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Mr. Tyrie: If the Financial Secretary looks at the Parliamentary Commissioners Act 1967, she will find a specific section that enables her to do so, and it is absolutely incredible that she should be denying that. I hope that I can find it—oh I can—how convenient. It states:

"A complaint under this Act may be made in respect of matters which arose before the commencement of this Act".

I have been advised that a complaint can therefore be made that relates to matters that occurred before the commencement of an amendment to the Act.

Another crucial passage in the Act says that

"a complaint not made within that period"

may none the less be considered if

"there are special circumstances which make it proper to do so."

So the ombudsman can make her own discretionary judgment on that matter.

Ruth Kelly rose—

Mr. Tyrie: I should like the Financial Secretary to answer the point that has been made, instead of trying to interrupt, because hundreds of thousands of people want her to make an intelligent reply.

8.49 pm

Ruth Kelly: We have had an interesting debate with some passionate contributions on each side of the House, including from my hon. Friends the Members for Brent, North (Mr. Gardiner), for Warwick and Leamington (Mr. Plaskitt) and for West Bromwich,

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West (Mr. Bailey). Before responding to the debate, I should make it clear to the House that I have not presented my findings or the Government's findings, much as some hon. Members have tried to insinuate that that is the case; I have presented Lord Penrose's account. Tonight, I have found that the real position of the Liberal Democrats is that Lord Penrose's report is unsatisfactory, and that the position of the official Opposition is to try to attribute to Lord Penrose a view that he does not hold. I shall shortly deal with each point raised by the right hon. Member for West Dorset (Mr. Letwin).

First, I must dispel some myths that have been raised during the debate. Lord Penrose is absolutely clear that it was not the guaranteed annuity problem that led to the society's financial crisis in 2001. He says that, superficially, a £1.5 billion additional liability

"should not have brought down a society"

with funds of £32 billion. The issues that he identifies are deep-rooted and go back 30 years into the history of the society. He says that, primarily,

"the Society was author of its own misfortunes."

Hon. Members in all parts of the House are agreed with Lord Penrose that, with hindsight, it was

"the system that failed to provide the regulation that changing circumstances . . . required, not that there was failure to implement what was fundamentally a satisfactory system."

Nevertheless, I believe that the House should reflect carefully on the fact that that was the system that Ministers and Parliament had intended.

The difference between the two sides of the House tonight arises on whether there was operational failure that led to economic loss by policyholders. Lord Penrose has not presented in his report evidence of operational failure. I quote:

"The deficiencies are not so obvious as some are inclined (or wish) to believe . . . and it is not enough in this case, to infer from the coincidence of systems deficiencies and loss that one caused or contributed to the other."

He stresses that he examines the regulators with the benefit of hindsight and that they were operating under a system that was different in approach, resources and values from that which applies today. I think that the House should reflect carefully on the fact that it is a question of the laws that Parliament enacted and the context in which Ministers resolved how those laws should be implemented that Lord Penrose criticises, rather than the discrete actions of the regulator.

Let me deal with the points raised by the right hon. Member for West Dorset. First, he tried to insinuate that because the level of skills needed to be upgraded after the FSA was instituted, that was itself a sign of operational failure. However, if he had done his homework and read the report more fully, he would have read Lord Penrose's view of that issue. I quote from chapter 13:

"Ministers resolved . . . that scrutiny would continue to be based on the examination of the regulatory returns, and that action on the basis of policyholders' reasonable expectations would be reactive to what was found in the returns so as to restrict the workload that a less restrained approach would involve."

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It was that which led deliberately to the under-resourcing of the DTI. Lord Penrose goes on to make the link by stating that the DTI was

"ill-equipped to participate in the regulatory process. It had inadequate staff, and those involved at line supervisor level in particular were not qualified to make any significant contribution to the process."

Lord Penrose himself is clear that that was not operational failure but a deliberate decision taken by managers, and when he was asked in the Select Committee on the Treasury about systemic failure, he said that those issues were aspects of the same problem. He is absolutely clear about that point.

Mr. Tyrie rose—

Ruth Kelly: If the hon. Gentleman listened, he might hear the quotes from the Penrose report. I must put the points on the record before the end of the debate.

The right hon. Member for West Dorset referred to chapter 19 and paragraph 187, which is about subordinated debt. If he read the Penrose report more closely, he would see that Lord Penrose says of that episode:

"The authorisation was within the scope of the relevant regulations and guidance. I do not criticise any of the formal steps taken or the propriety of the order granted."

The right hon. Gentleman went on to refer to paragraph 117, which is about the failure to appreciate a change of valuation assumptions in the regulatory returns. The practice adopted between 1990 and 1997 by Equitable Life of using different interest rates for valuing its assets and liabilities was within the regulations of the time. As they were within the regulations, regulators had no grounds to challenge the decision—again, there was no evidence of operational failure.

Mr. Tyrie: Will the hon. Lady give way?

Ruth Kelly: No, I must make my points before the end of the debate.

The right hon. Member for West Dorset cited paragraphs 240 and 228 of chapter 19 about the general failure by regulators to follow up issues and the ineffectiveness of challenge. Again, we can trace Lord Penrose's comments back to under-resourcing—a decision was deliberately taken by Ministers in the DTI to restrict the work load that a less restrained approach would involve. As Lord Penrose says, individual regulators

"operated in good faith and to the best of their abilities within the system as they found it".

The right hon. Gentleman also cited paragraph 209 of chapter 19 about the information obtained, which was not used to form a realistic appraisal of the society's financial position. Had he looked back a couple of paragraphs he would have found that Lord Penrose deliberately makes a link to the Government's success in watering down the third life directive and the fact that a paper-based approach remained in place. He said that that approach had "other consequences" and made a link to the episode. Again, it was a policy decision, not an operational failure.

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Many hon. Members have raised the question of the ombudsman's remit and her inquiry. You will know, Mr. Deputy Speaker, as will hon. Members, that the parliamentary ombudsman is an Officer of the House, who reports to it and is independent of the Executive and Government. That is an important principle that all hon. Members should abide by. In her initial investigations, the ombudsman chose to examine the FSA's period of stewardship. She could have chosen to examine a different period, but did not. She chose to look at one lead case. She could have chosen a different case, but did not do so. She concluded that there was no case for the Government to answer, and that there was no maladministration that led to loss. The fact that hon. Members do not agree with her conclusion does not mean that they should reject it.

Mr. Letwin: Will the hon. Lady give way?

Ruth Kelly: No, I have two minutes left, and the right hon. Gentleman must let me make my point.

We are determined to protect policyholders. Lord Penrose says that the FSA reforms

"represent a major comprehensive re-assessment of the requirements of an efficient regulatory system".

We are determined not to be complacent. There will be a programme of comprehensive reviews—a review of corporate governance of life mutuals will be led by Sir Derek Morris; a review of actuarial standards of performance will be led by Paul Myners; and a review of accounting standards will be led by the independent Accounting Standards Board. That work, alongside the FSA reforms welcomed by Lord Penrose, will develop the architecture of the life assurance industry for present and future policyholders, and will help to ensure that the regulatory system remains up to date.

We have also pledged to consult shortly on legislation that will protect policyholders from unlimited liability—an issue raised in the Penrose report that we are determined to address. I have also spoken to the financial ombudsman to see whether he needs any additional resources or help from the Government to deal with any consequential claims that may, or may not, arise from Lord Penrose's report. We have learned the lessons—

It being Three hours after the commencement of proceedings, the motion for the Adjournment of the House lapsed, without Question put, pursuant to Order [17 March].

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