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Mr. Howard Flight (Arundel and South Downs) (Con): I am grateful to the Financial Secretary for giving us a copy of her statement at 3 o'clock this afternoon and access to the report previously at 1.30 pm. I and my colleagues cannot claim to have absorbed every detail of the 818-page report during the past two and a half hours. Manifestly, over the course of the next few days, we shall need to study the report in great detail. It deals with matters that are of huge importance to many of our fellow citizens whose lives have been so badly affected by the Equitable saga.

The Opposition do not wish to make party political points about the grave substance of the matter for so many citizens. To say the least, I am surprised that the Financial Secretary has focused almost exclusively on the society itself and on the pre-1997 regulatory regime. That was no doubt meant to deflect criticism for regulatory failure after 1997. Surely, however, that is not an appropriate or a grown-up way for the Government to respond to a report of this nature. We should not allow ourselves to indulge in the childish

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game of making competing attributions of blame. We should rather work together to seek to address the harm done to innocent people, many of whom are vulnerable and elderly—[Interruption.]

Mr. Speaker: Order. Please allow the hon. Gentleman to speak. Mr. Ronnie Campbell, you are usually quite noisy and I sometimes tolerate it, but you are being even noisier than usual.

Mr. Flight: Many different groups of people are involved, each with their own tale to tell: annuitants, policyholders who are not yet annuitants, those with guarantees, those without guarantees, those who joined early and those who joined late. I am sure that we will need to make distinctions in how we respond, because each group of people has been affected in a different way.

I hope that the Financial Secretary will agree with us on two points. First, it is not appropriate for the taxpayer to make good the losses suffered by savers when those losses arise from ordinary business risks. Secondly, it is appropriate for the Treasury to make good those losses that are directly attributable to negligence or to incorrect interpretations on the part of the regulatory authorities.

I hope that the Financial Secretary will also agree that it is important, when the state is shown to be directly at fault, that people can trust the Government of the day always to do the decent thing by those who have suffered. That was the view taken by the present Chancellor when he responded to the statement on Barlow Clowes in the House at the end of 1989. The Financial Secretary has drawn our attention to the differences between Barlow Clowes and Equitable Life, but there are striking parallels. In 1989, the present Chancellor said:

But it is somewhat ironic that he went on to ask the House

I cannot think that the Financial Secretary or the Chancellor would want, in government, to apply standards different from those that they applied to the Government when they were the Opposition.

There can be no doubt that this report, even on a first reading, provides unambiguous and compelling evidence of regulatory failure at operational level, despite the Financial Secretary's efforts to avoid that conclusion. In paragraph 240 of chapter 19, Lord Penrose tells us:

the Government Actuary's Department. In paragraph 158 of chapter 19, he describes the Department of Trade and Industry and the Treasury as "ill-equipped" and the Government Actuary's Department as complacent.

In paragraph 171 of chapter 19, Lord Penrose describes the regulator's

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In paragraph 187, he describes

In paragraph 209, he tells us that

and in paragraph 228, he tells us:

In paragraph 232, he expresses his concern that

and in paragraph 236, he tells us that

I believe that the Financial Secretary is bound to accept that that is a comprehensive series of findings against the regulators at operational level. I remind her that at the time of Barlow Clowes the present Chancellor said, in the face of similar operational failure on the part of the regulators, that

I hope that the Financial Secretary will now tell us what she did not tell us in her statement—that she will find a way of allowing the parliamentary ombudsman to investigate the operation of the Government Actuary's Department and other regulators to establish the extent of maladministration so that the question of compensation can be properly addressed. I hope that she will tell the House that she is willing to join hon. Members from other parties and the professional parties involved so that we may together consider how best to address the issues arising from the report.

As responsibility for the events is shared, so should solutions be, not least because pensions and the savings that give rise to them, as well as the associated liabilities, are long-lived items that must inevitably be addressed over the span of several Parliaments. When a crisis of this kind affects a large number of people, it is of the utmost importance that we forge political consensus on the appropriate remedies so that the steps that are taken can be maintained with consistency over a long period.

The implications of the episode are deep, because it raises issues of trust, not trust in this or any other Government, nor in this or any other organisation, and not even in this or any other particular regulatory regime, but of the trust of the ordinary family in the pensions industry, which lies at the heart of our financial system. Ultimately, it is a question of trust in capitalism

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and the fulfilment by the financial system of obligations that, whatever their legal status, have great moral, social and economic importance. I hope that the report's receipt will be the beginning of a process that leads to the restoration of a trust that has been sorely and dangerously diminished in recent years, and that the Financial Secretary will join us and others in a common effort to achieve that common aim.

Ruth Kelly: I thank the hon. Member for Arundel and South Downs (Mr. Flight) for his most reasonable response and shall try to deal with his points in turn. First, however, he ought at least to acknowledge the fundamental reforms that the Government introduced in setting up the Financial Services Authority. Those reforms were long overdue, and the notion that the Government have not done everything that they can to overhaul regulation, protect policyholders and keep the system up to date is ludicrous.

We, too, sympathise with the plight of Equitable Life policyholders, some of whom have suffered tremendous hardship. The hon. Gentleman cannot, however, argue on the one hand that the Government do not have responsibility for underwriting business failure up and down the country and fail, on the other, to acknowledge that Lord Penrose firmly pinned the blame on the society in this case. Lord Penrose said that the problem started and continued there, and was born of the society's policy. It was founded on a mistaken strategy by the society and was concealed by its officials from its own board and policyholders and the regulators.

Lord Penrose makes it clear in this case that

At the heart of the society there was, as Lord Penrose says, "a self-perpetuating oligarchy" that "aggressively pursued growth" with "missionary zeal". They failed to inform the policyholders of the position of their company. They buried and concealed information from the regulators. Even their own board was kept in the dark about essential financial information, including the impact of guaranteed annuities, until 1998.

The hon. Gentleman raises questions about the regulatory system in place. I dealt with those in my statement. Lord Penrose says

but a system failure there was—one that the hon. Gentleman's party cultivated and over which the Leader of the Opposition presided when he was a financial services Minister. As Lord Penrose states, Conservative Ministers, in an attempt to minimise the work load involved,

As a result, he says—a point that the hon. Gentleman picked up—the DTI insurance division was ill-equipped to participate in the regulatory process—a deliberate decision of his Government when they were in power, and one that reflected the will of Ministers and of Parliament.

When proposals were made to update life insurance regulations, they were rejected. In 1997 when we came to power, we inherited a light-touch, under-resourced, reactive regulatory system that lacked challenge, and we moved quickly to set up the FSA—a system that Lord Penrose calls

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I shall deal with each of the specific points that the hon. Gentleman raised, but first I shall quote Lord Penrose. He says:

The hon. Member for Arundel and South Downs argued that the DTI was under-resourced and that it could not monitor policyholders' reasonable expectations. Lord Penrose says it was it was resolved by ministerial decision that PRE would be monitored from the annual regulatory returns. Up until the FSA was in force, he says

The hon. Gentleman quoted Lord Penrose on future profits and the fact that the FSA allowed the society to take out an implicit future profits item. Perhaps if he read further, he would see that Lord Penrose notes

The hon. Gentleman argued that the point about subordinated debt should have been picked up by the regulators. If he read further, he would see that Lord Penrose says:

Lord Penrose makes it clear that guaranteed annuities were not the cause of the society's weakening. He accepts that the presentation of the issue was disjointed and opaque, and that even the society's own board did not fully understand it until 1998. The regulators—the Treasury, in this instance—took strong action against Equitable throughout 1998 and 1999. Equitable threatened judicial review. The regulators threatened regulatory action. In the end the regulators' view prevailed and Equitable reserved in full.

The hon. Gentleman raised the case of Barlow Clowes. In that case, there was a finding of maladministration. The company was not trading. No compensation scheme was in place. In the case of Equitable Life, there is no finding of maladministration, the company is still trading, and a comprehensive compensation scheme is in place. The hon. Gentleman asked whether the parliamentary ombudsman should be asked to investigate the Government actuary service. He failed to notice that we have just set up a review of actuaries, including the Government Actuary's Department, under Sir Derek Morris. I wonder what else he had in mind.

There is no new evidence in the report to suggest any allegation of maladministration or negligence. Lord Penrose does not pin the blame on individuals who, he says, have in the main operated in good faith and to the best of their abilities within the system as they found it. Principally, he says, the society was the author of its own misfortunes. Regulatory system failures were secondary factors.

The hon. Gentleman made a last plea about trust in financial services. Perhaps I should go back to the Penrose report for a last time. Lord Penrose himself says:

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