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Lord Clinton-Davis: My Lords, does the Minister agree, first, that the noble Lord, Lord Mackay of Ardbrecknish, is far more amenable to reason than his counterpart in the other place who expressed indifference to the idea that Rover should be saved in this way, albeit temporarily? Secondly, does my noble friend agree that Rover-Phoenix requires considerable support from either a British or foreign car manufacturer and cannot do it on its own? Therefore, that is a substantial reason for intensifying the search for a partner in the enterprise that Rover-Phoenix is undertaking at the present time. Can the Minister give an assurance that Rover-Phoenix is presently engaged in that search?

Lord McIntosh of Haringey: My Lords, I am not aware of what the Opposition spokesman said in another place in response to the Statement. At the time I was rather stuck to my desk here. I read a report of her response to this matter on BBC News 24 at 9.30 this morning. On the whole, the response was reasonably welcoming. She said that a good number of people would be relieved and that applications for funding would receive support. She confirmed, as we all agree, that there must be a viable business plan for the future.

In that respect I very much agree with the observations of my noble friend about the future. Perhaps this refers back to one point raised by the noble Lord, Lord Mackay. Mr Towers has said that the long-term future of Rover depends on

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collaboration and he will pursue that route in his long-term planning. I believe that that confirms the remarks of both my noble friend and the noble Lord, Lord Mackay, and the Government welcome it.

The Lord Bishop of Oxford: My Lords, obviously this is very good news. The agreement is a brave one. The new Rover 75 is a superb car and deserves to sell well not only in this country but abroad. I have one concern about Cowley. Longbridge has been mentioned a number of times. However, I am led to believe that production of the new Rover 75 as well as the old Mini will switch from Cowley to Longbridge. Cowley has been crucial to the economy of Oxford for many decades. Is the Minister able to share any information about the position of Cowley under the new Phoenix consortium?

Lord McIntosh of Haringey: My Lords, I hope that I am able to reassure the right reverend Prelate. It is true that Rover 75 production will move from Cowley to Longbridge. On the other hand, BMW has said that it will develop the new Mini at the Cowley site which it continues to own. I understand that that will continue to occupy the Cowley site and there will be no redundancies there.

Lord Naseby: My Lords, as I understood the position this morning, the £200 million from the American bank was subject to due diligence. First, is the Minister able to clarify whether or not that major restriction has been waived? Secondly, I understand that the £158 million and £129 million for the task force have nothing to do with Europe. Is the Minister able to confirm that none of the money that is to go to the new consortium requires approval by Europe?

Lord McIntosh of Haringey: My Lords, in response to the first question, I am not aware of any due diligence requirement by any bank. I do not believe that such details have been made public. As far as I am aware, they have not been made available to the Government. The noble Lord may be better informed than I am on that matter. As to the £158 million and £129 million, I confirm that little, if any, of the £129 million which is to go to the task force for regeneration in the West Midlands is in any way affected by the European Commission or requires approval by it. As to any money that may go to Rover, Mr Towers and the Phoenix consortium have not asked for any state aid for Rover and none has been offered.

Baroness Crawley: My Lords, as someone who represented Longbridge as a Member of the European Parliament for 15 years until June 1999, I should like to add my congratulations to the Government, to Phoenix, the trade unions at Longbridge, the Government Office of the West Midlands and those who are very much involved in the task force. If ever an RDA chairman had a baptism of fire, it is Alex Stephenson as head of the task force. Perhaps the Minister is able to give a little more detail about the way in which the £129 million will assist the priorities

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of the task force. My noble friend referred to retraining. However, I am aware that the task force wants to diversify the manufacturing base of the West Midlands and attract new investment into that area as well as retrain any workers at Longbridge who are made redundant. I suspect that tonight workers at Longbridge will have more than a little sherry.

Lord McIntosh of Haringey: My Lords, I am grateful for my noble friend's contribution. She asked specifically about the allocation of task force money. The report of the task produced last month set out in some detail the proposed allocation of that money under various heads: skills training, development of sites and so on. I am sure that in the light of the new announcement, which means that there are going to be many fewer direct or indirect job losses than were feared, the task force will be reconsidering its priorities and the way in which it wishes to use the money. The good news is likely to be that because less will have to go on "fire fighting", more will be available for the longer-term development of manufacturing capacity and manufacturing employment in the West Midlands. I think my noble friend and the Government must await the task force's review of its own recommendations.

Lord Islwyn: My Lords, will the Minister appreciate that this agreement will be particularly welcome in the British steel industry, which is a major basic supplier to Rover? There have been ugly rumours in recent weeks and months about the future of certain steel plants in this country. Would he further consider the fact that, prior to the BMW takeover, Rover had a very useful agreement with the Japanese company Honda? Does he feel that it would be a good idea if this connection could be resumed?

Lord McIntosh of Haringey: My Lords, on my noble friend's first point, yes indeed, I am well aware that there will be much relief in the British steel industry. In particular, although he did not name it, Llanwern will be very much relieved that its sales to Longbridge will continue. It is an important contract for it. It will be important to see that the contract continues and it must also be important to the continued success of Llanwern.

As to the issue of co-operation or joint ventures with Honda, or indeed others, I can only repeat what I said in response to the noble Lord, Lord Mackay: that Mr Towers and the consortium have made it clear that they do see their future, among other things, in joint ventures. Those may well include Honda, but I do not know what their specific plans are.

Lord Shore of Stepney: My Lords, this is certainly welcome news but the big question now, as I am sure my noble friend will agree, is whether this is a temporary reprieve or really a new lease of life. I hope very much, as he does, that it will be the latter. However, there are two points which I am sure must puzzle others as well as myself. The BMW company

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was running at a loss of £700 million a year in that plant. That was last year's figure. What new factor has arisen that really seriously challenges that appallingly heavy loss figure? Secondly, because it is such a relevant factor, what advice, guidance or assurance were ministers and the Chancellor able to give the new company about the exchange rate between sterling and the euro?

Lord McIntosh of Haringey: My Lords, I think I made it clear in my response to the noble Lord, Lord Razzall, that as far as I know no assurances have been given to Mr Towers or the new consortium about the exchange rate. I am sure that my noble friend will have read the Chancellor's statement--I know he does his homework--and he will have seen that the Chancellor takes a very realistic view of the effect of the exchange rate on manufacturing industry. He is aware of the problems that arise from the strength of the pound or the weakness of the euro, according to which way round you choose to put it.

Of course it is true that in a sense nothing has changed. There is still over-capacity in the car industry as a whole, and Rover will have to fight its own corner in that respect. I think the best indication I can give to my noble friend that it is more likely to be a successful operation than has been the case in the past is that both the Phoenix consortium and BMW have said they believe that this is a winning solution and can be made to succeed.

Financial Services and Markets Bill

4.44 p.m.

Further consideration of amendments on Report resumed.

Lord Joffe moved Amendment No. 151A:


    After Clause 135, insert the following new clause--

LONG-TERM INSURANCE BUSINESS RULES: REPRESENTATION OF POLICYHOLDERS

(" . The Authority shall make rules requiring an authorised person who is a body corporate who has permission to carry on regulated long-term insurance business to secure that the composition of the body's Board of Directors is such as to give a fair degree of representation to with-profit policyholders.").

The noble Lord said: My Lords, in moving this amendment I have to declare an interest in that my family and I are with-profit policyholders in proprietary life assurance companies. The purpose of the amendment is the protection of with-profit policyholders, who currently have no representation on the boards of life assurance companies. I raised this issue at Committee stage and the noble Lord the Minister has been kind enough to meet me and write to me outlining the Government's approach. However, I still cannot feel that with-profit policyholders have adequate protection, and I should like to pursue the matter further.

Without troubling your Lordships at too great length, let me just briefly outline the cause of my concern. From time to time the directors of life

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assurance companies are faced with conflicts of interest as between shareholders and policyholders. In such cases the directors, who are accountable to the shareholders who elect them, will tend to concern themselves with the best interests of shareholders rather than of policyholders, who have nobody to represent their interests.

As I did with my previous amendment, I will illustrate this type of conflict by reference to the Prudential, which is the largest life assurance company in the country, repeating that in so doing I am not suggesting that the Prudential acts differently from some other companies; nor am I seeking to personally impugn any of its directors. The Prudential board was recently faced with the decision of how to deal with the £2 billion compensation for losses arising from the mis-selling of personal pensions by salespeople whom the company had failed to properly train or control.

The company had two options. The first one was for the board to accept responsibility for the mis-selling and to write off the losses against shareholder profits. That would have wiped out entirely its profits for about two years which, to put it mildly, would not have been an attractive strategy to report to shareholders. It was, however, an option followed by at least one other with-profits company. The other option was simply to write off the losses against the orphan estate, which consists of surplus assets, the ownership of which is unclear as between shareholders and policyholders.

Faced with this very clear conflict, the board adopted the orphan estate option, with the consent of the DTI. In making this decision there was of course no one at board level to argue the case for policyholders and their interests. Had there been such representation, just some of the questions which would surely have been posed would have included the following. Was the board not responsible for the losses? Should not the shareholders, having elected the board, bear the losses? How could the chief executive of the Prudential for several years aggressively deny that this massive mis-selling had taken place? Why had the DTI and, more recently the Treasury, not followed the agreed practice of consulting the policyholders before agreeing to the orphan estate being used for this purpose?

They might also have asked whether the reasonable expectations of Prudential policyholders had been met and whether the company's affairs had been managed ethically and competently. The Institute of Actuaries in 1993 had defined that as a key part of the primary expectation of policyholders. Finally, they might have asked: how could the Prudential, at a time when it was writing off a loss of £2 billion, for which the board was accountable, justify to policyholders reducing their balances, yet at the same time increasing dividends to shareholders?

It is not just the losses arising from the mis-selling of personal pensions which the Prudential policyholders would wish to query at board level. At the moment the Prudential is selling very large volumes of with-profits, single-premium bonds and paying extravagant commissions at a rate of up to 6 or 7 per cent on the

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bonds. It is the view of some actuaries that these sales enable the Prudential to give shareholders indirect access to the orphan estate and that in time the orphan estate will be eroded in order to maintain bonuses on these bonds. If there were directors elected by policyholders who would be expected to represent the interests of both shareholders and policyholders, they would want to question the unlimited marketing of such bonds and whether, if such extravagant commissions were not paid in order to buy business, policyholder bonuses might be higher.

I should like to round off the illustration of potential conflicts faced by the Prudential board by reference to what is left of the Prudential's orphan estate after the £2 billion depletion. Here we know that the Prudential is engaged in discussions with the Treasury about the orphan estate's attribution as between shareholders and policyholders, claiming that the vast majority of the orphan assets has come from shareholders. These discussions have been proceeding in great secrecy for approximately four years, but shareholders are denied any information whatsoever on the grounds that it is price sensitive information. If policyholder elected directors were present at board meetings, they would have brought pressure on the board to clarify to policyholders within a reasonable period what its intentions are so that their interests could be protected. They would also question whether the information is really price sensitive and for how long the defence of price sensitivity can be used as a means of avoiding the disclosure of essential information to policyholders. The Minister's views on this price sensitivity issue would be greatly valued.

I submit that there is a clear case for directors elected by policyholders on the boards of life assurance companies. The examples I have illustrated are not isolated cases affecting a handful of policyholders. Industry-wide we are talking about £20 billion of orphan estates and the best interests of millions of policyholders.

There is an obvious and recent precedent for my amendment. The Pensions Act 1995 provides that members of pension schemes are entitled to nominate one-third of the boards of their pension funds. During the debate relating to these issues the opposition, now the Government, argued for even greater member representation--50 per cent. Additionally, in the draft regulations recently published on stakeholder pensions, specific limitations are proposed on with-profit funds which are to be ring-fenced and which prevent any transfers to shareholders other than clearly stipulated maximum costs. I suggest that it is self-evident that with-profit policyholders--they include millions of personal pension investors--require similar protection, particularly in the light of the conduct of life assurance companies in the recent past.

Finally, I should like to put a question to the Minister. Does he accept that with-profit policyholders need protection; and how does he

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distinguish the case for protecting the interests of with-profit policyholders from that of protecting members of pension schemes and stakeholder pension members in the way described? I beg to move.


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