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25 Nov 2008 : Column 192WH—continued
“a justifiable sense of outrage”
among policyholders. That is not language that Ministers should ignore. Clearly, the Government’s working relationship with the parliamentary ombudsman is dysfunctional if statements as strong as those do not prompt action. That in itself is a situation that needs to be addressed.
Greg Mulholland (Leeds, North-West) (LD): I thank my hon. Friend for her generosity in giving way. Another strong statement is:
“I have lost more money than I care to think about from my pension due to this deception.”
The person who said that was Gordon Brown—not the Prime Minister, but one of my constituents. Does she agree that that Gordon Brown is a little closer to the truth than the other one?
Jo Swinson: My hon. Friend’s constituent makes the point very well indeed.
My hon. Friend raises an important point, because if the report were to be ignored, people would simply ask, what is the point of the parliamentary ombudsman? The role would be fatally undermined. That would be a sad situation for Parliament, a blow to our democratic system and a shameful state of affairs for this Government to have brought about.
Mr. Oliver Letwin (West Dorset) (Con): Before the hon. Lady moves off the question of the precision that the parliamentary ombudsman brings to the task, does she agree that the most important statement to be made in that respect was that there was at least a period during which the regulators were in knowledge of the problem and purposely did not reveal it to the public?
Jo Swinson: The right hon. Gentleman is right. That is a truly shocking state of affairs.
Mr. John Leech (Manchester, Withington) (LD): Does my hon. Friend agree with the sentiments expressed by Tom Winsor, the former UK rail regulator, who suggested that the Government would take notice and compensate if only a small amount of money were involved, but because the amount is large—£10 billion rather than £10 million—they are not prepared to take any notice of the parliamentary ombudsman?
Jo Swinson: It certainly could be so, although I am not sure whether the figure estimated is as high as the one my hon. Friend uses. Whatever the reason, the Government cannot pick and choose on the findings of the parliamentary ombudsman. Surely, they need to accept the ombudsman’s adjudication on a range of issues, even when they do not like the answer.
The Government are under pressure to pay compensation to the victims of Equitable Life’s near collapse. In one sense, that pressure is entirely of their own making. The bank bail-outs of recent months have left the Government in a position in which it is impossible to justify a refusal to pay compensation. Equitable Life policyholders have been waiting eight years. With the Government guaranteeing savings in Northern Rock and putting a rescue plan together for Icesave investors, practically within a matter of hours, Equitable Life customers have been left asking why they are still waiting.
Of course, some cases require greater urgency and Equitable Life is a special case—it is not the same as the banks that have been bailed out by the taxpayer. But these actions will certainly add to the “justifiable anger” of policyholders referred to by Ann Abraham and that anger will be compounded by the sense that the Government have guaranteed savings that were much more high-risk than those in Equitable Life.
Equitable Life used to have a reputation as the Marks & Spencer of financial institutions. It was seen as a sound place to invest, not a high-risk venture. The same cannot be said of Icesave, which attracted people seeking higher returns on their money, with a higher element of risk. Equitable Life savers are furious to see these higher-risk investments prompt a rapid bail-out by the Treasury.
Ann Abraham has not put a figure on the compensation that should be paid, but the Equitable Members Action Group has calculated that the figure could be around £4.6 billion, which, incidentally, is the same as the sum required to guarantee deposits with Icelandic banks. In bailing out the banks, the Government have manoeuvred themselves into a corner on Equitable Life. Refusing to pay compensation to Equitable Life savers would be wildly inconsistent with their recent actions.
There are three things that the Minister must do. First, he must respond, not just to me in the debate, but to the ombudsman’s report, as promised to Parliament and more than 1 million Equitable Life policyholders. He must stop the delaying tactics and put an end to the years of missed opportunities, policyholders dying without redress and the continuing injustice. If he cannot respond to the report today, he must tell us when he will do so.
Secondly, the Minister must apologise. Ann Abraham is perfectly clear and correct when she talks about a “justifiable sense of outrage” among policyholders. The very least that they deserve is an apology from the Government and an admission that the Government were at fault for the charges laid at their door by the ombudsman.
Thirdly, the Government must set out a credible, transparent and independent process to enter into a dialogue with policyholders over compensation. Redress should happen quickly—the time scale set out by Ann Abraham is two and a half years to complete the process. That way, questions of means-tested hardship funds become irrelevant and justice is done for all.
Anne Milton (Guildford) (Con) rose—
Jo Swinson: I am sorry, but I want to conclude.
I end by reflecting on the impact that this has had on individuals, and I know that the experience of my constituents is mirrored by the experiences of others the length and breadth of this country. The Hunters are a retired couple from Milngavie—Professor Hunter is 86—who have seen the monthly return from their Equitable Life investment drop by half since 2000. Mrs. Hunter spoke of feeling “very let down” and “abandoned” when they lost out. She said they felt that they were “given no support” as the value of their investment plummeted. Even eight years after the event, Mrs. Hunter’s feeling of injustice is still apparent. She has been promised a copy of the Hansard report of this debate, which will be in the post as soon as it is printed. I know she would be grateful to read something in the Minister’s comments to give her hope that she and her husband will receive an apology and a compensatory sum for this Government’s “decade of regulatory failure”.
11.24 am
Derek Wyatt (Sittingbourne and Sheppey) (Lab):
I, too, congratulate the hon. Member for East Dunbartonshire (Jo Swinson) on securing the debate. I also congratulate
the members of the Equitable Members Action Group, whose professionalism is outstanding. They have gone through eight years of waiting and they keep on going, and they have provided us with regular—I would not say “monthly”—updates. I take my hat off to them. Some of them are watching the debate. Well done. Do not give up the fight.
As to why we have not had such a debate before, looking at how many hon. and right hon. Members are attending—probably the most I have seen for a 90-minute Adjournment debate—perhaps it is time that we altered how this place runs. Perhaps 100 signatures from among all of us could bring about a six-hour debate on such crucial issues, rather than one of 90 minutes. Given that the Labour Government established the parliamentary ombudsman, perhaps reports from the ombudsman should be binding on the Government. That is something I believe in having seen the blood on the carpet for the next four years after starting the occupational pension debate with ASW Sheerness in 2003. Eventually, we conceded on every single point. Had we conceded within six weeks of the issue arising, the members—125,000 people—would have settled for 50 per cent. As it was, they got 90 per cent. and we were left with a gap of £8 billion in the Department for Work and Pensions budget. It is the same in respect of Equitable Life: had we addressed the matter earlier, we would not be where we are.
I have just over 500 constituents with Equitable Life pension schemes and the issue affects the most people of any that I have ever dealt with. Of course, those people are all different, which makes the problem harder. Although Ann Abraham has said that it would take two and a half years to deal with, I am afraid that I cannot see compensation being paid that quickly. I ask the Minister to consider a hardship fund and a way of administering that as fast as possible. It is simply not fair to ask people in their late 70s and 80s to wait another two and a half years, by which time they may have died.
In respect of occupational pensions, there was a resolution for widows. I wonder whether the Minister will consider that too. After all, we are talking about people’s savings—and their savings have gone. It is tough talking to them. All hon. and right hon. Members have such people in their constituencies.
I do not want to repeat what the hon. Member for East Dunbartonshire has said, because much of it is accurate and I want other hon. and right hon. Members to have their say. But considering the matter as a whole, Equitable Life expanded sixfold in the 1990s—from £5 billion to £30 billion—by voting excessive policy bonuses. How on earth could the board do that? It paid out to retiring policyholders more than had been earned by their investment, so there was a policy lag. How on earth that was not picked up by the regulatory bodies I do not know. As a consequence of it, the policies of current Equitable Life policyholders are not covered by the investments of the past.
Equitable Life tried to change or alter the issue by offering a range of different products. However, when push came to shove, the company closed to new business in December 2000—and here we are, eight years on. The old directors resigned and the good bits of the business were sold off—the offices, the client list, the
staff and unit-linked business. The new directors slashed policies by 16 per cent. in July 2001 and put in place a compromise scheme to deal with the guaranteed annuities, but that was not enough. Another 10 per cent. was cut off the value in 2002. By then, the society was entirely invested in fixed-interest stocks and could not take advantage of rising markets. It is now being run down and broken up, as everybody knows.
Despite Lord Penrose and despite the ombudsman, we have done nothing. It is important that the Minister not only responds to some of the accusations made by the hon. Member for East Dunbartonshire, and to what all hon. and right hon. Members feel, but considers doing so before the Christmas recess—not on the last day of this part of the House of Commons calendar, but next week or the week after. It is neither reasonable nor fair to leave it much longer.
I know that many hon. Members want to speak, but I ask the Minister to think of the morality of the situation. That is ultimately what the Government said about occupational pensions: they accepted the morality of the argument, but took five years to come to the dance floor and pay up. Will the Minister please tell us that there will be no more delay and that the Government will pay up?
11.30 am
Daniel Kawczynski (Shrewsbury and Atcham) (Con): I congratulate the hon. Member for East Dunbartonshire (Jo Swinson) on securing this important and timely debate. I have received hundreds of letters from my constituents in Shrewsbury highlighting their extraordinary frustration, irritation and deep concerns about the Government’s lack of action. For the record, I declare an interest. My mother-in-law is with Equitable Life, and has provided me with information for today’s debate.
I want to raise a specific matter with the Minister. With-profit annuitants are a small percentage of the policyholders—only 50,000 in 1 million—but their losses are estimated to be £6.2 billion, which is approximately 60 per cent. of total losses and claims for compensation by all policyholders. Unlike investors, who could have taken their money elsewhere, although admittedly by accepting a market value adjustment, WPAs could not. When they had purchased the annuity, they were locked in. WPAs are retired, old and often ill, and they cannot supplement their lost income in any way. Will the Government accept that they are a separate class of claimant and ensure that they receive their fair share of any compensation?
The Government’s line will almost certainly be to misquote Lord Penrose and to say that the society was
“the author of its own misfortunes.”
Lord Penrose said that, but it was heavily qualified. Why do the Government persist in misquoting him?
The Government will also argue that some losses incurred by policyholders were due to market forces and outside the Government’s control. No other comparable pensions company in the world failed at the same time. What was so special about the Equitable Life Assurance Society? Evidently, it cannot have been market forces. If the collapse of ELAS was caused by market forces, why did it fail uniquely?
Andrew Stunell (Hazel Grove) (LD): Does the hon. Gentleman agree that the regulatory system was not fit for purpose when it came to controlling Equitable Life, and does he further agree that the Government have not been fit for purpose in investigating the matter since?
Daniel Kawczynski: I totally concur with the hon. Gentleman. I am particularly impressed that the hon. Member for Sittingbourne and Sheppey (Derek Wyatt), who was a Parliamentary Private Secretary, has shown great courage in raising the issue with the Minister. That shows how, across parties, people feel so strongly.
I shall be brief. The Government will say that, yes, there was misregulation, but that it was only a partial cause of the losses, and that they will pay only a partial amount in compensation. In the case of WPAs, had there not been misregulation, the annuitants would not have bought such annuities. They are unique in that, unlike other sorts of annuity offered by the society, an ever-increasing proportion—up to 50 per cent.—is unguaranteed and can be withdrawn, and indeed was withdrawn in 2002.
Other sorts of annuity, such as guaranteed-level annuities, fixed escalating annuities and index-linked annuities, are all 100 per cent. guaranteed, and the society is legally obliged to set aside funds to meet current and all future obligations. Without that misregulation, WPAs would not have bought such annuities, and their income would have been guaranteed and completely isolated from market forces.
Will the Minister confirm that, in the light of that, no adjustment for market forces or company mismanagement will be applied to the claims for compensation made by the WPAs? The Government will try to argue that there is a limited public purse, that they cannot meet the full claim for compensation and that some form of means-testing should apply so that only the poorest receive any payment. The problem with that logic is that WPAs’ losses lie increasingly in the future, and will increase with the passage of time. Thus, someone who fails the means test today might qualify next year or later, but by then it will be too late. That is iniquitous and not warranted.
My final question is, will the Government confirm that they will pay compensation to claimants pro rata, irrespective of their current financial status?
11.35 am
Greg Mulholland (Leeds, North-West) (LD): I congratulate my hon. Friend the Member for East Dunbartonshire (Jo Swinson) on securing this important debate, and I echo my point that it is a great shame that it is taking place in this Chamber and that we have not all had a chance to contribute properly to it. I hope that the huge number of hon. Members here today will encourage the Equitable Members Action Group a little. I join in paying tribute to it for what it has done, and I hope that the debate brings justice a little closer.
I have three charges to level against the Government, who have fallen into three unpleasant habits. First, they have been mealy mouthed. Secondly, they have dragged their heels. Thirdly, they have put their hands over their ears and said, “La, la, la.” They have been mealy
mouthed because they have not said sorry to start the process. How can they not accept that they should have said sorry many years ago?
The delay has been one of eight years, and there have been 13 reports just about something happening in the future. Finally and most seriously—this point has been made by other hon. Members—the Government have thought it acceptable to ignore the ombudsman’s recommendations. It has been powerfully stated today that that brings the whole system into disrepute, and I hope that that message goes out from this Chamber today.
Mr. David Drew (Stroud) (Lab/Co-op): I want the matter to be settled, because I have constituents involved, as have all other hon. Members. I congratulate the hon. Member for East Dunbartonshire (Jo Swinson) on securing the debate. However, it is fair to say that the problems started in the early 1990s, and we must make it clear that the real blame lies with the management and the regulator at that time, who should have picked up the problems far more quickly. Does the hon. Gentleman accept that although what happened subsequently was wrong, we should examine the history and learn some lessons from it?
Greg Mulholland: I think we all agree that what happened in Equitable Life was, to use a simple phrase, a dog’s breakfast, which was very much the fault of senior management, but our job is to scrutinise the Government. The Government failed to regulate properly and have not adequately responded. That is the point, not what happened years ago. I agree that successive Governments have been involved, but that is no justification for the Government dragging their heels in recent years.
Mr. Alan Reid (Argyll and Bute) (LD): Does my hon. Friend agree that the regulator is the responsibility of the Government, and that if they do not pay compensation in this case, there will be implications for regulation in every other industry? People will lose confidence in regulators if the Government are not shown to be responsible in this case.
Greg Mulholland: Absolutely. My hon. Friend makes an important point. There is a lack of confidence in the regulatory framework, which can only be made worse by this sort of process.
What the vast majority of hon. Members are calling for loud and clear is the Government setting out a credible, transparent and independent process to enter into dialogue with policyholders to talk about compensation and explain how the ombudsman’s authority can be re-established, because it has clearly been undermined.
Anne Milton: I thank the hon. Gentleman for giving way; he is being very generous. Does he agree that it is not so much the history that matters now, and that what matters to policyholders in my constituency is their future? They have been waiting far too long. There will be time to go over the history of what happened—why and so on—but what matters now is that people receive the compensation for which they have waited far too long. I sincerely hope that the Minister will take note of the questions that have been asked, and not hedge any of them, because policyholders in my constituency will be angry if they do not receive clear answers.
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