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Mr. Betts: The Minister said that she cannot speculate about the figures. Given that the Government are talking--rightly--about compensation and tax relief on that compensation, presumably they have made contingency plans in their estimates for future expenditure and future reduction of income. Surely the Minister can explain to the House precisely how much those contingency plans will cost, as they must be based on the numbers of people involved.
Mrs. Knight: The problem relates to industry mis-selling to individuals; therefore, financial redress and the payment of compensation to individuals are matters for the industry. The Government propose not to charge
tax on compensation when it is paid in cash to individuals. We expect the number of people involved to be relatively small, but until the review has been finished, we cannot speculate on numbers.
Mr. Campbell-Savours: Will the Minister confirm that we could be talking about many millions of pounds of taxpayers' money which must be used to bail out those people who are in difficulty as a result of Government negligence in the past?
Mrs. Knight: It is not negligence, and I ask thehon. Gentleman not to use that term. The Government have not been negligent, but there has been mis-selling by the industry; that is where the responsibility lies.
The levels of compensation and the total bill will be revealed in due course, once the specifics are known. The vast majority of compensation payments will be borne by the industry. The Government will be involved in only a very small area, in the sense that tax may become an issue in a small number of cases. The clause ensures that the tax problem will not be borne by the individual concerned, but that it will be resolved by ensuring that there is no tax payable at that time. I repeat that it is one small circumstance; it is not the case with the majority of the money that will be involved in paying compensation in various forms.
I must make some progress, although I suspect that many of the points that I intended to make have been covered in the discussion. The Securities and Investments Board and self-regulatory organisation programmes--which have been worked up in order to set in train the process of determining who has and who has not been mis-sold a pension--are under way. The SIB released a detailed statement on 16 January, in which it revealed the stage that the review has reached. Those who have mis-sold personal pensions are beginning to put the matter right.
However, we should not kid ourselves: it is a mammoth exercise. Many of the large life companies have written tens, if not hundreds, of thousands of letters to their clients. Once returned, the questionnaires that they have sent must be analysed. We are now beginning to see the first fruits of the process, as payments are starting to be made. Conducting the review is a big task, but it is worth while.
It is worth it because people have the right to expect the investment advice they take to be in their best interests. When it is not and they lose, they expect that things will be put right. Personal pensions are a very good thing. They offer people flexibility in planning for the future, and it is in the interests of everyone--individuals and the industry--that confidence is restored.
Many firms have been actively engaged in taking the review forward, but the pattern is not uniform. A few of the firms concerned have not applied themselves to the task with the vigour that might be expected. Legal actions have also been brought, which have slowed the review, and, as a consequence, progress has not been as fast as we had hoped. However, those who have put obstacles in the way have only delayed the review. It is now on course, and I assure the House that it will be taken forward with vigour and will be carried through to a positive conclusion.
Let no one underestimate the task at hand, but let no one get it out of proportion. All those involved in the industry are particularly keen to identify those who have been the victims of mis-selling, and to resolve the matter satisfactorily.
Mr. Campbell-Savours:
I am a little worried about some of the debts that a Labour Government--elected probably in April or May next year--will inherit. Will the Minister clarify something for me? Is it possible that a Labour Government might inherit a liability which our taxpayers will have to pay--a liability incurred as a result of negligence by the Conservative Government?
Mrs. Knight:
The hon. Gentleman should not bank on there being a Labour Government next year. The biggest liability that he will inherit is the social chapter, which is proposed by his colleagues, and its consequences on unemployment in this country. On the mis-selling of pensions, the problem will be there next year, and indeed the year after, but it is a problem that is being solved well.
I now return to the clause itself, which is particularly designed to resolve the issue that we have discussed--instances in which compensation may result in tax. The Government are anxious to do all they can to speed up the compensation process. It is not just the clause that will help people. As I announced on 21 November, on advice from the Government Actuary, the Government have reduced the charges for reinstating the pension entitlement of current public service employees.
Mr. Betts:
The Minister said that the Government were doing all they can to speed up the process. Perhaps she can name one or two concrete measures that the Government are taking, because many constituents feel that nothing much is happening. They were sold the wrong pensions and are not being compensated--certainly not at any discernible speed.
Mrs. Knight:
Perhaps the hon. Gentleman was not listening. I have just named two measures: first, the change that will make it much easier for members of Government pension schemes to get back into pension schemes, as a consequence of the assessment from the Government Actuary; and, secondly, the clause, because it addresses the potential tax issue. These measures have received an immense welcome from the industry as being useful and good to facilitate the pension mis-selling problem.
We also endorse the SIB recommendation that redress should, if possible, take the form of reinstatement in the original occupational pension scheme. Under existing legislation, compensation for the type of mis-selling covered by the SIB review could, depending on the form in which it is paid, be liable to income tax or capital gains tax. The clause covers both eventualities.
The payment of compensation for mis-selling is still in its early stages, and we believe that it is in the interests of all concerned for there to be certainty on the tax treatment of the compensation payments. That is why we have introduced the clause. I commend it to the Committee.
Mr. Darling:
I have been a Member of the House only since 1987, but I have always understood that it is one of the great traditions in Committee that the Minister says why a clause should stand part of the Bill. I found it quite astonishing that the Minister said that she had no idea how the problem arose or how many people might be involved, yet that it might be a mammoth task. She said that no one should underestimate the task involved, but went on to say that no one should overestimate it either. She could not tell us how many people would possibly be affected. She had no idea how much it will cost. She had very little to say in terms of what the Government are doing to try to resolve the problem.
As my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) rightly suspected, the Government are not doing very much, and one reason for that is that it was they who created the climate that encouraged some unscrupulous people ruthlessly to exploit the vulnerability of many people who had recently been made redundant or were in occupational schemes, who were wrongly persuaded to come out of those schemes and to go into private pensions that were wholly inappropriate for them.
The Minister is coy, either because she genuinely has no idea why the clause has come about and she has simply been good enough to read us a Treasury brief in order to justify the clause; or possibly because she knows full well that the Government have to accept a major responsibility for creating the sort of environment in which it was possible for so many people to be sold policies in a wholly inappropriate manner.
Perhaps I should move that the clause stand part of the Bill, because I agree with its principle. We want to see people reinstated or compensated, as the case may be. Clearly it would be wrong if innocent people then found themselves subject to income tax because of the compensation or the reinstatement that they had been given by those who had wronged them. Therefore, I welcome the clause and believe that it should stand part of the Bill. But in view of the Minister's remarks, it is necessary to push her a little further.
The Opposition have raised the matter many times in the House. It remains one of the scandals of the late 1980s that up to 500,000 people were wrongly sold policies between 1988 and the early 1990s. It is easy to say that that was all the work of one or two unscrupulous or greedy salesmen, but it was not just those individuals.
Senior management knew full well, for example, that many former miners living in constituencies such as Bolsover were not only disillusioned with their employer but were persuaded that the Coal Board pension fund and the National Coal Board were one and the same thing. It was suggested to them that they might like to get out of their pension fund and go into a private pension.
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