements to another society willing to accept them than by allowing the decline to continue or winding up the society.
The Bill therefore contains measures to facilitate voluntary transfers while at the same time making provision to protect the interests of the members of the friendly society making or accepting the transfer. In particular, it introduces a conformation procedure so that the commission can be satisfied that the procedures for a transfer have been properly carried out. Where a friendly society proposes to transfer any of its insurance business to another society required to maintain a margin of solvency, the commission must be provided with an actuary's report on the ability of the receiving society to maintain the requisite solvency margin. The commission will also have the power to direct a society to transfer its engagements to another friendly society or other suitable body if it considers that the society is unable to manage these satisfactorily and that a transfer would be in the best interests of the members. A conformation procedure is also provided where societies wish to amalgamate or where a society wants to convert into a company. The Bill is a long and technical measure. That is inevitable as it is the first major overhaul of the law relating to friendly societies in more than a century. Besides providing new powers for societies, it thoroughly modernises their legislative framework and incorporates many of the provisions that have already been enacted for companies in the Companies and Insurance Companies Acts in recent years and for building societies in the 1986 Act.
The Bill gives friendly societies important new opportunities to respond to the needs of their members and to plan for the future. Our purpose has been to provide a framework in which each society can develop in the way that it judges best, while always retaining the essential characteristics on which the reputation of friendly societies has been based. I am sure that there will still be room for societies of all sorts--large and small, national, regional and local--as long as they continue to provide the services that the public want.
The Bill should not diminish but enhance the diversity of the friendly society movement. It gives those societies with the necessary will and ability the opportunity to move into new areas and to expand their services to their members. It also provides for a regulatory framework in line with the best current standards. Friendly societies have given outstanding services to the community for more than two centuries. This legislation will enable them to continue to do so for many years to come. I commend the Bill to the House.
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4.28 pmMr. Paul Boateng (Brent, South) : A Bill to update the outmoded and antiquated legislative framework of friendly societies is hardly likely to excite the passions of the House. It is surprising, therefore, that the Bill should have taken so long to come here. There can seldom, if ever, have been a measure that has been so long awaited, so well trailed and so desperately needed by the group of organisations and people involved. Our regret is that it has been introduced so late in the day, at the eleventh hour. In their last moments, the Government have chosen to introduce a measure that it was open to them to introduce many months ago had they been so minded.
Indeed, as long ago as June 1989, during a debate on the Finance Bill, my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) said that the Opposition would be only too willing to co-operate with the Government in identifying a time slot for such legislation and to give it a fair wind. My hon. Friend had been encouraged in saying that by the remarks of the then Economic Secretary to the Treasury during an Adjournment debate initiated--I want to give credit where credit is due--by no less a personage than the hon. Member for Wyre Forest (Mr. Coombs). He may remember it. At that time he had a slightly different role--a less distinguished role perhaps--but he was at least free to speak his mind. Now he is muted, at least on this topic.
However, on that occasion, the hon. Member for Wyre Forest moved the Adjournment debate and received due credit--his picture was in no less a journal than The Times of Saturday 8 April 1989. The hon. Gentleman remembers it well. It is not often that he features in The Times in any capacity. The headline under his picture
Mrs. Llin Golding (Newcastle-under-Lyme) : He looked younger.
Mr. Boateng : Indeed, he did look younger--that is true. The headline was "Taken up the Cause". That was three years ago, which does not say much for the hon. Gentleman's persuasive powers. He is certainly older, but I am not sure that he is wiser. Three years later the measure has found its way to the House.
At the time, the then Economic Secretary--the current Secretary of State for Trade and Industry--said :
"Friendly societies are an important part of our social and economic fabric."--[ Official Report, 4 April 1989 ; Vol. 150, c. 170.]
He also said in the Finance Bill Committee :
"I welcome their work and wish them to continue to operate."--[ Official Report, Standing Committee G, 29 June 1989 ; c. 707.] With such support, we might reasonably have believed that the Government would give the matter priority, but it was more than six months before they managed to arrange publication of the Green Paper entitled "Friendly Societies : A New Framework", to which the Economic Secretary referred. In view of that degree of diligence by the then Economic Secretary, it is no wonder that since he took over at the Department of Trade and Industry the Department has been renamed "The Department of Torpor and Indifference".
I hesitate to introduce a rancorous note into what should be a happy debate, as this is a non-controversial and inoffensive measure. However, for those of us who
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follow these matters--there are not many of us, but we are nevertheless a dedicated band of observers--it is interesting to note that the process began with the then Economic Secretary, who is now Secretary of Trade and Industry, and continued to cover no less a personage than the Patronage Secretary. The post of Economic Secretary is interesting, because although it tends to paralyse those who hold it, at least in terms of friendly society legislation it does not subsequently impede their advance up the slippery pole. Sadly, the exception to that rule is the personage who now occupies the post of Economic Secretary. I fear, for his sake, that he does not have much further to go up the slippery pole and that he will shortly slip off it altogether.Mr. Michael Morris (Northampton, South) : In the hon. Gentleman's historical review, will he remind us why, when legislation on friendly societies was consolidated in 1974 and the possibility of new legislation was raised, the then Labour Government chose to do nothing? I, too, do not want to bring a note of rancour into the debate, but I must point out that friendly societies seem to have suffered under all parties in the House.
Mr. Boateng : The Government have had 13 years in which to do something about friendly society legislation and they have chosen to do absolutely nothing. I am glad that the hon. Member for Northampton, South (Mr. Morris) does not want to introduce a note of rancour into the proceedings. He will understand, therefore, why I do not respond directly to his point.
Mr. Boateng : I will not be provoked by the hon. Member for Beaconsfield (Mr. Smith). He has been trying to provoke me for years and, in my experience, the best course with him is not to be provoked. We shall come to the history of the matter in due course--and there is an awful lot of history.
It is interesting that the Prime Minister, who was then in his incarnation as Chancellor of the Exchequer, was very free with his words of encouragement to the friendly society movement. He wrote : "The Government hopes the proposals in this Green Paper will provide the societies with firmer footing in the modern world and secure the future of the friendly societies into the next century." The Economic Secretary, now the Patronage Secretary, echoed his master's voice, in no less a journal than The Daily Telegraph, with uncanny accuracy. He used the words :
"secure the future of the friendly society movement into the next century".
If the proposals were allowed to continue at the rate at which the Government have dealt with them, it would be well into the next century before a Bill was passed. Mercifully, that will not happen, but not because the Bill has now been published and will be given a Second Reading today. With things as they are in the current political climate and with a general election just around the corner, this is a Second Reading into oblivion.
Mr. Irvine Patnick (Lords Commissioner to the Treasury) : Is it ?
Mr. Boateng : The Whip, who should be silent bearing in mind his exalted position, asks, "Is it ?" It would be interesting to explore that quesiton. The Bill, which has
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been introduced in these quiet and uncluttered hours of the day, is perhaps being introduced in the light of circumstances about which, until the intervention of the one who should not have spoken, we knew nothing. In 72 hours' time, or sooner, we may be told that the Government will not, after all, go to the polls because to do so would interfere with the passage of the long-awaited Friendly Societies Bill. It may be the secret weapon and it may be what the nation has been waiting for as the excuse for the reason why the Prime Minister, in a state of frit, declines to announce on Wednesday, as expected, that he is to go to the polls.Mr. Tim Smith : If the Bill is as important as the hon. Gentleman says it is, and if it is about to disappear into a black void, will he undertake that, if we have the misfortune to have a Labour Government, it will feature in their first Queen's Speech?
Mr. Boateng : The pigmentation of the void is neither here not there ; I am surprised that the hon. Gentleman should have introduced such a note. If the Bill were to disappear--as I fear it will--into a void, in the fullness of time, it would come out of the void under a Labour Government and find itself on the statute book in something approaching its present form.
We have no quarrel with the content of the Bill. What we are concerned about--and what the friendly societies movement is concerned about--is the time that the Bill has taken to reach this place. It is an apt comment on the Government's priorities that, during this Session, they have preferred to introduce controversial, headline-grabbing legislation, which they hope may grub up a few votes in their hour of desperation--much of which they might have done well to abandon--than to introduce a solid proposal on the friendly societies which would have made a measurable contribution to the welfare of ordinary citizens and which could be secured with the support of hon. Members on both sides of the House.
What a pity it is that the Government did not take that course. What we have here is yet another example of their willingness to render all assistance to the citizens in whose name they produce charters and to do everything for them that they can--except actually to deliver anything that seriously might help them. The Government have still not decided whether they really want the Bill. We understand--the Minister will have his opportunity to deny it if it is to be denied--that Treasury officials and parliamentary counsel worked weekends in January to bring the Bill, with its 126 clauses and 22 schedules, to its published state.
Mr. Maples indicated assent.
Mr. Boateng : The Economic Secretary nods his head in confirmation of that. Parliamentary counsel and Treasury officials are to be congratulated on having sacrificed their weekends in so noble a cause. But why, then, did the Bill lie on the shelf for most of February? Why was it not introduced earlier, to beat the dissolution? The Opposition would have done all that we possibly could to ensure that it completed its Committee stage : we would have been prepared to sit until late into the night if necessary to do that.
Mr. Ian McCartney (Makerfield) : Is not the Bill one of the few measures in respect of which the Government will not have introduced a guillotine? They have guillotined every single piece of controversial legislation that has come
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before the House. Every evening last week we had guillotined legislation which was controversial and which had no support from a large section of the House. In one case, legislation was guillotined through in a mere two hours. The present Bill has the support of the whole country, but the Government are not prepared to use the guillotine procedures to facilitate its passage before the calling of the general election.Mr. Boateng : As usual, my hon. Friend speaks good sense.
Mr. Maples : I am sure that the hon. Member for Brent, South (Mr. Boateng) will agree that, even by the standards observed by the right hon. Member for Blaenau Gwent (Mr. Foot) when he was Leader of the House, it would be unusual to guillotine a Bill before it had had its Second Reading.
Mr. Boateng rose --
Mr. McCartney : The Minister is being somewhat flippant, given that the Leader of the House has already told us that, in his view, it should be our policy to timetable Bills on Second Reading. That procedure could be implemented for this Bill, and the Leader of the House could announce at the end of this debate--the Second Reading will be unopposed--that a timetable will be introduced to allow it to reach the statute book.
Mr. Boateng : My hon. Friend makes a valid point which echoes a point that was made when the Leader of the House first started to impose guillotine motions. We asked why it was necessary to introduce a guillotine in relation to those measures, given that the Leader of the House had given the clearest and most unambiguous assurances that we would do all that we possibly could
Mr. John Watts (Slough) : Will the hon. Gentleman give way?
Mr. Boateng : No. I have already given way more than I should have done--not least to the Economic Secretary, whose last intervention shows what happens when one shows a generous nature and exhibits a generous heart : one is taken advantage of by Conservative Members. The need for the Bill is unquestioned. The Minister may recall that, back in 1987, the Friendly Societies Liaison Committee, to which he rightly paid tribute--the Opposition are happy to join him in that--argued that the friendly societies offered a unique combination of insurance business based on the principles of thrift and self-help, recognition of a responsibility to care for members going beyond contractual provision and a mutual constitution. The Opposition strongly support those qualities, especially as friendly societies are prepared to deal in smaller sums than conventional insurers and, hence, typically cater for the smaller saver.
We support the principles on which the friendly societies movement is based. We can understand why many people may feel a renewed need for the services that they offer. Undoubtedly, the societies are unlikely ever again to achieve the prominence that they occupied in the last century, but, as job security worsens and as the need for social services and welfare provision increases, it is vital that there should be vehicles to facilitate mutual support in
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the community and that the regulatory regime under which they operate should permit them to offer their present and potential future customers an attractive service.That is not the case at present, and that is why the friendly societies movement has suffered a severe contraction in its numerical strength of late. There were some 8.7 million members in 1945. That number has fallen to about 3 million. Meanwhile, the number of societies has also declined-- from 2,740 in 1945 to well under 500 now. More than 100 of the existing societies have ceased to take new business.
In that context, it is hardly any wonder that there has been widespread concern in the industry about the Government's record. The societies speak for themselves when they say :
"The lack of any sense of urgency on the part of the Government is causing severe frustration."
In the aftermath of the Government's last piece of procrastination, one commentator said :
"New legislation is not a vote catcher, nor does it serve political dogma, as do PEPS. Quite simply, the Government doesn't care about friendly societies."
That is the voice of the friendly societies movement and of the many millions who support it. To be fair, widespread concern has also been expressed in the House. A number of hon. Members present today signed an early-day motion urging the Government to bring forward the present Bill.
The position has been made much worse by the Government's fiscal policy. In examining the history of the matter, we must consider the role of the right hon. Member for Blaby (Mr. Lawson). He is past history. Conservative Members would either seek to forget about him and his role or to paint him as the villain of the piece in the past 13 years of Conservative misrule. They are right to paint him as a villain, but he was not alone. Conservative Members were his accomplices in the same way that they have been the accomplices of his successor. The right hon. for Blaby had a pathological loathing--I use those words advisedly with no sense of exaggeration
Mr. Anthony Coombs (Wyre Forest) : On whose advice?
Mr. Boateng : I need no advice to come to that conclusion. The right hon. Member for Blaby had a pathological loathing of the friendly society movement and, in 1984, he was largely responsible for the sharp drop in the number of new policies taken out with the societies. He cut the maximum tax -exempt monthly instalment from £20 to £9. What possible motive could he have had for that particular act of mean-mindedness? Every rise in the exemption limit since has had to be wrung out of the Treasury, which has been preoccupied either with creating tax shelters for the more affluent savers, who place deposits with banks or building societies, or pursuing its fantasy of popular capitalism through direct share ownership. That was one of the fetishes of the Conservative Government.
Mr. McCartney : I hope that my hon. Friend will point out that the Chancellor and his Cabinet colleagues did not create a level playing field for the friendly societies. In their privatisation of the pension industry, they made it far easier for private pension plans to operate in the market- place, but friendly societies were not allowed to offer the same range of services. That caused the loss of £6
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billion from public funds. By encouraging people to come out of the state earnings-related pension scheme and into pension plans operated in the private sector, the Government have handed over £6 billion of public assets. In their attempt to privatise pensions they have undermined the capability of the friendly societies to offer a package of arrangements to potential pensioners.Mr. Boateng : My hon. Friend makes an interesting point, and he is right. Conservative Members have not hesitated to tip the level playing field, when it suits the vested interests that they represent.
The result of their attitude and of the malice of the right hon. Member for Blaby towards the friendly society movement was to create a strange anomaly. The societies are at a considerable disadvantage when their treatment is compared to that of the building societies and the banks. After all, what is a £200 tax exemption limit on a friendly society policy, if it is compared with £3,000 on a tax-exempt special savings account, or £6,000 on a personal equity plan--£9,000 if single company PEPs are included? Tax exemptions for friendly societies are as nothing when compared to those offered to the building societies and the banks.
The squeeze of the friendly societies has occurred against the background of the destabilisation of the financial services market and as a result of Government policy on deregulation. In the Green Paper on friendly societies the Prime Minister said :
"The traditional values on which the friendly societies are based may seem to some people to be out of step with the current highly competitive financial services market."
The friendly societies are indeed out of step and long may they remain so. Their traditions run deeper than the uncontrolled competition of the 1980s and those traditions should be highly valued in the light of the problems which deregulation has caused. I wonder whether, when the Prime Minister referred to the values of the friendly societies as being
"to some people out of step with the current highly competitive financial services market",
he was referring to a particular legislative restriction on friendly societies the removal of which would be welcomed by many hon. Members from all sides. I refer to friendly societies' inability to issue life policies to couples "living in sin". That is a Victorian restraint on friendly societies, which clearly has no place in the light of modern thinking.
Mrs. Golding : And modern practice.
Mr. Boateng : Yes, and modern practice.
I cannot help reflecting on what are, perhaps, the Prime Minister's ill- judged remarks in relation to the rake's progress and the issue of borrowing.
Mr. Chris Smith (Islington, South and Finsbury) : They were reported in The Daily Telegraph on 21 February.
Mr. Boateng : That is the vehicle in which he shared his thoughts. His language was considerably more colourful than his words on any other subject that he cares to discuss. He may regret the use of the term rake's progress, because that is what we witnessed in the 1980s with the excesses that characterised that period.
To the ordinary man or woman, his or her most important assets are likely to be the home, a pension and perhaps a life assurance policy. In all those cases, he or she will depend on the integrity of financial institutions and the soundness of the regulatory regime under which they
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operate. That is why we want to reflect upon the importance of the Bill and to examine it in more detail. If we consider the regulatory regime of the life assurance companies, many are competitors of the friendly societies. All too often, the life assurance companies are lax in terms of the methods of protection and the practices they adopt on the sale of life assurance policies. There has been grotesque over-selling. A Securities and Investments Board investigation into determinations published last year said that, on average, more than 30 per cent. of the long-term plans sold by the industry were terminated within two years. The situation is even worse if the sales made through tied agents are considered in isolation because the number of unit-linked insurance policies terminated within two years reaches an astonishing 45 per cent.Mr. McCartney : I am a member of the Select Committee on Social Security and we have, today, finished our inquiry into pension funds. There is overwhelming evidence of front loading to the detriment of the purchaser of the policy. The industry refused to give the Committee the information that passes between the companies on the payments and commissions paid out in the first three years of a policy. It is a complete fiddle by the industry and those who are most affected are those who purchase a policy. Will my hon. Friend give a commitment that the Labour Government will seriously consider examining the way in which companies front load policies to the detriment of their purchasers.
Mr. Boateng : I assure my hon. Friend clearly and unequivocally that we shall look at that matter. A commitment to consider it seriously is not to be taken lightly. The difference between the Labour and Conservative parties on that issue is that we shall have an opportunity to do so, and the Minister should take that into account.
Mr. McCartney : I am concerned about the flippant manner with which the Minister deals with the issue. Millions of pounds worth of assets are involved, paid for by people who expect a deal out of those companies. The Minister flippantly implies that he sees no problems, whereas a Select Committee has just reported to the House that serious problems exist. We expect a better response than that from the Minister.
Mr. Boateng : We look forward to the Minister's response on that point when he sums up.
Insurance companies are still encouraged to bombard the public with unsolicited mail and to use fat commissions to secure tied agents.
Mr. Michael Morris : On a point of order, Madam Deputy Speaker.
Mr. Boateng : The hon. Gentleman has no need to make false points of order. I would have given way to him.
Mr. Morris : The hon. Gentleman declined to give way to me earlier.
Are the marketing practices of life assurance companies within the compass of the Bill? I understood that the Bill related to friendly societies, which are distinct from life assurance companies.
Madam Deputy Speaker (Miss Betty Boothroyd) : The Second Reading of a Bill of this nature is very wide. The
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