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Mr. Plaskitt: My hon. Friend is absolutely right. My constituents, and, I am sure, his constituents and others, want to know what happens now. However, unless we understand fully the history of how things happened, we cannot work out correctly what must happen next. That suggestion was put to Lord Penrose as part of his terms of reference. He was asked to advise on what lessons should be learned, and what action should be taken. Action is under way—the ombudsman is undertaking work and there may be court actions. Lord Penrose himself suggested that the situation would eventually lead to litigation. That will be a lengthy process, but without the facts and the history before us, we could never determine what the next steps should be.

One important step is getting the regulatory system right, and the Financial Services Authority has introduced significant changes. Again, we asked Lord Penrose for his view because, having looked into the matter and unearthed important evidence of regulatory

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system failure, he could judge the current regulatory system against previous shortcomings and determine whether things have improved. In his evidence he was clear that they have, and pointed to resource improvements. For example, there are now twice as many regulators working on the regulation of life insurance companies. I reflected on that when Opposition Members intervened on this subject—I wondered whether the bowler-hatted bureaucrats who feature in their party's recent campaign efforts included the additional regulators who were appointed. If they are suggesting that those people should be removed again, we will slide back to the excessively light-touch regulation that contributed to the problem in the first place.

Secondly, Lord Penrose acknowledges that the organisational structure of regulation is now far better. Different skills are working together and are located in the life offices—a complete change from what happened before. Lord Penrose welcomes the regulatory system changes referred to as the "twin peaks" arrangement—traditional paper-based solvency investigation and measures allied to the broader factor. When he looks at the regulatory system in place now, he concludes:

"My clear impression is that the approach now being adopted is a very considerable improvement on what there was before."

That will reassure constituents who want to know whether the lessons have been learned from the whole tragic affair.

Chris Grayling: The hon. Gentleman should go back and talk to his constituents who have been affected. I have no sense that constituents who have written to me have the slightest concern about the regulatory system. What they want to know is what is being done about their position. The Penrose report specifically states that compensation was not an issue that he considered or was asked to consider. If the hon. Gentleman is arguing that regulatory failure contributed to what happened—he is now explaining why the improvements that he says his Government introduced have made a difference to that—does he not therefore think that a proper investigation into the question of maladministration would now be appropriate?

Mr. Plaskitt: We have had an investigation conducted by Lord Penrose into the regulatory system failure. The other questions are entirely separate. We have rehearsed many times in the course of this discussion how those will be taken forward. The hon. Gentleman is right. Our constituents want to know that, but I do not think he is suggesting that there should be a Government-underwritten compensation scheme. If he is suggesting that, he needs to explain how we will overcome the moral hazard issue that such a scheme would raise.

To conclude, we have a story of manipulation, concealment and misrepresentation by Equitable Life. We have evidence of a domineering and manipulative chief executive, an inert board and institutional laziness and complacency, all underpinned by an inadequate regulatory system that was itself endorsed by policy decisions designed to prevent appropriate regulation coming into place. In the course of reading Lord Penrose's report one comes across a paper written by Mr. Ranson of Equitable Life delighting in the title,

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"With Profits Without Mystery". From the perspective of Equitable Life's policyholders, it is more a case of "with losses without honesty".

7.43 pm

Chris Grayling (Epsom and Ewell) (Con): Despite the differences of emphasis in the debate tonight, hon. Members in all parts of the House are united in the view that the case of Equitable Life has been a tragic state of affairs that has caused problems not just for those who have lost money as a result of what happened, but for the whole country. The entire financial system on which the pensions of the future and the security of many of our people depend has been challenged and weakened by what happened with Equitable Life.

I agree with the hon. Member for Warwick and Leamington (Mr. Plaskitt) that lessons need to be learned. We need to understand what went wrong and ensure that it cannot happen again. To that extent we may agree, but as for the rest of his comments, and the comments of the Minister and other Labour Members, I find it depressing and disappointing—and I know that my constituents who have suffered in the affair will find it equally depressing and disappointing—that the Government's only real response in the wake of the Penrose report is to try to focus the criticism on the regulatory regime before 1997, and thus on the Conservative Government.

We need to set aside party politics, understand what went wrong and explore still further the questions that remain unanswered. We must provide real responses that our constituents will understand and that will leave them with a sense that their anxieties, questions and complaints are being properly addressed and not, as I fear, left to one side. As I listen to Labour Members, I am left with the sense that my constituents' concerns are being left to one side.

I received a letter just this morning from one of my constituents and it is difficult to argue against the simplicity of what he says. He writes:

"Equitable Life was at one time highly respected being the oldest mutual life office in the world. The management certainly made mistakes and behaved in an arrogant manner but it is up to the Regulator to protect the Public's interest. It is after all what he is there for!"

It is clear that the regulator, in whatever shape, form or system, did not fulfil that remit. Ultimately, as I said to the Financial Secretary in my intervention, even up to the latter days before the House of Lords judgment, even when discussions were taking place between the Treasury, the FSA and Equitable Life, my constituents and others around the country were still being sold policies that would quickly turn into a disaster for them.

The reality was that, throughout the process, from start to finish, people were let down by the system and the regulation, as well as by the management of the organisation itself. That the Financial Secretary should set her face against the simple question of whether there was maladministration is extraordinary and inexplicable. I cannot for the life of me see how she believes that she will benefit politically. Out there are thousands of people who are waiting upon her decisions, waiting upon the views and decisions of the House, who

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believe that it would be right and appropriate for there to be an investigation into whether there was maladministration, and it is simply not happening.

Lord Penrose is clear in what he says. The Financial Secretary intervened on the hon. Member for Twickenham (Dr. Cable) and quoted the last sentence of paragraph 77 of chapter 20 of the report, but at the beginning of that paragraph Lord Penrose states:

"Many readers of this report will be frustrated that it has not provided answers to two questions: who is at fault for the problems encountered by the Society, and who deserves redress as a consequence? It has been no part of this inquiry to attempt to answer either question."

He goes on to say:

"The first inevitably involves issues of the scope of duty and of breach of duty that I was not asked to consider and that I would have been unwilling to consider as part of an inquisitorial process."

So not only was Lord Penrose not asked to deal with, and did not deal with, those issues, he believed that that aspect of what went on should not have been part of his remit. Surely, if nothing else, he is arguing in support of the requests of my right hon. Friend the Member for West Dorset (Mr. Letwin) and of others inside the House and outside it for a simple process that asks the question: was there maladministration?

There has been debate over the ombudsman's ability to provide a proper assessment of what happened. It has been suggested that the Government Actuary's Department is not within the ombudsman's remit and therefore there is nothing that the ombudsman can do. But as my hon. Friend the Member for Chichester (Mr. Tyrie) has made clear, the reality is that, if the House were united, those changes, adjustments to the system and changes to the remit of the ombudsman, could be pushed through quickly. The disappointing thing, of course, is that that united support does not exist within the House.

I want to press the Financial Secretary on her challenging of the regulatory regime that existed before 1997. I looked back today at the letters that I have received from constituents about their experiences of what went wrong and I have read carefully the sections of the report that walk us through what happened after 1997. It is clear that discussions were taking place within the Treasury when it took over the role of regulator after 1998, and then within the FSA when it took over the job of regulation shortly after that. There were robust debates and serious questions were being asked about the solvency of Equitable Life.

When the Minister made her statement to the House a couple of weeks ago, she referred several times to discussions that took place in the years up to 2000–01. She will remember referring to information about reinsurance being withheld from the regulator, which she said took place in the latter days of the last decade. That happened under the new regime, albeit in its infancy as an alternative system. Such questions as, "Where did the regulatory system fall down?" must, by definition, apply as much to what occurred after 1997 as to what took place before 1997.

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I have read various sections of the report, which the Minister will know better than I do. Chapter 17, page 611, specifically refers to

"a meeting called at HMT's request to discuss the Society's approach to the annuity guarantees and the solvency implication of reserving for them."

The Government Actuary's Department addressed the solvency issue shortly afterwards in a document produced in December 1998, saying:

"While this is reassuring it should be realised that publication of such a low solvency position is likely to severely undermine the company's reputation in the market and could threaten its survival as an independent entity."

At that point in 1998, serious discussions were taking place within the Treasury about whether Equitable Life was founded on stone or sand. Yet, when I read the letters from my constituents, I found that a significant number of them began their involvement with Equitable Life at that time. Those people did not take out policies in the 1970s or 1980s but were sold policies right up until the turn of the decade, and even beyond, and they lost money.

Among those letters, I found an example of a constituent who challenged some of Equitable Life's operational practices. He made a number of claims about how policies were sold to him, and, indeed, denied ever signing contracts with Equitable Life. None the less, he was placed under heavy selling pressure by Equitable Life salesmen in 1999 who were trying to persuade him to take up business with them. Some 25 to 30 per cent. of the people who wrote to me to complain took out policies at the end of the 1990s, and I cannot understand how the Minister can turn round to them and say, "There was a dodgy regime in place before we took office. We did something about it, and that is the end of the matter." That is essentially the message that the Government have given to my constituents. I ask the Minister to think again about the sole message that this House is sending to all the people affected in my constituency, her constituency and those of other hon. Members: "The regulatory regime did not work. We have changed it so it will all be fine for the future."

There is also the question whether operational failure led directly to financial loss. I must say that I was surprised by Lord Penrose's comment that there was no direct connection between regulatory failure and financial loss. If that were the case, why, when the Treasury and the FSA were discussing the solvency of Equitable Life, was the society still permitted to go out and sell policies to my constituents, who, within a very few years, suffered substantial financial loss as a result? The Minister may shake her head and smile, but my constituents will not understand why the regulator was not involved in what happened to them. Surely the House has a duty to see the matter through to the end. We have a duty to all those who lost money to look in every corner for what may or may not have happened. They are asking us to send the case back to the ombudsman for a proper investigation into whether there was maladministration. Is there really any reason why the Government should not say yes to that investigation?

I suggest to the Minister that there is a danger that, as she sits in her office in the Treasury considering regulatory issues, she may take her eye off the real ball—

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the fact that thousands of pensioners out there have lost money and their retirements will not be the same. We have a duty to them to see this through to the end by granting the investigation to determine whether there was maladministration and whether they have a case for compensation. If she fails to do that, she will let down not only those people, but this whole place and the whole reputation of politics and Government. She must change her mind, she must send them the right message, and she must do it now.

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