Broke: Who Killed the Middle Classes?. David Boyle

is a tall, imposing presence, six foot six inches in his socks. His upbringing was impeccably middle-class: born in the shadow of Romsey Abbey. As a young man, he was a Labour councillor in Letchworth and one of the founders of the World Development Movement, but he was also one of those people who seemed hardly able to stop himself making money. He had an antiques business, a reproduction furniture business, up to forty properties and much else besides. He describes his property skills as like a sixth sense, being able to ‘see through walls’. ‘I can see the possibilities of spaces,’ he says.

      It was also the property boom, as it was with so many other people, that brought him into contact with Lloyd’s of London, which he found had a highly unusual, even archaic, structure. Lloyd’s is made up of a whole number of syndicates, known usually by the name of the underwriter in charge, and each one was supported by a whole range of ordinary investors known as ‘Names’. These Names would need at least £37,500, a third of which would have to be deposited with Lloyd’s, but they would accept a bank guarantee based on the value of your home (£37,500 was worth about £150,000 today). You didn’t have to be rich, and this explained why people whose wealth was almost entirely made up by notional increases in the value of their home became caught up in the scandal.

      All this meant that becoming a Lloyd’s Name was within the reach of anyone with some equity in their homes. It was also considered a safe investment. Thousands of ordinary people signed up to become Names after a recruitment drive in the early 1980s. The problem was that the new recruits were actually signing a guarantee that they would underwrite losses as well as profits made by their syndicate. It included the wholly irrational concept of ‘unlimited liability’.

      This was a fiction. How could such a thing exist? But the newly recruited Names were assured there was no risk. Nobody had ever been bankrupted and you could sign up for an insurance policy of your own to pay any debts up to £135,000.

      ‘There they were, sitting on a house which had gone up hugely in value,’ said Christopher Stockwell. ‘They were asset-rich, while their retirement income was going down. They were wheeled around Lloyd’s and the agent got a commission and they would get a five per cent return on the value of their house. It seemed totally secure. This was Lloyd’s, after all, not a bunch of shyster gangsters.’

      Stockwell became interested in Lloyd’s as an investment and joined in 1978. The way that Lloyd’s works meant that years had to be ‘closed’, with no more claims expected, before they could distribute the profits. Of course, there might be liabilities to pay for previous years as well – and Names were responsible for previous years before they joined – but, all being well, he would expect his first cheque some time early in the 1980s.

      The problem was that all was not well with Lloyd’s. What Stockwell had not been told was that underwriting mistakes were about to threaten the very existence of Lloyd’s – based on a combination of their collective failure to understand how the world was changing, combined with a fatal clubbishness that preferred to shove bad news under the table. Nor had the twenty thousand ordinary Names recruited after 1982 been told either. The establishment had consistently closed ranks to prevent proper regulation of Lloyd’s, and this was about to guarantee financial misery for many of those middle-class investors who had been assured that being a Name might be a good way of helping out with the grandchildren’s school fees. It was also providing a strange dress rehearsal for the far greater banking scandal and collapse in 2008.

      The immediate trigger of disaster was the asbestosis insurance claims in the USA, though there were other disasters as well, natural and predictable. Asbestosis should have come as no surprise either to the companies or their insurers. The fact that exposure to asbestos fibres might cause cancer was first noticed way back in 1918 and confirmed in a series of medical studies in the 1920s. But it was a test case in the US Supreme Court in 1969 that made this directly relevant to the Lloyd’s Names and their ‘unlimited liability’.

      The case concerned a former asbestos worker called Clarence Borel, and was brought by his widow, Thelma. He had been told so little about the little white asbestos fibres that were to kill him that he used to bring them back to decorate the Christmas tree at home. The Supreme Court found in favour of Thelma Borel, and, as a result, the asbestosis claims began to mount and the ultimate insurers – those with the unlimited liability – turned out to be some of the Lloyd’s syndicates which specialized in reinsurance. In 1979, the US courts ruled that the insurers were liable for all the years between when the workers were exposed and when they fell ill.

      Perhaps Lloyd’s could not have reasonably predicted this extension of their liability, or the rise in hurricane damage, though it was clear in the world outside that both cancer liability and climate were changing. But the real problem was how the senior officials at Lloyd’s responded. Exactly who was aware of what, and who was informed of what, was to be the subject of a series of legal actions in the UK, but Lloyd’s bankers NatWest could see, and wrote a warning report – known since as the Armageddon report – about the terrifying implications for their clients. All copies later disappeared. The losses were small by then, but the line on the graph showing their rising impact was terrifyingly steep and getting steeper.

      The appeal court ruled later that there had been a gross misrepresentation to the Names, but not fraud, and – although more evidence has come to light since – that is where matters now rest. The decision was important because the Conservative government of John Major had by that stage rushed through legislation giving Lloyd’s immunity for negligence but not for fraud. They were not therefore responsible for ruining so many Names, yet this was another sign for the future. Among the huge privileges of the financial industry, as we have seen more recently, is that they have been so deregulated that they also have immunity for the results of their negligence, though not, so far anyway, for their fraud. In practice, it is hard to distinguish between the two.

      The British establishment closed ranks, and for the first time – but definitely not the last – ordinary middle-class investors found themselves on the outside. Even when the implications for the Names should have been growing apparent, Lloyd’s continued their recruitment campaign to attract new ones.

      In his Oxfordshire home, running his businesses, Christopher Stockwell knew nothing of this. He realized at the start that it made a big difference which syndicate he joined. He met one of the rising stars of Lloyd’s, Dick Outhwaite, liked him and joined his syndicate – and then joined others too. The first sign that there might be anything wrong appeared when it came to closing the books on that fateful year of 1982, because the Outhwaite auditors insisted on leaving the year open. Stockwell was angry about it and remonstrated with the auditors. By 1987, it was clear that something was extremely wrong and that losses on other syndicates had somehow been diverted onto one of his syndicates as the bearer of the ultimate risk. The following year, he summoned up his old campaigning experience and formed an action group.

      Even so, he wasn’t too worried. The losses at the troubled syndicate were being covered by profits from others. Never one to do things by halves, Stockwell was by now a member of many other syndicates, but more accounts for more years were being left worryingly open. Not until the end of 1991 did the penny drop. He had been expecting a cheque for £250,000. Instead, he got a demand for an immediate £500,000. Most ordinary investors would baulk at anything remotely on that scale, but Stockwell was no ordinary investor. The trouble was that, six weeks later, there was a similar letter. By February 1992, in the run-up to the election stand-off between John Major and Neil Kinnock, the demands were pouring in at the rate of £100,000 a week.

      ‘It coincided with the collapse in property values and astronomical interest rates after Black Wednesday, and I was facing total wipeout,’ he says. ‘I had no income coming in. All my businesses were in receivership. I was spending 30 or 40 per cent of the time with the receivers, just picking up the pieces out of the chaos.’

      The Stockwell family lost their home, which was then sold by the bank later in the summer, while they rented a cottage on what had been their land. In July, his bank made him bankrupt too. It was a desperate situation for a self-made man, and a huge strain on any marriage and on the children, especially when the furniture had to be sold.

      ‘It