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Dr. Vincent Cable (Twickenham) (LD): I, too, thank the Minister for early sight of the massive report. Clearly, I have not read all of it, but I have read enough to see that there are considerable discrepancies between what it actually says and the way in which she has interpreted it to us.

I want to deal with three specific points. First, on whether there was a regulatory failure, the key sentence in the summary, which the Minister quoted and on which she hinged her whole argument, was:

She interpreted that as being a criticism of the system as a whole, and as meaning that there was therefore a failure of the previous Government and the wicked, incompetent Tories, who failed to put the proper legislative framework in place. I do not need any persuading that the Tories are wicked and incompetent, but anyone who reads the report carefully will see that that is only part of the truth. Why did she not read the whole paragraph in which that sentence was embedded? The concluding sentence starts with the word "but", which is crucial:

There is specific reference to a major scandal that arose when the Department of Trade and Industry was overseeing Equitable Life, when the DTI commissioned as its own auditor the chief executive of the company that it was supposed to be regulating. If that is not negligence, what is? Clearly, there was a system failure, but there was also negligence.

Secondly, let me turn to compensation. The Minister said that Lord Penrose did not advocate compensation. Of course he did not, because it was not in his mandate, as paragraph 77 of the conclusions makes clear. Why did the Minister not quote a key paragraph in the conclusion in which Lord Penrose introduced the discussion on compensation:

That happened as a consequence of failures of regulation of the company.

The Minister stated that the fundamental difference in respect of Barlow Clowes—I want to pursue in a little more detail the point made by the Conservative

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spokesman—was that there was no finding of maladministration in that official inquiry. That is simply untrue. The finding of maladministration came in a subsequent report by the ombudsman. Indeed, in a particularly trenchant paragraph, the current Chancellor of the Exchequer, commenting in Parliament in 1989, confirmed that point precisely:

That is why we and members of the society now expect a follow-up report by the ombudsman to interpret Lord Penrose's findings. If that is not possible, why cannot Lord Penrose be asked to spend an extra three months extending his mandate to look specifically at compensation, which he was precluded from doing before? If his findings are as the Government think, they need have no worry that they will be asked to sign any cheques, so why cannot they ask him to examine that dimension?

My third and final comment relates to the future of the society, about which the Minister said very little. As I understand it, her only practical recommendation to policyholders is that they should pursue mis-selling claims. Is she not aware that Equitable Life's policies were essentially sold by its salaried staff, not by commission agents? Any attempt to pursue a mis-selling claim must necessarily involve raiding the society's residual funds—less, of course, very large fees for the lawyers. The only recourse that she is offering is for the lenders to sue themselves. This is a hopeless outcome, and one that is totally unworthy and unsatisfactory. Not Penrose, but the Minister's interpretation of Penrose, will be alarming and demoralising to the million people who have policies with the company, and it will have very damaging long-term effects on the savings culture for millions of others.

Ruth Kelly: The hon. Gentleman has fundamentally misread the central findings of Lord Penrose's report. He made a point about regulatory failure. I accept that there was a system failure of regulation, as Lord Penrose says. That failure was the policy pursued by the previous Government, implemented according to the will of Ministers, and accepted by Parliament. Lord Penrose is specific in saying that the coincidence of system failures in this case did not lead to loss.

The hon. Gentleman made a point about the combination of the role of chief executive and appointed actuary. If he reads deeper into the report, he will see that there was no law that could have prevented the situation from occurring at that time.

The hon. Gentleman talked about Barlow Clowes and the fact that no compensation scheme was in place at the time. The parliamentary ombudsman made a clear finding of maladministration in that case. The previous Government did not accept liability but said that they would pay compensation out of respect for the offices of the parliamentary ombudsman, recognising that there was no other way that distress could be alleviated among the Barlow Clowes victims. Now we have a comprehensive financial services compensation scheme in place, and it pays out 90 per cent. of guaranteed policy values.

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The hon. Gentleman asked whether Lord Penrose could now investigate whether compensation should be payable, but if he had listened to my opening statement, he might have heard Lord Penrose's own words:

that could have allowed him to investigate those issues.

The hon. Gentleman made a point about the future of Equitable Life itself and its policyholders. Yes, they had a very difficult time and I sympathise with their plight, but the question now is what is the right thing for the Government to do. Lord Penrose identifies a prolonged and sustained period of over-bonusing in the society. His estimate is that more than £3 billion was paid out to policyholders in the 1990s. He says that that issue can ultimately be resolved only by the courts.

Mr. John McFall (Dumbarton) (Lab/Co-op): The Financial Secretary will be aware that the Treasury Committee has invited Lord Penrose to give his views on his report next week. Surely it sounds the death knell for the post of appointed actuary. The report's conclusions are bitter for the many hundreds of thousands of Equitable Life policyholders. We have had prudential regulation, conduct of business and realistic reporting improvements, but all that, for Equitable Life policyholders, sadly, is locking the stable door after the horse has bolted.

The big question today is how we can improve transparency to ensure that there is no rerun of this scandal and fraud by future managements and that when people put their money in savings they can have confidence in the system. How will the Minister and the Government work to ensure that we restore confidence in the long-term savings market?

Ruth Kelly: My hon. Friend draws attention to the appointed actuary system that was in place for a prolonged period during the 1980s and 1990s. The Financial Services Authority has decided to abolish that system, to remove from the appointed actuary responsibility for making key decisions about asset allocation and distribution in respect of with-profits funds, and to place that responsibility firmly on the board.

My hon. Friend asks how we can restore confidence; the way to do so is to take the action required. We have made the changes that Lord Penrose thought essential to regulating the life insurance industry, and we will continue to make them. That is why we have set up a review of the mutual sector and the actuarial profession, and we are reviewing the accounting treatment of with-profits funds. My hon. Friend will know that if there are aggrieved policyholders, as undoubtedly there are, they are at liberty to pursue any claims that they feel are rightly theirs through the financial ombudsman service, which this Government put in place for the resolution of such complaints.

Mr. Kenneth Clarke (Rushcliffe) (Con): The Minister seemed with approval to quote me from the time of the Barings bank collapse, when I said that there was no failure on the Bank of England's part in respect of regulations that could protect against a rogue trader

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who deliberately deceived and obscured the truth. She also reminded us of the occasion on which the previous Government accepted a finding of maladministration against the Department of Trade and Industry, in the case of Barlow Clowes, and paid compensation to the innocent victims.

Will she, therefore, clear up the seeming ambiguity in her comments on the regulators in this case? She attacks the DTI's actions before 1997 with considerable vehemence when she is making party political points, but she defends its actions when resisting the claim for compensation. She is totally silent about the Financial Services Authority and the Government Actuary during the period after 1997—the three years that led up to the revelation of the true facts about Equitable Life. Is she saying that the DTI, as regulator, made no errors or misjudgments before 1997 under the existing regime, and that after 1997, the FSA or the Government Actuary made no errors or misjudgments? When she answers that clear question—she has yet to do so—will she bear it in mind that 800,000 policyholders will not welcome party politics on this subject, and that they will want a clear description of where fault lay, including with the regulators, if part of the blame did indeed lie there?

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