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8.25 pm

Norman Lamb (North Norfolk) (LD): I should begin by declaring an interest as a former policyholder. I was one of the lucky ones: I did not have all my eggs in one basket, but the hon. Member for North-East Derbyshire (Mr. Barnes) has reminded us today of the many people who suffered great losses as a result of this debacle. As recently as this week, I received an e-mail from a constituent—he is of modest means—reminding me that he had lost 23 per cent. of his pension, with another 10 per cent. still to go.

I want to draw attention to what many consider to be the misleading nature of the Government's response to the Penrose report, and to look at where we go from here. The Financial Secretary said in her statement to Parliament:

The implication of that is that compensation should not flow from Lord Penrose's findings, but in fact the position is very different: such an outcome was simply beyond his remit. He was not asked to consider it, and he did not consider it. The Financial Secretary then said:

She then prayed in aid the report, which states that

However, when Lord Penrose appeared before the Treasury Select Committee, I said to him,

as saying that

Lord Penrose replied:

I then said,

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That, of course, is the very issue that we are discussing this evening. Lord Penrose replied:

In other words, the question remains to be asked, considered and determined.

In her statement to Parliament, the Financial Secretary made great play of the fact that the regulatory system failures were secondary factors—an issue that the Conservative spokesman raised during his contribution this evening. The Financial Secretary pointed out the report's conclusion that

Indeed, she repeated that point in her evidence to the Select Committee. But as Lord Penrose confirmed to the Committee, it is almost inevitably the case that regulatory failure is secondary. The initial problem is a company that is not behaving properly. It is then for the regulator to sort out that problem, and such action is secondary to the original problem. So to assert that regulatory failure is a secondary factor is merely to state the obvious. The conclusions that the Financial Secretary draws from the Penrose report are therefore not justified.

What does the report tell us? It tells us that there were systemic failures, and it clearly points to a failure to modernise the system of regulation. But it also points in many paragraphs to failures on the part of regulators within a flawed system: in other words, operational failure. Mention has been made of several such examples this evening, and I shall not discuss them given the lack of time, save for one. In talking about the Government Actuary's Department, Penrose says that

That is a pretty damning criticism of how the Government Actuary's Department operated—a matter to which I shall return later.

What has been the Government's response to the key issue of what should be done for policyholders? The hon. Member for North-East Derbyshire constantly reminded us of the centrality of that issue. The Financial Secretary referred to the financial services ombudsman, whose role is to consider individual claims, but also, crucially, to consider individual complaints of mis-selling. That process is wholly irrelevant to all those who have no specific complaints about mis-selling, but have simply suffered a substantial loss as a result of what has happened over the last few years. The more successful the claims pursued through the financial ombudsman service, the more likely it is that the company will be driven into insolvency.

It seems to me that the Government could be accused of being reckless in standing by and allowing that to happen. Should the company become insolvent, the financial services compensation scheme will come into play, which will result in the rest of the industry—particularly the policyholders of other life companies—bearing the cost of this debacle. Is that any fairer than the taxpayer picking up the tab? It seems to me that the one option is no fairer than the other. The Government's response is a recipe for years of litigation and years of claims being made through the financial ombudsman service, with lawyers and no one else being

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the beneficiaries. Surely it would be better to find a more ordered way forward than that suggested by the Government's response.

To establish what job is now required, I go back to what Lord Penrose said in his evidence to the Select Committee. He talked about the gates that one has to go through in law to establish compensation flowing from failure. He talked about establishing a duty of care—first establishing that a breach of that duty had taken place, then establishing what should flow from it. That is what now has to happen. We should attempt to determine what, if any, compensation flows from the regulatory failures identified by Lord Penrose. That is the essential next step, so how can we best achieve it?

The Financial Secretary refers only to the courts as the place where those issues should be considered, but that is simply not an option for most policyholders. We can therefore reflect on three other options. First, the parliamentary ombudsman. It is already clear that in many respects the report already published on a narrow time period has been substantially undermined by Lord Penrose's findings. The parliamentary ombudsman should be prepared to recognise that now, and to re-open her inquiry.

It is my belief that the Government Actuary's Department is arbitrarily excluded from the scope of the parliamentary ombudsman. There is no case in logic for its continuing exclusion. The report is riddled with findings of negligent regulatory failure in respect of how the Government Actuary's Department carried out its functions. That should be remedied by the Government without delay. Not to do so is a cynical exercise designed simply to prevent any challenge to the GAD's exercise of its functions.

My hon. Friend the Member for Twickenham (Dr. Cable) referred to the second option of an extended remit for Lord Penrose. That should be seriously considered. Let us face it, he understands the subject, so he is in the best possible position to look again into the problem of compensation on the basis of the findings of fact that he produced.

Finally, there is the proposal from Peter Martin, a former non-executive director of Equitable Life. He has put forward the possibility of a mediation process involving a retired Law Lord or Court of Appeal judge. In respect of the Penrose report, he suggests that that person would conduct an

and by that he means policyholders, the Equitable Life Assurance Society, the Treasury, the FSA, Ernst & Young and the former directors.

Surely, that process deserves proper consideration. In the Treasury Committee last week, I asked the Financial Secretary two or three times whether she ruled out such an approach. She did not do so, and I hope that she will consider that option seriously, as it seems to me to be a way of avoiding years of uncertainty. Unless we find an orderly way forward, the impact of the Equitable Life disaster—on its victims, and on confidence in the industry in general—will be very severe.

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8.36 pm

Mr. Andrew Tyrie (Chichester) (Con): The only interest that I wish to declare is that I have a large number of constituents who have been deeply affected by this matter. Quite rightly, they remain in close touch with me about it.

Tonight, we should be working out what is to be done for those who have been affected, and how to restore trust in the industry and in Britain's savings culture. We should do that together, and the debate should have been largely non-partisan. However, the problem for the House—and not just for those on the Opposition Front Bench—is that the Government, through their response to the report, have rejected working together to sort the matter out. I very much regret that.

The Financial Secretary is an intelligent and thoughtful woman, and I was very surprised and disappointed by the disingenuity of her statement on 8 March. This evening's debate has restored some balance, and it is worth going through some of the key points that have been raised.

First, there is the question of whether all, or almost all, of the regulatory failure took place before 1997. That is what the Financial Secretary asserted, and in doing so she diminished the Government, and politics, a little. Several annuity holders and policyholders have written or e-mailed me, saying that that is more or less what they expect of politicians. I regret that that is the sort of response that I have had.

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