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7.55 pm

Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): Like every other Member, I have constituents whose pension plans and retirement aspirations are much reduced as a result of the Equitable Life fiasco. I have an interest as a representative of those constituents and a further interest as chair of the all-party group on building societies and financial mutuals.

I join the Minister and other Members in expressing sympathy for those people affected by this fiasco. That was brought home to me today when I had coffee with a distinguished member of the local business community, who confided in me that he was still working only because Equitable Life had not delivered on his pension and, in turn, his retirement plans.

On compensation, the Government's response is consistent with that which took place following other pension fiascos and, on some occasions, scandals. Nobody can argue that the Government cannot underwrite risks, then say that Equitable Life is a special case, given that Penrose himself blames the company, not the regulators. I look back to the Maxwell scandal at the Daily Mirror. I appreciate that the pensioners affected by Equitable Life have been badly hit—in some cases, the impact has been devastating—but it was exactly the same for the Daily Mirror pensioners. There were huge issues of corporate governance in that case, too, but the Government did not rush in to compensate.

Another such episode, and another sorry legacy of the former Tory Government's regulatory regime, was that of pensions mis-selling. On that occasion, the industry itself had to compensate people who were sold pensions on false pretences. If the Government were to step in on this occasion, I wonder whether the companies that paid out that compensation would come to them to demand that they underwrite the bad management and mis-selling that took place all those years ago.

Mr. Letwin: Of course, everybody recognises that in many cases no question of compensation arises, but does the hon. Gentleman recognise that the distinction lies in the question of whether there was maladministration? That distinction was recognised by Parliament and by the current Chancellor in relation to the Barlow Clowes case, in which compensation was payable because maladministration was ascertained.

Mr. Bailey: Penrose says that there was no maladministration in this case. Frankly, many of the constituents whose perspective Conservative Members have assumed will not understand the subtleties and refinements of whether that is so. The fact is that they took up schemes that, one way or another, did not deliver on their pension aspirations.

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My hon. Friend the Member for Edmonton (Mr. Love) made a valuable point about the statement made earlier this month, when he noted that the Financial Times expert had said that, even after all the problems, some of Equitable Life's returns were no worse than those of some other companies, so how could we justify compensating those pension holders and not those in other companies that had failed to deliver for totally different reasons? That would be difficult to justify.

I want to deal with my concerns about the mutual sector. It has been pointed out on a number of occasions that the problem at Equitable Life related to management. The quote often given from the Penrose report is that

Central to that was the fact that the chief executive officer was also the actuary, and that the company pursued a policy of failing to keep adequate reserves, overpaying bonuses and failing to keep the board informed of the position and the risks involved.

The report also makes it clear that the critical responsibility for valuing liabilities, assessing the liability implications of new products and identifying risk was discharged by a discrete part of the organisation that was not subject to effective scrutiny or challenge. Obviously, monitoring needs to be improved, and improvements are also needed in corporate governance. We must be clear, however, that because this organisation was a mutual, policyholders did not see their obligation as one of scrutiny, as might be the case for a shareholder in a conventional plc. This distinction was pointed out in Penrose. Most policyholders who take out a policy in a mutual see their obligation as simply to pay a premium, but to have no extra responsibility.

Under the articles of Equitable Life, the policyholders were effectively powerless. My hon. Friend the Member for Edmonton made the point about their registration under the provisions of the Companies Act 1989, which provide for a 10 per cent. vote to get a special meeting. That is, of course, impossible if there is no adequate register or access to a register for policyholders. Mutuals have to find a means whereby they can provide for policyholder participation.

I welcome, as do other mutuals, the Treasury initiative set up by Sir Paul Myners to look into corporate governance and policyholder representation in mutual life offices. The Minister has already set out the terms of reference, so I will not go over them again. It is fair to say that the mutual life assurance industry accepts the need to take action to improve representation by policyholders. We must make it clear, however, that the situation at Equitable Life arose not because it was a mutual but because the management policy was bad and, indeed, not even compatible with the basic principles of mutuality.

The initiative raises the challenge to ensure that the corporate governance of mutual life offices provides the necessary checks and balances to ensure that a saga such as this is never repeated. I am sure that there will be a dialogue between Sir Paul Myners and the mutual sector to ensure that steps are taken to prevent any such repetition.

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I want to conclude by making these particular points. Equitable Life has reached this situation because of poor management, not the structural issue with mutual ownership. That could happen with plcs. Independent Insurance went bust, despite the fact that it was a plc. There is no guarantee, even with a plc, that shareholders will bail it out and there are plenty of examples of shareholders letting a plc collapse.

The mutual life offices recognise the fact that this episode highlights issues of governance and involvement of policyholders, but we must make it clear that it is a one-off. Equitable Life is not representative of the mutual industry as a whole and it is as anxious as anybody to ensure that its rules and procedures prevent any repeat of this with a mutual company.

8.6 pm

Mr. Edward Garnier (Harborough) (Con): If the only pension arrangements people have are with Equitable Life, they are likely to think that it is representative of the mutual system, so I am not at all sure that the perhaps not intentionally but none the less effectively complacent attitude with which the hon. Member for West Bromwich, West (Mr. Bailey) finished provides us with a helpful analysis of where we are.

I want, if I may, to pick up, but not too seriously, a point made by the hon. Member for Warwick and Leamington (Mr. Plaskitt). He thought that Lord Penrose was the first judge to appear before a Select Committee for 40 years. I was on the Home Affairs Committee in 1992–93 and judges regularly appeared before it. Of course, judges chair Select Committees in the House of Lords.

If this were the Court of Appeal, and it is not, and Lord Justice Letwin as opposed to my right hon. Friend the Member for West Dorset (Mr. Letwin) had given judgment as opposed to having made a speech, I could say, "I have heard what Lord Justice Letwin says and I have nothing further to add." However, he has not given judgment. We are in the House of Commons and I am here to represent my constituents and to say what I believe ought to be done in a political sense as a consequence of this fiasco.

I have already declared my interest as the former holder of a number of Equitable Life policies. I continue to hold, I think, one further policy with it, so clearly I have been affected, and may continue to be affected, by what has happened. I have not yet reached the stage at which I am prepared to be as generous as my right hon. Friend in the event of compensation being provided, but I put that to one side.

Many of my constituents, like those of other hon. Members, have been affected by this disaster. Some are members of the Equitable members action group and some are not, but all have been adversely affected. The number runs into the hundreds—we are not talking about just one, two or three isolated individuals.

The dilemma that my constituents face is exacerbated when one considers that those people are not in a position to repair the damage done to them. They are, by and large, at the end of their working life or have finished it, so they do not have the economic ability to

24 Mar 2004 : Column 1012

get another job to refill their pension pot. I accept that not every injury commands a remedy. Plenty of people suffer accidents, be they financial, commercial or physical. Those do not require compensation, but we are considering rather different circumstances.

I can say on behalf of my constituents that all who have been affected by this disaster welcomed the setting up of the Penrose inquiry and, to a greater or lesser degree, they have welcomed its findings. However, where they, and I on their behalf, complain is in respect of what the public authorities have done and propose to do. What they—my constituents—say about the management of Equitable Life is unprintable. Disquiet is growing, however, about the Government's response, and I regret, as I have huge respect for the Financial Secretary, that that disquiet will be in no degree lessened by her response in her statement on 8 March or in her opening speech today.

The appearance—I can put it no higher than that—which comes not only from the Government but from other agencies, is that all is well, all the mistakes were in the past, and that that is all that needs to be done about it. I note that the Financial Services Authority's press release, which enclosed the letter that the chairman, Mr. McCarthy, wrote to the Financial Secretary on 8 March, says, under "Notes for editors":

My constituents are entitled to ask whether the FSA, in its handling of this affair, has come up to its remit.

The chairman of the FSA, in his letter to the Financial Secretary, says that Lord Penrose

Some other adjudicator, as was pointed out by my right hon. Friend the shadow Chancellor and the hon. Member for Twickenham (Dr. Cable), could mean a reborn Penrose. He has already found facts, and he is tremendously well placed to be that other adjudicator. I am depressed, however, that the chairman of the FSA thinks it appropriate—as does the Financial Secretary, I fear—to require our constituents to go to court to seek redress.

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