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Dr. Cable: I would not dispute that perfectly sensible point. That would be the purpose of the next stage of the

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inquiry—to establish whether the maladministration was indeed relevant and central to the failure or otherwise. I entirely accept the hon. Gentleman's valid point.

We must be absolutely clear—the Financial Secretary was not—about Lord Penrose's assessment of his own role. At the end of the report, Lord Penrose clearly states:

He makes it absolutely clear that that was not his job. He has not exonerated the government—I mean with a little "g"—of maladministration; he did not reach a decision on it.

There are different ways of following the report through. The normal procedure would be to go to the parliamentary ombudsman, which is what the right hon. Member for West Dorset suggested. That is what has happened in the past, but there are some practical reasons for not doing that. It would certainly take up much of the parliamentary ombudsman's time: the Barlow Clowes case took more than a year, and as the Chancellor said at the time, it took a year to establish what was already known. The ombudsman has already looked into this problem, but not with great success—indeed, many of the key points were subsequently contradicted by Penrose. I believe that there is a simpler way of dealing with it.

Mr. Beard: Has not the parliamentary ombudsman said that she could find no instances of maladministration? That is why she found as she did. Surely that demolishes the elaborate case that the hon. Gentleman is attempting to build up.

Dr. Cable: As I recall it, the parliamentary ombudsman was examining the period covered by the Baird report with respect to the role of the Financial Services Authority. Most of the maladministration seems to have occurred in the early and mid-1990s. That is the period that someone would have to investigate. If it were not to be the parliamentary ombudsman, who would it be?

My suggestion is simple and practical. The Chancellor or the Financial Secretary could simply write to Lord Penrose, asking him—because he was immersed in the subject—to provide a judgment on whether or not maladministration took place. He could be asked to respond within three months. If the Financial Secretary is right, I suspect that he would reply, "I don't need three months. I don't need to spend my time and your money because I don't believe there is any maladministration." Why cannot the Financial Secretary take that small additional step to clarify and prove her point?

Ruth Kelly: If the hon. Gentleman had spent more time on the concluding chapters of the report, he would have seen that Lord Penrose said:

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He also said that, if he had gone down the route that the hon. Gentleman suggests, he could not have concluded his inquiries within a time scale that had regard to the public interest.

Dr. Cable: It is difficult to understand why Lord Penrose would have been constrained, as all the information is in the public domain and is set out at great length in the report. That is the raw material that would have been available to the parliamentary ombudsman, who also would not have been able to call on further information.

Mr. Garnier: Is the hon. Gentleman not puzzled by the Financial Secretary's intervention? She has suggested that people should take their disputes to court, but would not that mean that she was multiplying—in spades—the adversarial nature of any inquiry that a court would engage in, not to mention the costs involved?

Dr. Cable: The hon. and learned Gentleman is right, and I asked about the court in an earlier intervention. The Financial Secretary replied that that was a complicated legal argument that she did not wish to get into. The legal argument may be complicated, but Equitable Life has sent out a very large number of letters on this matter. I shall read an extract from a letter sent to my hon. Friend the Member for Cheadle (Mrs. Calton). The extract covers Equitable Life's response to the proposal that the matters be taken to the court and to the financial ombudsman.

I suspect that the Minister is not entirely familiar with the idea that the financial ombudsman is a mediator who cannot mediate unless both sides are willing. The letter makes very clear the view of Equitable Life about litigation and the financial ombudsman. In respect of legal action, it states:

From the outset, Equitable Life denied that it would be willing to engage in any form of mediation through the financial ombudsman service. It made it clear that it had already covered itself in respect of action through the courts. The invocation of the courts is therefore a completely false trail, which would cost many people large amounts of money to no effect at all.

Another issue in relation to compensation needs to be clarified.

Mr. Gardiner: If it is a completely false trial, why does the hon. Gentleman think that Lord Penrose commented on it in his report?

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Dr. Cable: The report's conclusion is unsatisfactory in that respect. Lord Penrose does not suggest that he was aware of what Equitable Life had said about the limits of litigation but, if the hon. Gentleman knows the reference, I should be happy to take it.

Mr. Gardiner: I do not know the reference, but I hope that the hon. Gentleman is not suggesting that Lord Penrose was not aware of the arrangement made between policyholders and Equitable Life about giving up their legal rights.

Dr. Cable: I do not know whether he was aware of that or not, but he seems to have urged a course of action that the overwhelming majority of policy holders would not be able to pursue in any circumstances. To that extent, the recommendation—if that is what it was—was not terribly helpful.

The issue of the money is also important. If a compensation claim were to be made, through the courts or, in some other way, through the ombudsman, a basic question must be answered. How much have the policyholders lost—a lot, or a little? Penrose was clear that the loss had been substantial. He said:

How great is that real financial hardship? I tabled a question to the Financial Secretary some weeks ago to see whether she could put in the public domain some estimate of the costs. It is clear how they could be calculated. One would look at particular groups of policyholders on the basis of all the evidence that is now available, taking into account the different maturities and types of policy, and compare them with the average. I know that the Financial Secretary was happy, in principle, to put that information into the public domain.

I have now been told that the information cannot be disclosed for reasons of commercial confidentiality invoked by Equitable Life. I was sufficiently concerned by that conclusion to ring the chief executive this lunchtime and ask him why the information could not be made available. I was told that it would be too difficult to provide it. However, it was not too difficult in the golden days when Equitable Life was outperforming the rest of the industry.

The company is no longer willing to disclose the information, which leaves two worrying conclusions. It might be that there were no serious losses, which is possible but implausible. Certainly Lord Penrose did not think that. The alternative is that the current management is so embarrassed by its performance that it is not willing to release the information. However, that information is crucial to the policyholders in making their case, whether for a further inquiry by Penrose or the ombudsman, in the courts or by some other means. That is a serious dereliction of duty by the company now, let alone in the past.

Chris Grayling: I agree that it is a dereliction of duty by the company. Moreover, an organisation that is no longer open for new business, and is therefore not

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trading in the conventional way that other companies and organisations in the sector are trading, should not use commercial confidentiality as a defence, because it does not apply as it would to any other organisation competing in the financial services industry.

Dr. Cable: That is a good point that I had not thought of, and it may be an avenue to pursue through the FSA or directly through the Financial Secretary. I thank the hon. Gentleman for that intervention.

An important point was raised by the hon. Member for Tiverton and Honiton (Mrs. Browning), when she suggested that the company could now slide towards insolvency. I was worried when the Financial Secretary made her original statement, because on more than one occasion she referred to the possibility of compensation by that route. It would certainly be an easy way out for the Government if compensation had to be paid by the industry and not by the Government. However, it is important to reflect on the implications.

If the industry scheme were to be brought into effect and had to provide substantial compensation in the event of insolvency, we have to ask where the money would come from. In principle, it could come from shareholders' funds in the insurance industry, but some of the leading insurers are mutuals and do not have any shareholders. Whatever happened, many individual policyholders in the insurance industry would end up footing the bill for the disaster. That would come at a time when some participants in the industry are struggling themselves with much tougher insolvency rules imposed by the FSA. My final thought is purely speculative. The Government think that they have drawn a neat line under the episode, but if they force the industry to fund compensation, we could see a cascade effect that caused far greater damage than the original Equitable Life disaster. That is why the Government must think much more constructively about examining the question of maladministration and the consequences of that.

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