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Mr. Barnes: Does the hon. and learned Gentleman feel that the Government could be involved in a compensation scheme that was in some way based on need? Different people are in different sets of circumstances—I am not sure whether I want to see him compensated, but numbers of his constituents might be much more deserving cases because their pensions and future provision have gone, and they might therefore be reasonably considered by the Government to be on a list for some percentage of compensation.
Mr. Garnier: I was simply making my personal interest clear, and I do not wish to personalise this debate at all. I can see that there is some argument to be
made, and the telling question from the Labour Benches was that asked by the hon. Member for North-East Derbyshire (Mr. Barnes): what are the Government going to do? Were it to involve some form of means-tested compensation scheme, let us look at it. That is an advance from him, however, which we have not yet heard from his right hon. and hon. Friends on the Front Bench. At least he is addressing his mind to the real moral and political questions which this debate throws up, and which I fear that the authorities and the Government are ignoring.It seems to me that the Government are hiding behind the Penrose report. The Financial Secretary quoted large chunks—she spent about 20 or 30 minutes doing so—of the report at the beginning of her speech. That is not difficult. The more difficult political and moral question is to ask what flows from the findings of fact that Lord Penrose has made. I have heard nothing from the Government other than that my constituents are urged to go to court, but this Government have removed access to legal aid, and therefore access to the courts, for these much-put-upon people. Any court case would take years to prepare, and if not a year, certainly months to reach a conclusion at trial.
We need only look at the current court case involving the BCCI scandal, which took place some years ago, to realise that. It will take the High Court many months to dispose of that case—and given that one party is bound to be dissatisfied with the result, it will go to the Court of Appeal and, no doubt, to the House of Lords. So we are not looking at an easy way out, however easily the words "go to court" trip off the ministerial tongue.
What else did the Minister say? She said "We have set up the Myners review and the Morris review." I should have thought that the House was fed up with hearing the Government talk about reviews. They have had more "reviews" than Raymond. It is time that they started to do something rather than pushing issues over the political horizon.
We are all immensely grateful for what Lord Penrose has done, but what a judge cannot do is provide a Government with political answers. We saw that with the Scott inquiry and the Hutton inquiry, and we are seeing it with the Saville inquiry. We have four judges who have held, or are in the process of holding, well-organised and well-designed inquiries, and they do their job; but they do their job as finders of fact rather than as providers of political and economic answers. It is wrong of the Government to say "Penrose has reported: we need do no more."
I believe that this saga points to a need to do away finally with the compulsory annuity system. The Minister and I debated that at some length last year, and I might remind her that my Retirement Income Reform Bill achieved a Second Reading by a majority of 101—not bad for a private Member's Bill, if I may say so.
What this whole saga demonstrates is that the Government are failing to get a grip on the underlying problems of financial provision for the elderly. I have a number of elderly constituents who will be financially severely embarrassed as a consequence of this disaster. It highlights the need for liberalisation of the way in which people can invest for their retirement. The Government insist that people should be forced to buy annuities with their pension pot at 75. If the public are
no longer prepared to trust financial institutions, for goodness' sake let them choose their own means of saving and investing for their retirement—and while they are about it, I urge the Government to listen very carefully indeed to what has been said by my right hon. Friend and the hon. Member for Twickenham. There they may find an escape route, and I urge them to burrow into it.8.18 pm
Mr. Barry Gardiner (Brent, North) (Lab): I know that others wish to speak, so I shall curtail my remarks.
Rarely does the failure of a company have an impact on so many lives in such a personal way as has the mismanagement at Equitable Life. More than 1 million policyholders have been affected, and the reputation of a whole industry has been tarnished. The constituents of mine who were unlucky enough to be policyholders tell me of the financial difficulties that they suffer as a result of Equitable Life's mismanagement, and the financial insecurity that that brings them. Many had saved solely with Equitable Life because it had a good name and they believed that the Government of the day had put in place an effective regulatory system. In fact, as with many investors, they were wrong. Despite rapid change and evolution in the market, the then Government failed to make substantive changes to the regulatory system.
In his detailed report, Lord Penrose notes that in 1988, nine years before the current Government took office, a Department of Trade and Industry Minister—the right hon. Member for Bromley and Chislehurst (Mr. Forth)—made a conscious decision not to update the regulation of life insurance. It was just one of a catalogue of decisions to continue that Government's light-touch regulatory system, which was in the end to have such a disastrous effect on my constituents and so many others throughout the country.
The 1988 decision was compounded by decisions in the early '90s that saw Conservative Members lobbying against changes that would have made the Equitable fiasco at least remote, if not impossible. The Government of the day lobbied against a Brussels directive that would have placed a statutory responsibility on companies to set aside reserves for terminal bonuses. The then Government viewed that as overly cautious, and suggested that a tougher regulatory system would have created too much red tape. Perhaps Conservative Members could therefore explain to my constituents, who are indeed cautious and save diligently, what would have been over-cautious about offering them protection and asking companies to abide by the most basic process of reserving.
Mr. Barnes: My hon. Friend is correct in pointing to the previous Conservative Government's errors and omissions. However, if the Conservatives were still in office now that Penrose has revealed all these errors, what would have to be done, and would that Government not be obliged to move towards compensation? What difference is there because we have a Labour Government? We have to pick up the mess that the Conservatives left us in.
Mr. Gardiner: My hon. Friend makes his own points, but I would hazard that if it were the case that
Opposition Members were now on the Government Benches, we would never have had a Penrose report, because they would have known full well what it would show.In some cases, it is possible to say that hindsight makes our vision somewhat clearer, but I do not believe that that was the case in the regulation of the financial services industry.
Mr. Gardiner: I shall not give way, because I need to make progress. The right hon. Gentleman has had plenty of time to make his points this evening, and he was not as generous as my hon. Friend the Financial Secretary in taking interventions.
I do not believe that that was the case with the regulation of the financial services industry, because it would be too generous to say that Tory failures properly to regulate the financial services industry could be explained only with hindsight. I say that because other financial services organisations had already realised the need for more effective regulation. By 1986, regulation was already in place to support the wish of the Association of Friendly Societies to offer a voluntary compensation scheme. That scheme, which guaranteed 90 per cent. of a guaranteed policy, was already operating successfully and could have been used as a role model, yet the then Government decided not to move forward with a similar scheme. I am pleased to say that the current Government saw the need for such a scheme and introduced the financial services compensation scheme as part of the Financial Services and Markets Act 2000. That scheme protects consumers if companies become insolvent now.
In 1997, this Government inherited a hotch-potch of a regulatory system from the previous Government, who favoured cutting red tape over protecting consumers. Neither I nor this Government want more red tape, but I do want effective regulation. Conservative Members play a devious game when they portray all regulation as red tape, as they have recently in the Chamber. As someone who spent 10 years running a successful business, I understand the impact that red tape can have on a business and how it can stifle a company's competitive edge, but I also understand that with ineffective regulation it is usually the big firms that benefit, not the small consumers. Large investors can spread their risk and hedge their bets; small investors cannot and do not.
In his report, Lord Penrose concluded:
- "Principally, the Society was the author of its own misfortunes."
The Opposition's position is fundamentally this: they want to parade themselves as the champions of the policyholders, but they do not want to find themselves committed to compensating those policyholders should they ever be in government. That is why they have suggested the device of an inquiry to establish whether there was maladministration and whether compensation is therefore due. That, however, is a specious argument, which does them no credit—and I make my points because of the logic of the shadow Chancellor's own arguments. The Opposition claim not merely that there was an inadequate regulatory system, but that the operation of such a system as there was, was itself inadequate. If they are convinced that operational failure occurred, why do they not follow their own logic and say that there was also maladministration, and that compensation is therefore due? The answer is that it is difficult for them to justify a commitment to spending upwards of £3 billion in compensation to policyholders when they are already committed to cutting £18 billion off the police, defence, housing and education budgets.
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