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12.27 pm

Mr. Jacques Arnold (Gravesham): I congratulate the hon. Member for Plymouth, Devonport (Mr. Jamieson) on his extremely good fortune in obtaining second place in the ballot for private Members' Bills. It is very much to his credit that he has devoted his Bill to this important subject which was, of course, brought to our attention by the tragedy in Lyme bay.

It is right for the House to review the arrangements and regulations that apply to such activities. In recent years, there has been a proliferation of activity centres and providers of facilities; some are clearly cowboy operations. It is right for these matters to be looked at carefully. I counsel the House, however, to be extremely careful about what it brings to the statute book because it is only too easy to throw out the baby with the bath water.

I have the honour to be secretary of the all-party parliamentary Scout Association group. About one third of hon. Members have passed through the Scout Association during their young lives. The association is one of the greatest providers of outdoor activities, including canoeing, sailing, mountaineering, abseiling, potholing or orienteering. All those activities are potentially dangerous. Just as we have benefited from them, however, so today many boys and girls, many from deprived or inner-city areas, are enjoying those activities in which otherwise they would not be able to take part.

The Scout Association has developed thorough systems of training, qualification, regulation and authorisation to do its best to avoid tragic accidents. It has harnessed the work of unpaid volunteers and provides a wonderful programme of activities. In all those activities, it has to strike a careful balance between the provision of exciting adventure and the needs of stringent safety controls. My hon. Friends the Members for Dorset, West (Sir J. Spicer) and for Sevenoaks (Mr. Wolfson) were right to refer to the balance of risk. Young people can be very safe if they never venture from their homes and if they get their only thrills in life out of computer games and the like. The Scout Association, through regulations and care, has an extremely safe record. It has standards on which parents can rely. That comment does not, of course, apply only to the Scout Association, but to others such as the Girl Guides Association, the Boys Brigade, the Sea Cadet Corps and many others that are properly regulated and have safety very much in mind. The challenge of the Bill is to extend the scope of safety arrangements to all, but not to jeopardise good-quality activities provided by responsible organisations. It is a sad fact that bad accidents can lead to bad law; firearms legislation provides one example. The Bill provides for a licensing authority to settle regulations, for inspection and for licence fees, all of which inevitably involves bureaucracy. The ensuing bureaucracy could add terrific costs which would be a practical and financial disincentive for organisations that already have excellent safety records. It could cause a switch from the youth organisations that I have mentioned to others that have far less tried-and- tested structures; indeed, it could lead to no activities at all for our young people.

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My plea, therefore, is that there should be close consultation with organisations that have a track record, such as the Scout Association. In clause 3(3), there is a requirement that

"Before making an order or regulations . . . the Secretary of State shall consult the Health and Safety Commission and such other persons (if any) as he considers it appropriate to consult." I suggest strongly that the Secretary of State and the Health and Safety Commission should consult the Scout Association and similar organisations. The Standing Committee might like to consider an amendment to require consultation specifically with appropriate youth service interests.

In terms of setting standards and regulations, the Committee should consider delegating licensing to responsible, accredited organisations that already enforce standards. It is worth considering the point that the Lyme bay tragedy could not have happened at a scout centre. The requirements imposed by the Scout Association about the qualifications of the personnel involved, the standard of equipment and the weather conditions would have prevented that expedition.

The idea of delegating licensing to qualified voluntary organisations is not new. Licensing for the driving of minibuses by volunteers is covered under the Minibus Act 1977, which gives the authority for issuing section 19 permits to organisations. The responsibility was delegated to designated bodies, including the Scout Association. There are precedents and we should consider the possibility of delegating licensing.

I support the Bill. There is a solemn responsibility on the Standing Committee and, subsequently, on the licensing authority to raise safety standards at the bottom to the highest that prevail in highly respected organisations and to keep a close eye on the costs which might divert funds away from these wonderful activities for young people.

12.33 pm

The Minister of State, Department for Education (Mr. Eric Forth): May I, as is traditional but nevertheless heartfelt, congratulate the hon. Member for Plymouth, Devonport (Mr. Jamieson) on winning the No. 2 spot in the ballot for private Member's Bills? Such success always throws the limelight on any hon. Member and I am sure that we all agree that the hon. Gentleman has used his privilege and good fortune in the ballot to the best possible effect in introducing this Bill. What I hope will be the extreme brevity of my remarks should in no way be construed as reflecting any lack of interest, concern or support for the Bill or, indeed, be any reflection on the quality of the debate. However, I am very conscious of time.

As so many hon. Members have said, this debate reflects the concern of the House for the families of young people who lost their lives, not only the deaths at Lyme bay of Claire Langley, Rachel Walker, Simon Dunne and Dean Sayer but Hayley Hadfield, who tragically died in a previous accident at an activity centre, Mrs. Trotter, whose son was also affected, albeit in a slightly different way, and others before that. The memories of those people are very much in our minds when we debate the aims and effects of the Bill.

I was going to rehearse at little length the background to the Bill and the Government's attitude to it, but I shall say only that I believed at the time, and would say so

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now, that our response as Government and as a Department, certainly to the Lyme bay tragedy, was, by Government standards, rapid and appropriate. Surveys on activity centres, the publication of results of inspections, guidance issued by my Department to schools and so on were put in place and were having an effect. In fact, many hon. Members have said that there was every sign that centres had been made aware, through those measures, of their responsibilities and had sought to improve their standards. That was very welcome. A number of things have happened to cause us to want to look at this subject again and to lead us to support the Bill, not least the fact that the Activity Centre Advisory Committee, which we hoped would introduce a voluntary scheme of accreditation for centres, has considered matters for some time and has concluded that a statutory scheme would be preferable. That obviously carried a lot of weight with my colleagues and me.

The words of the judge at the trial of the Lyme bay incident, which have already been quoted, not least by the hon. Member for Devonport, included comments on the centres, among other things. He said: "I believe that authoritative control, supervision and, if necessary, intervention, is called for."

His views were reinforced by Dorset police, who provided us with key extracts from the proceedings. Some very weighty words were added to the argument for statutory measures.

Mr. Wolfson: My hon. Friend is dealing with the judgment. As I understand it, the managing director of the company was found guilty and punished, but the local manager was exonerated on a technicality. If I am right, would my hon. Friend consider that point as appropriate? It should not be able to happen again--we now hope that it never will--if a similar situation ever arose.

Mr. Forth: The point of which I want my hon. Friend and the House to take account is the fact that the judge, having presided over the trial and taken into account all the circumstances, gave his view that further measures were required. That is the important context in which I quote the judge's words.

The Health and Safety Executive report, which has rightly been frequently quoted in the House today, said that although standards were generally fairly good, serious shortcomings had emerged from its surveys that required attention. That therefore led my colleagues in government and me very readily to extend the support, which I gladly repeat to the House, for the Bill and its thrust.

Although I fear that I may be treading slightly on the territory of the hon. Member for Devonport--I hope that he will forgive me for doing so--it may help the House if I give a preliminary Government response to some of the questions that have been asked in the debate. That may help hon. Members to reach their conclusions about the Bill.

Much has been said about the time scale. I am clear that we want to have the regulations that will flow from the Bill in place as soon as is properly possible. However, we must bear in mind that we have to deal first with the Committee stage. It will then have to pass its further stages and receive Royal Assent. During some of that period, we may be able to embark on the extensive and

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detailed consultation that everyone wants, not least because of the many points that have been made in this debate, before introducing regulations, for which we hope to obtain the approval of the House. With the best will in the world, I believe that that will take most of the rest of this calendar year. However, I hope that all the regulations will be in place in time for the 1996 season--if I can put it that way. That is a reasonable timetable, to which I hope we can adhere. I am sure that there will be co-operation from hon. Members on both sides of the House.

My hon. Friends the Members for Dorset, West (Sir J. Spicer) and for Sevenoaks (Mr. Wolfson) and the hon. and learned Member for Fife, North- East (Mr. Campbell) referred to the balance that we must strike in seeking not to over-regulate and remove every conceivable risk and, in other words, seriously damage this very important activity, which adds so much to the pleasure and character development of young people.

That balance must be in our minds as we progress through the Committee stage and the consultations that will give rise to regulations. I am sure that we are all conscious of that point. We must balance safety and risk and cost and accessibility. Those issues must be in our minds as we proceed with the later stages of the Bill.

Several questions were asked about the definition and detail that will arise should the Bill receive its Second Reading today. My hon. Friends the Members for Bristol, North-West (Mr. Stern), for Cornwall, South-East (Mr. Hicks) and for Gravesham (Mr. Arnold) made important points of detail about the definition of activity centres and the kind of organisations that may be affected.

It was vital for those points to be raised in this debate. They will be picked up further, perhaps in Committee but more probably during the consultation process, when it will be very important that we try, as far as possible, to ask all the appropriate questions of all the appropriate and interested organisations in order to frame the regulations better to make them as effective as possible, but with that balance of lightness of touch and effect that has been maintained throughout. I envisage that that will be of the greatest importance during the consultation process.

I believe that many of the points will be covered by exemptions being incorporated in the regulations that will seek to define the bodies that will not necessarily have to comply with the requirements of the Bill and of the regulations.

Mr. Jamieson indicated assent .

Mr. Forth: I see that the hon. Member for Devonport agrees with that.

I want now to deal with an important point that was made by the hon. Members for Tooting (Mr. Cox) and for Liverpool, Walton (Mr. Kilfoyle). They wanted to know whether local authorities would be the licensing authority. The answer is that local authority inspectors could not be designated as licensing authorities simply because clause 1(1) provides for a person to be designated. That could be a body--and, in my view, very probably would be--but not individual inspectorates from more than one authority. The way in which the Bill is framed at present precludes the possibility of local authorities picking up the very important responsibility that is so central to the Bill.

Mr. Steen: Will my hon. Friend assure me that the seven organisations that I mentioned, including the

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Department of Transport Marine Safety Agency, will, as a result of the passage of the Bill, no longer have to burden existing activity centres with further inspections? Will he assure me that the Bill will set up a new arrangement that will remove the existing arrangements so that only one body--and not seven, eight or nine-- will carry out inspections?

Mr. Forth: Much as I would like to give my hon. Friend that assurance, in all conscience I cannot do so, mainly because we have not settled the important detail of how the legislation would operate under regulations. Equally important, having heard what my hon. Friend said, I suspect that many of the functions carried out by those bodies may overlap with the functions envisaged for the Bill but would not entirely replace them.

Therefore, although I hope that some organisations would take cognisance of the responsibilities flowing from the Bill and may see fit not to continue inspections, I could not give that guarantee. They would have to be responsible for assessing how far that overlap was complete or partial. If it were complete, I hope that an arrangement could be made to eliminate duplication. If it were only partial, I should have thought that an element of duplication may regrettably have to continue.

I have been brief. That does not mean that I under-estimate the importance or value of the Bill--I do neither. However, the debate has been wide ranging and informative, and it will help the hon. Member for Devonport during the Committee stage, which I hope will follow soon after Second Reading. The debate will enable my right hon. Friend the Secretary of State and others to take responsibility for seeing the Bill through into effective regulations, which will do everything possible to ensure that, wherever possible, such tragedies never occur again.

12.45 pm

Mr. Edward Leigh (Gainsborough and Horncastle): The Bill is prompted by a terrible tragedy. As parents, our hearts go out to the parents of those concerned. I congratulate the hon. Member for Plymouth, Devonport (Mr. Jamieson) on his care in bringing forward the Bill. However, we are entitled to ask whether it is the right approach. We are entitled to ask the hon. Gentleman and my hon. Friend the Minister for further and better particulars before the Bill reaches the statute book.

We all want activity centres and we want them to be safe, but we do not want them to be confined to the better-off because of costs loaded on to activity centres. The Government must consider their response very carefully, if the Bill becomes an Act, when drawing up the regulations. The Government have a duty to consider their response carefully and not to be over-influenced by crisis, tragedy or public pressure. Important as those matters are, the Government have a duty to ensure that we do not always legislate for the minority. We must legislate for the majority.

The overwhelming majority of activity centres have ensured safe and successful activity and projects for young people for a long time. Therefore, we want legislation and regulations that do not drive up costs or drive too many people out of business. We must remember that many such operations are very small. They are naturally independent organisations, run by people who are dedicated to climbing or sailing, for instance, and

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we must not over-nanny them or those who attend their activity centres. We must not over-regulate for a risk that might be very small. As my hon. Friend the Member for Sevenoaks (Mr. Wolfson) said, more youngsters are killed on the roads on their way to activity centres than are killed as a result of the activities.

I remind the Government of their own documentation on the Deregulation and Contracting Out Bill. Many statements made it absolutely clear that the Government were committed not to more regulation but to less regulation. For instance, they insisted that there should be a compliance cost assessment--a new regulation--and that there should be risk assessment and management. The Government said:

"Those responsible for drawing up new regulations to protect from some perceived risk must assess whether that risk is so grave or is likely to occur with sufficient frequency to justify the burden imposed by the new regulation. They must consider whether there is a better way in which the risk can be managed."

I could speak for longer, but there is no time. Many Government statements have made it absolutely clear that the Government are conscious that new regulations can drive up costs and force people out of business. As has been made clear many times this morning, my hon. Friend the Minister is aware that activity centres are already regulated by the Health and Safety at Work, etc. Act 1974 and the Management of Health and Safety at Work Regulations 1992. Section 3 of the 1974 Act places a general duty on employers and the self-employed to ensure

"so far as is reasonably practicable"

that the activities do not expose to risk people not in their employ. Under section 7 of the Act, an employee has a duty "to take reasonable care for the health and safety of himself and of other persons who may be affected by his acts or omissions at work".

Activity centres are already regulated. I took the liberty today of ringing the British Activity Holidays Association, because we have not heard a great deal from it today and because the association's members are the people who are in the business. It is concerned that qualifications are required to suit the circumstances. For instance, much canoeing is conducted in safe conditions in swimming pools or small ponds, and not necessarily in the sea.

We want to ensure that the right standards are applied in the right circumstances. That will be a difficult task for my hon. Friend the Minister in drawing up the regulations if the Bill becomes an Act. We also want to ensure that the regulations do not discriminate against private operators in favour of local authority operators. I very much hope that the British Activity Holidays Association will be closely consulted during the course of the Bill.

My hon. Friend the Member for South Hams (Mr. Steen) made some pertinent points, and it was unfortunate that he was derided by some Members when he was doing so. My hon. Friend is a caring and effective legislator who wants to ensure that we have safe activity centres, but he does not want to impose costs on centres which will simply drive them out of business or ensure that they become elitist.

I shall end with a quote from Christina Hardy, writing in the Daily Telegraph . She herself was quoting Cardinal Newman, who said more than 100 years ago:

"We are so constituted that if we insist upon being as sure as is conceivable in every step of our course, we must be content to creep along the ground, and can never soar."

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12.51 pm

Mr. Piers Merchant (Beckenham): I shall be very brief, Madam Deputy Speaker. May I begin by congratulating the hon. Member for Plymouth, Devonport (Mr. Jamieson) on grasping the initiative? I am naturally and instinctively reticent about supporting extra regulation and legislation, but the hon. Gentleman's restrained and thoughtful approach has convinced me that, in this case, it is necessary, and I can support the Bill.

I have spoken to parents in my constituency who send their children to activity centres and who want to be able to do so because of the benefit that their children derive from the centres. They also want to do so in the knowledge that the safety requirements at the centres are adequate to protect their children. They support the Bill. I have spoken to the director of education at the local authority which serves my constituency, Bromley. The director of education and the authority are strongly in favour of the Bill because they want to continue to send children from the borough to activity centres. They too want to do so in the knowledge that proper protection is being afforded.

I have spoken to a teacher who leads children to such centres, and who has considerable experience in doing so. She too is strongly in favour of the legislation. She has seen improvements in standards during the past two years--I wonder why--and she realises that, in the very nature of activity centres, there is bound to be risk. She realises that teachers have responsibilities, and she does not in any sense want to duck that. Bearing in mind the culture of the centres, the characteristics of the people who run them and the feelings of children when they are there, it is difficult for a teacher to step in and say, "No, you cannot do that." That teacher needs to be backed up by legislation, and that is why teachers almost universally support the Bill.

I am worried about the nature of some of the people who have been employed in the past by activity centres. I do not want in any sense to suggest that this is the norm or the rule, and I hope that the practice has diminished. However, there are cases on which I have been given information where outdoor activity centres have in the past employed as guides and leaders people who have no

qualifications. In some cases, people who have come from abroad--Australia and South Africa, for example--and are illegally working in this country have been employed, and back-packers and rough boys have also been employed.

These people have probably been entirely well motivated, but when it comes to a crisis they simply do not have the training or the skill to deal with it. That sort of thing must not be allowed to continue. One cannot allow chance or good hopes to prevent repetitions of such occurrences. Legislation is necessary to ensure that qualifications and the standards of operators and their personnel are adequate and can provide absolute safety in the application of their skills.

The tragic events of Lyme bay and the publicity and concern that have followed from them have achieved a good deal in improving standards, but there is always a danger that time will pass and complacency will return. Legislation is necessary to prevent that. We cannot legislate completely against risk in human activity--it is impossible--but we can legislate to prevent complacency. That is why I support the Bill.

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12.54 pm

Lady Olga Maitland (Sutton and Cheam): It is with great pleasure that I warmly congratulate at the end of the debate the hon. Member for Plymouth, Devonport (Mr. Jamieson) on introducing this most important Bill. I share his concern that far too much emphasis has been placed in today's debate on the costs of introducing regulations, proper organisation and monitoring of activity centres. When a child's life is at risk, we cannot put money before that child's life. Although we should have a sense of proportion and common sense, when a child's life is at stake we have an obligation to go to the ends of the earth to get a Bill that is right and appropriate in terms of safety.

Anyone who has read the Health and Safety Executive report will agree that it makes sobering reading. Two Opposition Members have pointed out some of the factors that came up in the report. I should like to point out a couple more. The report made it clear that 8 per cent. of the activity centres visited had no procedures or equipment in place to deal with emergencies. For example, they had no arrangements for communication with remote locations or emergency evacuation from them. Six per cent. had no system to ensure that equipment was well maintained and safely used. That is plain scandalous. Any activity centre that fails to come up to scratch should have the activity brought to an end or simply the whole show closed down. I take a robust view of the matter.

I am a member of the Education Select Committee, which is looking into activity centres. We have received 86 submissions in all. The vast majority are in favour of some compulsory scheme of registration, accreditation and inspection of outdoor activities. Anyone who has read some of the submissions and contacted some of the people who have made them, as I have done, will realise the importance of regulation. I spoke to Mr. and Mrs. Peter Hadfield of Salford, who told me the distressing story of their 11- year-old daughter, Hayley. She died in May 1992 after attending the Manor adventure centre in Shropshire. What Mrs. Hadfield told me was hair- raising. It was a story of blinding incompetence on a scale which leaves us speechless. I hope that those experiences will never be forgotten.

In that context, I am worried when I hear my hon. Friends say that we should worry about the costs of implementing the Bill. If they listened to Mrs. Hadfield, they would think again. This is an enormously important Bill. I have spoken to head teachers of schools in my constituency. They have recently stopped sending their young to activity centres because of the lack of confidence and the breakdown in safety measures. We want to get those children back out to the centres to experience those enriching life styles. I wish the Bill greatest speed. It deserves it. It is not before time. I wish to see the Bill implemented so that my children in Sutton will be able to enjoy the experiences that can only enhance their lives.

12.58 pm

Mr. Jamieson: This has been a useful debate, with many helpful contributions and I pay special tribute to the hon. Member for Sutton and Cheam (Lady Olga Maitland) for her impassioned cry on behalf of children.

I do not want to delay the House for more than a few moments, but I must answer some of the questions posed during the debate. The hon. and learned Member for Fife,

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North-East (Mr. Campbell) asked why the provisions in the Bill were restricted to people under the age of 18. I feel that that group of people is the most vulnerable. Children are the least able to assess the risks involved in an activity and the immature and inexperienced need to gain experience knowing that there is a framework that guarantees them a certain level of safety. Also, most centres provide for a variety of ages--for those over as well as under 18. If we find that those that provide exclusively for the over-18s are giving cause for concern, the Liberal Democrats might introduce another Bill, if they win the ballot.

The hon. Member for Cornwall, South-East (Mr. Hicks) mentioned the excellent centre in his area, which deals with people who have various disabilities. By and large, the Bill might not cover the sort of activities that it provides. If they are covered, the centre would have to accredit once. Such centres not only provide activities themselves, but often go to other centres for different activities. They would therefore have the assurance that when they booked into another centre it would be accredited under the law. The Bill will therefore help such organisations.

The hon. Members for Sevenoaks (Mr. Wolfson) and for Gravesham (Mr. Arnold) rightly mentioned the scouts and guides. May I add the Youth Hostels Association, with which I have had some discussions. I envisage that those organisations will have to accredit once, if they have centres or undertake activities that fall within the remit of the Act, if the Bill is enacted.

Each and every brownie and guide pack or scout group would not have to accredit separately--that would be ridiculous and, when we draw up the finer points of the regulations, we want to be sure that that would not happen. The Bill will help the scout and guide movements considerably, because, when they employ another centre to provide activities, they will know that it is working within a legal framework--they buy in most of the more hazardous activities from outside sources.

I am pleased at the widespread support for the Bill from the House today. I hope that with cross-party support we can develop a new safety culture for our children. I hope that, when the Bill becomes an Act, it will reassure parents, teachers and governors and, most of all, that it will create a new environment of safety within which activities can grow and flourish.

Question put and agreed to.

Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 61 (Committal of Bills).

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Insurance Companies (Reserves) Bill

Order for Second Reading read.

1.3 pm

Mr. Oliver Heald (Hertfordshire, North): I beg to move, That the Bill be now read a Second time.

I introduced the Bill on 14 December, to amend the law relating to insurance companies and, in particular, the Insurance Companies Act 1982. The Bill could not be more topical. The worst earthquake for 70 years struck Japan last week and the industrial port and city of Kobe was devastated, with many injuries, deaths and damage to 50,000 buildings. It was a tragic event, which highlighted the sudden and volatile nature of property catastrophes.

This country suffered smaller property catastrophes in 1987 and 1990. On those occasions, United Kingdom insurers were called on to pay out claims for storm damage and flooding that were four times the annual average. When such losses occur, policyholders look to London, because it is the world's insurance and reinsurance market, with a third of the world's business. Our institutions bear the loss when such events occur. The Bill would provide added security for policyholders and smooth premiums for certain classes of insurance. The general insurance market is competitive. In Japan, property catastrophe reinsurance renews on 1 April this year. British companies will be competing for business at a disadvantage. Insurers elsewhere have better tax treatment. The Bill is a step on the road to remedying that.

I am grateful for the support of the industry--the Association of British Insurers and the London Insurance and Reinsurance Market Association--and all the main parties. I particularly welcome the support of my hon. Friend the Under-Secretary of State for Corporate Affairs, my right hon. Friend the Financial Secretary, the hon. Member for Edinburgh, Central (Mr. Darling) and, I believe, the hon. Member for Middlesbrough (Mr. Bell), who is in his place on the Opposition Front Bench, and the right hon. Member for

Berwick-upon-Tweed (Mr. Beith).

The Bill's main purpose is to confer on the Secretary of State the power to make regulations requiring the maintenance of reserves by insurance companies. I have introduced the Bill in order to pave the way for a system of reserves known as equalisation reserves, to be held by insurance companies. There are good potential grounds for the Secretary of State to require such reserves.

The purpose of equalisation reserves would be to recognise the inherent instability of certain types of insurance business which means that, if the company is to meet its obligations to its policyholders on time, it needs to set aside a reserve from profitable years to finance exceptional claims when they occur. Equalisation reserves are a recognised technique already used in other countries, including Japan and Germany.

The Secretary of State, using powers derived from European legislation, already requires insurance companies writing credit insurance business to keep such reserves but, unfortunately, he cannot use those powers to require equalisation reserves to be maintained by all United Kingdom insurance companies or for any other description of business.

Clause 1(1) is the Bill's main provision. It inserts in the Insurance Companies Act 1982 a new section 34A, which requires certain insurance companies to maintain reserves

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in accordance with rules that will be prescribed in regulations to be made by the Secretary of State. The regulations may make provision, among other things, for the circumstances in which, and the times at which, the amounts must be placed into, or taken from, reserves. They may also cover other matters incidental to the maintenance of such reserves.

The new obligation does not apply to all insurance companies. Most insurers with head offices in member states other than the United Kingdom are excluded because, since 1 July last year, such companies have been subject to regulation in their home state only. In addition, the Secretary of State may provide in the regulations that the obligation to maintain the reserves should not apply to companies of a prescribed description.

The provisions would not apply to Lloyd's of London because Lloyd's has its own powers to introduce the provision for such reserves. I have been in contact with Lloyd's of London. It assures me that, although the Bill will have no direct effect on it, it takes an interest in the developments in the context of its corporate capital providers. In future, Lloyd's will seek to assess how any arrangement ultimately adopted by insurance companies may be adapted to ensure parity for its corporate vehicles.

Clause 1(2) inserts a new provision in the 1982 Act providing that any such reserves should be treated as if they were liabilities for the purpose of the calculation by an insurance company of its solvency margin. That requirement was inserted to reflect our obligations under the EC insurance directive, and it follows the same formulation as that adopted for credit insurance equalisation reserves. Under European law, those reserves should be treated as liabilities.

Clause 2 amends and inserts a new provision in section 68 of the 1982 Act dealing with solvency margins. Section 68 enables the Secretary of State by order to modify the application of various sections of the 1982 Act and regulations made pursuant to those sections in their application to insurance companies.

The new provision inserted by clause 2 enables the Secretary of State to provide in regulations that section 68 should apply to new section 34A and corresponding regulations. At the moment, no clear need for this power in relation to the new requirement to maintain reserves is foreseen, and it is not thought appropriate to include it. However, the power to attract section 68 is included should the Secretary of State think it necessary to bring the matter back to the House in due course.

Clause 3 covers the short title, commencement and extent of the Bill. Clause 1 will be brought into force by commencement order, which it is intended should be made at the same time as regulations. Clearly, new section 34A can have effect only when such regulations are in place.

For some time, the industry has sought the introduction of a scheme for the maintenance of equalisation reserves on the basis that such reserves would qualify for tax relief. It argues that, at present, companies need to reserve part of the profit on which they have paid tax in good years to pay for losses in bad years, and that it is not right that they should have to set up such reserves from taxed profits.

The industry points to examples in some European countries, notably Germany, where companies are allowed to set up reserves for such business while

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deferring tax payments. When I discussed that with the Association of British Insurers, I was told that that is a competitive disadvantage and that, if the change could be made, companies would be able to compete more effectively, particularly with the large German reinsurers and insurers.

There is a clear case for insurance companies to be treated differently from other companies in respect of their reserving requirements. The factor that distinguishes an insurance business from almost any other is that the price to be charged for the product has to be determined before the cost of delivering it is known. By far the most important element of cost is claims. There is therefore a strong case for the ability to make both provision and reserves against uncertain future claims from untaxed income.

As the provisions of the third directive are implemented in European Union member states, the single market for insurance products becomes an increasing reality. The UK industry points out that it is at a competitive disadvantage because others are allowed to reserve on a basis which receives more favourable tax treatment. Insurance is an international business in which the UK has an excellent record, and the Bill makes a change that will continue that success.

I have already spoken about the windstorms in the United Kingdom in 1987 and 1990, which caused significant losses to companies underwriting property business. Many hon. Members will be aware that forecasters are predicting an increasing number of catastrophes as a result of changes to the climate in the UK and worldwide. Another benefit of an equalisation reserve scheme is that, as a company's equalisation reserve builds up, it will have the opportunity to retain a greater proportion of risk for itself and will be able to reduce the costs and the risks of buying reinsurance. Companies will always need some reinsurance, but reductions reduce the commission and the profit that is paid away.

If tax relief is granted it would mean that, for the first time, a company could decide between reinsurance and internal reserving without having its choice distorted in any way by the fact that the first gets tax relief as an expense whereas the second does not. My hon. Friend the Member for Ryedale (Mr. Greenway) is in his place, and I know that he and members of his committee have been fully briefed on the Bill by Lloyd's and by the insurance industry. The Bill is the first essential step in setting up an equalisation reserve scheme which could qualify for tax relief. It does not prescribe the details of such as scheme nor does it provide tax relief, which will be a matter for Treasury Ministers. I hope that, when the Bill is passed, the Department of Trade and Industry will be able to implement by regulations a detailed scheme. I have spoken to my hon. Friend the Minister of State, Treasury, who has assured me that he and his Treasury colleagues would be prepared to consider providing tax relief for an acceptable scheme. I believe that such a scheme can be developed.

The Association of British Insurers has led a working party which has included representatives from the Department of Trade and Industry and from the Inland Revenue. It has devised proposals that could form the basis of regulations and that have already been the subject

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