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6.40 pm

Mr. Oliver Letwin (West Dorset) (Con): I do not think that the many hundreds of thousands of people who have been adversely affected by this saga will take much comfort from what we have just heard. I shall begin by declaring an interest, as the member of a family that is among those affected. I intend to pursue this issue over the coming months and, for the avoidance of doubt, if at any time, now or under a future Government, any compensation becomes payable to my family, it will go to charity.

I have to enter a note of surprise and regret that the Chancellor is not here this evening. It is a pity that he has not chosen to speak in this debate, and that he is not here to listen to it. It is also a pity that he has not taken any part in the proceedings, and that he has never been willing to have anything to do with the subject. The people who have suffered from these events will take their own note of that.

Mr. Plaskitt: While we are on that point, will the right hon. Gentleman tell us why he was not here to reply to the statement on this matter?

Mr. Letwin: I was here throughout those events, after about the first three minutes. I have chosen to reply to the Minister today precisely to indicate that we treat this matter with the greatest possible seriousness, although all my hon. Friends on the Front Bench are more than capable of answering the Minister. Indeed, my hon. Friend the Member for Chichester (Mr. Tyrie) will be

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winding up. The Treasury Bench appears to have only one Minister interested in the subject; I believe that she will also be winding up. That is a disgraceful state of affairs, on which the hon. Member for Warwick and Leamington (Mr. Plaskitt) should reflect. [Interruption.] The Chief Secretary should not rumble from a sedentary position, as he was yesterday being remote controlled by the Chancellor, although not very effectively.

The Minister has made an argument, of which I take note, and I shall recapitulate it briefly. Putting together what she said today with what she said in her statement, we see that the shape of that argument is perfectly clear. She argued that this failure happened primarily because of management, and that regulatory failure was therefore only a secondary cause. She then argued that all such regulatory failure was pre-1997, and that it was entirely due to a light-touch regime rather than to any operational failure. She argued that there was therefore no need for Lord Penrose, the ombudsman or anyone else other than the courts to look at the question of maladministration, and that there was therefore no need for anyone other than the courts to investigate whether anyone was owed compensation.

As the courts will only award compensation against other policyholders and—as a fascinating earlier exchange revealed—people will probably need a lawyer to discover whether they can go to court in the first place, there is very little chance of their obtaining any compensation. The Minister has repeatedly argued in her statement and in public that all of that is utterly different from Barlow Clowes because there is now a compensation scheme. That is the Financial Secretary's argument, although it did not take me 40 minutes to put it to the House. That is all that she has ever said.

Let us go through that argument step by step. Is it true that the Penrose report reveals that the primary cause of the failure was management? Yes. I hope that the Financial Secretary will take comfort from that; it is the one part of her argument that is perfectly accurate. Secondly, is it true that the Penrose report concludes that the regulatory failure was only secondary? No, it is not. The Penrose report indeed indicates that it was secondary, but what does it mean by secondary? It is very clear: had the management not mis-performed and had the society been in good shape, the existence of a regulatory problem would not have been a difficulty for policyholders. We accept this, of course.

If a fragile piece of glass is not broken, the fact of its fragility is not a problem, but in this case the glass was broken and fragile. The reason, in part, for that fragility was regulatory failure. The regulatory failure was a necessary—[Hon. Members: "System failure."] I shall come to the system question in a moment. I hope that Labour Members hold their fire, because they are about to hear what Lord Penrose has to say about that. Regulatory failure in this case contributed to the problem and it was a necessary cause of the problem. Had regulation been perfect—had it even been good—in Lord Penrose's view the outcome might have been different.

Lord Penrose does not—in this, the Financial Secretary is quite right—say how much regulatory failure contributed to the appalling problems that arose or how responsible those problems are. He goes on to explain that that is because he was precluded from

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making those judgments. That is very different from him having concluded that it was not of importance; he was precluded from considering that question.

Next, is it true—this is the most dull and tedious of all the Financial Secretary's arguments—that all the failure was pre-1997? No, that is not what Lord Penrose says. In relation to 1998, he says

In relation to 2000, he says that in

Again in relation to 2000, he says that

Finally, in relation to January to July 2000, he says that

Those are all events post-1997. Do I therefore conclude that this Government are the object of criticism? No, because unlike the Financial Secretary I have no interest here in playing politics. Do I conclude that pre-1997 there were no failures? I do not. I accept that there were failures before 1997. This is a failure of British government and a failure, regrettably, of government under two separate Administrations. On this, the only clean hands in the House, alas, belong to those who sit on the Liberal Democrat Benches, because they have not been in government. Very likely, had they been in government, they also would have been responsible for this failure, but I have to admit that they did not get the chance to be responsible.

Mr. Nigel Beard (Bexleyheath and Crayford) (Lab): Does the right hon. Gentleman not recognise that Lord Penrose speaks of a system failure, not a failure of the operators, and that the system was put in place by the Government he supported and was supported by the majority in Parliament, who were Members from his party? That shows the barrenness of the philosophy of light-touch regulation, which did no service to the Equitable policyholders or to the financial services industry generally.

Mr. Letwin: In a moment or two, the hon. Gentleman will regret those remarks. Let me deal with both in turn, because they indeed relate to the next point in the Financial Secretary's argument, and both are false.

I will read the hon. Gentleman some passages from the report—there are many—that indicate that Lord Penrose, in clear and absolute contradiction to the Financial Secretary, repeatedly points to operational failures as opposed merely to system failures, though he indeed believes that there were also system failures for which our Government were partly responsible. I am not playing politics; I am telling the hon. Gentleman and his colleagues what is in the report, rather than inventing a further version of it.

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At paragraph 240 in chapter 19, Lord Penrose tell us:

At paragraph 158 in chapter 19, he describes the Department of Trade and Industry, the Treasury and the Government Actuary's Department as "complacent".

In paragraph 171 of the same chapter, he describes the failure of the regulator

In paragraph 187, he describes

In paragraph 209, he tells us that

In paragraph 228, he tells us that

The hon. Member for Bexleyheath and Crayford (Mr. Beard), whom I have encountered on various occasions in the House, is intelligent and honest enough to recognise that those are operational failures. They occurred partially under our regime, and partially under the regime of the Financial Secretary and her colleagues. They were operational failures, however, not ministerial failures, and not parliamentary failures.

Mr. Redwood: Does my right hon. Friend accept that the Financial Secretary contradicted herself, because she said that this was a system failure by regulators? She then said that Equitable Life was unique—it was the only one that went wrong, it was the only problem child. It is beyond belief that there could be a serious system failure of regulation, over a period of 10 years or more, and only one casualty. Surely it must be the case that the main regulatory failure was specific regulation failure of that company.

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