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Mr. Letwin: My right hon. Friend, as always, makes an extremely powerful point. Another fascinating point emerged today for the first time, I think. The Financial Secretary lauded the Government for having improved the personnel who were regulating. Why would it be necessary to improve the personnel who were regulating if there were no failures on the part of the personnel who were previously regulating? Those are obviously operational failures—[Interruption.] The hon. Member for Warwick and Leamington chunters from a sedentary position about system failure. According to the Financial Secretary's statement, if personnel were implicitly not up to the job, that indicates that they were doing something wrong at the operational level.

Ruth Kelly: The right hon. Gentleman is making a very interesting argument about operational failure. In the context of his remarks, however, can he explain to the House this quote—I do not paraphrase—from Lord Penrose, who says it was,

Mr. Letwin: The problem with the Financial Secretary's argument is that because she is playing party

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politics, she refuses to acknowledge what is clear, and what I have acknowledged: there were system failures. Were I denying that there was a system failure, she would have something to say. But I have not denied it. There was system failure, and operational failure, and I have just listed six cases in which Lord Penrose points specifically to operational failure.

Mr. Plaskitt: Will the right hon. Gentleman give way?

Mr. Letwin: No, I am going to answer the other part of the point made by the hon. Member for Bexleyheath and Crayford, if I may. The next thing that he said was that it was all light-handed regulation that was at fault, which the Financial Secretary has said on repeated occasions. The fact that it was light-handed may have partially been at fault. It is therefore of great interest that the right hon. Member for Darlington (Mr. Milburn)—not a Conservative Member, and not a Minister in our regime, but a Minister at the time in the Financial Secretary's Government—said about the nature of the regulatory regime on 28 June 1999, at column 39:

It does not therefore pay to insult the many hundreds of thousands of people involved by engaging in the petty party politics of claiming that light-handed regulation, which may have been partly to blame, and system failure, which was certainly partly to blame, is exclusively the problem of one Government or the other.

Mr. Beard rose—

Mr. Letwin: The truth is that there was system failure, which occurred under both Governments, and there were operational failures, which occurred under both Governments. That is the conclusion to which any ordinary person reading the Penrose report would come.

Mr. Barry Gardiner (Brent, North) (Lab): Does the right hon. Gentleman want the Government to compensate Equitable Life policyholders? Is that his party's policy, and what does he think it would cost?

Mr. Letwin: That is the point I was coming to—the question of maladministration. As I have said, the Financial Secretary's assertion is that because, as she wrongly asserts, there was no operational failure and because, as she wrongly asserts, it was all a long time ago, there is, in her wrong estimation, no reason for an investigation into whether there was maladministration, and hence no need for anyone to ascertain whether compensation is payable. Our view is that there should be such an investigation, that there needs to be such an investigation, that Lord Penrose did not conduct such an investigation because the remit under which he was operating specifically precluded him from doing so, and that it is therefore appropriate for the parliamentary ombudsman's remit to be extended to include the

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Government Actuary's Department so that she can conduct a proper investigation and identify whether there was maladministration, or for the Government to ask Lord Penrose to extend his remit to engaging in an investigation, or for the Government to find another suitable means of conducting it.

This is the Financial Secretary's position. She does not know whether there was maladministration, because she did not ask Lord Penrose to find out so he did not feel enabled to tell her, and she does not want to know whether there was maladministration because she does not want to know whether following maladministration there would be compensation. The reason she has been put up to present the specious argument that she has presented is that the Chancellor does not want to find out whether compensation would be payable.

Ruth Kelly: How does the right hon. Gentleman react to a statement made by Lord Penrose to the Treasury Committee only last week? He said

Mr. Letwin: What is odd is that in the report Lord Penrose makes it perfectly clear that he had not the remit to investigate maladministration.

Ruth Kelly: What about the courts?

Mr. Letwin: We will return to the courts in a moment. As the Financial Secretary well knows, the courts are not an answer.

Let us test the Financial Secretary's bona fides in a perfectly straightforward way. If it is the case that Lord Penrose was perfectly able to investigate maladministration and if the Financial Secretary has nothing to fear from an investigation of maladministration, will she now—by making a small change in a statutory instrument—allow the parliamentary ombudsman to investigate maladministration?

Ruth Kelly: It cannot be done.

Mr. Letwin: Ah! The Financial Secretary says, from a sedentary position, that it cannot be done. We will provide the Financial Secretary with the means of doing it in the House, and see whether she accedes to that. The fact is that the Financial Secretary and her colleagues do not want an investigation of maladministration, and I think that that is a disgrace.

Mr. Garnier: The Library briefing paper on the matter reports

The Financial Secretary's letter was written to thank Lord Penrose for taking on the job of holding the inquiry.

Mr. Letwin: I am grateful to my hon. and learned Friend, who with his normal forensic ability has pointed to the relevant evidence.

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Finally, let us turn to the question of compensation and Barlow Clowes. This is one of the most extraordinary features of the Financial Secretary's argument. In fact, it is so extraordinary that as far as I could make out, although she spoke for a long time, she did not include it today. She included it in her original statement, however, and she has been making it in broadcasts repeatedly. It is the argument that somehow we need not worry about whether there is maladministration and we need not have an investigation into whether compensation is due as a result of maladministration, because there is a compensation scheme now in existence. Well, there is a compensation scheme now in existence, and it relates to insolvency.

The effect of compensation following insolvency is to restore people to the position that is absolutely guaranteed to them, which is a great way below what people have a reasonable expectation of otherwise receiving. The Financial Secretary knows that very well, and she therefore knows that unless horrors strike the society, the existence of the compensation scheme is a complete irrelevance to the many people whose reasonable expectations have not been fulfilled. That, I fear, is another disgraceful aspect of the Government's position.

Mr. Forth: Is it not the case that if policyholders followed the Financial Secretary's advice, they would end up, in effect, suing themselves?

Mr. Letwin: Suing themselves or suing one another, which is not fair, right, just or decent. If there was regulatory failure—and there was, because Lord Penrose shows it—and if there was operational failure, which Lord Penrose also shows, and if those occurred through two Administrations, as they did, it is reasonable that there should be a proper investigation of maladministration.

Mr. Beard rose—

Mr. Letwin: I shall not give way because I am just concluding.

It is reasonable and possible to have a proper investigation into maladministration, and such an investigation would establish whether there were or were not grounds for compensation because it would establish the extent to which the maladministration caused the defect for policyholders. The Financial Secretary cannot reasonably debar that further investigation, and I hope that in some months' time, with whatever kicking and screaming, she will accede to that request.

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