House of COMMONS









Tuesday 11 November 2008





Evidence heard in Public Questions 50 - 230





This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.



The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Public Administration Committee

on Tuesday 11 November 2008

Members present

Dr Tony Wright, in the Chair

Paul Flynn

David Heyes

Kelvin Hopkins

Julie Morgan

Mr Gordon Prentice

Paul Rowen

Mr Charles Walker



Examination of Witnesses

Witnesses: Mr Paul Braithwaite, Mr Colin Slater, Ms Liz Kwantes and Ms Ann Berry, Equitable Members' Action Group, (EMAG); Mr Peter Scawen, Equitable Life Trapped Annuitants, (ELTA), gave evidence.

Q50 Chairman: Can I extend a warm welcome to our witnesses this afternoon? We are delighted to have Ann Berry, Paul Braithwaite, Liz Kwantes and Colin Slater, all from EMAG, Equitable Members' Action Group, and Peter Scawen from the Equitable Life Trapped Annuitants, ELTA. Thank you all very much for coming. You know what we are here for and you know what you are here for. We have taken the Ombudsman's report as our text. We take it that that is the account of what happened. We take it that that is the account of the regulatory failure that we are talking about. The bit that we are really interested in now is the bit that she hands to Parliament which is where she says that the whole question of redress is one that Parliament has to turn its mind to. It is that area that we are particularly on. I say that so that we do not have to go through the whole history of Equitable Life and so that we can focus on that matter. Against that background, I do not really want everyone to make extensive speeches but if you have something short by way of introduction to say we would be very glad to hear it.

Mr Braithwaite: Thank you for the opportunity and the invitation. Liz Kwantes, Colin Slater and I have all been involved for rather more than eight years and, throughout that period, we have always sought to represent the interests of all of the different types of policies and policy holders. Typical of many investors you will, I hope, hear from Ann Berry who made prudent provision in her modest professional employment but the experience of Equitable Life has changed her life. Whilst the annuitants are the most visible of the sufferers, the other types of policy holders - late joiners, foreign investors and those without the guarantees - have suffered equally. That was the obligation on the board, to treat all classes equally. By now there are only a couple of hundred thousand members of the society but, when the society closed its doors in December 2000, there were well over a million and a half people with policies. About a million of those have moved away and, as EMAG, we seek to represent them too. Of that 1.5 million, it is fair to say that about half a million were the core savers who were using Equitable Life to save for their retirement. One of the misimpressions we are anxious to dispel is that this is not a society that was full of fat cats who can afford to pick up their own losses. That half a million had average investments of only 45,000 at the time the society closed. I was perhaps quite typical of that kind of group. I had left corporate life to start a small business of my own and at the absolute peak my savings with Equitable Life were never as high as six figures. I think many people like me were entrepreneurs or consultants. There is no typical Equitable Life customer. There were AVCs for the National Health Service. Maybe Ann could tell us about that. I think, on 3 November, we saw Alistair Darling, as Chancellor sought to excuse things with reference to the Penrose Report and the line that Ruth Kelly learned very well, that the society was the author of its own situation. I hope you pick up in my testimony - on which I will happily take questions - that what we observe with the current banking bail out, has very close similarities. These were companies with flawed business models who were not satisfactorily regulated by the FSA. The point of difference is that in this case we had one of the most rigorous studies that have ever been conducted. We have nothing but praise for the quality of the work that Ann Abraham has done. She took as her very start point the textbook that she swallowed before the investigation began, the Penrose Report. You will also see in my evidence that Europe has taken a very close interest. Europe throwing a spotlight on how the British Government reacts to the recommendations of the Parliamentary Ombudsman is terribly important to our export industry, to our financial services industry. You will see I have suggested that we have had eight years of sweeping this under the carpet, of denial, fudge and spin. I hope that the Committee has by now read key parts of Ann Abraham's document, particularly the chronology for example, immediately post-December 1998 or for the month of July 2001. All five of us would be very happy to take questions now.

Q51 Chairman: We accept what the Ombudsman has said about serial, regulatory failure. What we have to explore is the thing that she did not take us all the way with, which is what happens now. If no one else wants to come in, we will get on with the questions. If the Ombudsman's report is our set text from the point of view of this, do you first of all accept her contention where she says, "I am very far from concluding that everyone who has complained to me about the prudential regulation of the society has suffered a financial loss. Still less do I conclude that everyone who has saved with or invested in the society during the period covered in my report has suffered such a loss." Is that something that you all assent to?

Mr Slater: Yes, we understand what she means.

Q52 Chairman: This is not a claim for across the board compensation. It is for targeted compensation?

Ms Kwantes: As the PO said, there will be discrepancies between every single person and each person is a totally separate category.

Mr Scawen: Everything I say is a function of the with profits annuitants. In response to the comment made by the Parliamentary Ombudsman, the annuitants have almost universally, 99.9 %, lost money in the process. That is why I feel we are in a different category of problems to be confronted. They have lost money but not in quite the same category. Other classes have lost money as well and we are not seeking preferential treatment.

Q53 Chairman: Another thing that she says is that any cost to the public purse is a relevant consideration in considering any compensation scheme. Is that something also that you would assent to?

Mr Slater: Yes. We accept that. We have considered it in estimating the cost to the public purse. We think there is a consideration to be taken into account.

Q54 Chairman: Do you know how much consideration should be taken into account?

Mr Slater: We took counsel's opinion and counsel said that in most instances of maladministration the responsibility for the whole loss rested with whoever was maladministrative. In this case it is the regulators, but there was a case in circumstances like this one, where the figures were very, very large, and where the thing went on for a very long time; it was very complicated - to look also at the cost to the public purse and to take into account how the situation developed. In this particular instance Equitable Life started off its maladministration in about 1990, when it was quite a small society. It had assets of about 5 billion and the regulators got it horribly wrong then. They carried on getting it horribly wrong and, by the time we get to about 1999, they started covering up the fact that they had got it horribly wrong. We go into 2001 and they are still covering up that they got it horribly wrong.

Q55 Chairman: We know all this and accept it.

Mr Slater: Those are the factors that have to be taken into account.

Q56 Chairman: If the Government comes along - we do not know what the Government is going to say - and says, "Yes, we accept that there is regulatory failure here. We are very sorry for it but unfortunately we are completely strapped for cash and there are greater priorities for the public purse than compensating Equitable Life policy holders", is that something that you would accept?

Ms Kwantes: We did discuss this between ourselves until we saw the Icesave situation where people who really were not guaranteed anything had been given 100 %. Then we thought perhaps Equitable is more needy because those people really have missed out. The PO has said that these people have lost out. The Icesave people did lose out but why should the Government compensate them?

Q57 Chairman: I do not think, if you are being honest with me, that you are really saying, but for Icesave we would have been very happy to accept an argument for ----

Ms Kwantes: I do not say "very happy".

Ms Berry: My own view is that there was maladministration and that we should be more or less fully compensated. Not only have Icesave people been compensated 100 % immediately, but many Equitable Life sufferers have undergone a decade of anxiety, worry and loss of income, and they are still undergoing it. If there is a moral case for bailing out Northern Rock, for compensating Icesave, then there is equally a moral case for putting things right for Equitable Life.

Mr Scawen: Speaking for annuitants, we are in a situation where our income is going down and we can do absolutely nothing about it. We are all retired. We are either too old or too ill to work. We have no recovery plan and in that sense, yes, there are people who are facing problems with fuel bills, but so are we.

Q58 Chairman: You are accepting I think that there is a legitimate public purse consideration that may determine, if there is to be any compensation, the size of such compensation. Is that what is being said?

Mr Scawen: Yes.

Q59 Chairman: What about a third point she makes which is that any compensation scheme has to operate on an individual, case by case basis? I was not sure, reading your written evidence, whether this was quite consistent with what you are saying about a pot and a rough and ready system. Surely her approach is really rather different, is it not?

Mr Slater: Her approach is set down by how the legalities work. She has to prove causation. She has to show that each individual that is claiming has a good claim in more or less the same way that the lawyers do. If she is taken to court, as she has been in the past with judgments like this, then the courts will expect her to be able to demonstrate a causation trail. She does that by looking at things on an individual basis. That is part of the legal practice. As far as we are concerned, we are dealing with people who are now very elderly and who have been waiting for an awfully long time, who are all looking for a rather more rough and ready approach to that. I do not think the two are necessarily incompatible because, even if you took the person by person approach, when you have 500,000 individual policy holders and a million group scheme members, you could not possibly go through each individual case and look at it in sufficient detail. You would have to take samples, groups, and deal in balance of probabilities rather than as 500,000 or 1.5 million individuals.

Q60 Chairman: I think this is going to be quite a large issue, when you do start talking about a compensation scheme, the balance between something that is speedy and rough as opposed to something which is longer but more individualised. I am not sure we know the answer to that.

Mr Braithwaite: Can I embellish Colin's point about the practicalities of addressing half a million? We have seen other compensation schemes which have knocked up more in administration costs than they have succeeded in dispensing. Ann Abraham makes clear that she would like to see this buttoned down within two years of setting up a tribunal. The only practical way of doing that is by having sample cases. We are very fortunate here that all the way along, both the incumbent board and indeed the Parliamentary Ombudsman have insisted that the records from the year 2000 be kept. It is inconceivable that the majority of these people will have kept all of their records and therefore a claims basis could be a great weasel to let the Government off the hook because people are too old or they do not have the records. That is the reason we believe it should be a proactive compensation scheme and not one that is predicated on claims. For example, large numbers have died. The trustees of estates find this extremely difficult, whereas the records do exist and they have been preserved.

Q61 Chairman: This is not in the Ombudsman's written report, but when we had oral evidence from her some time ago. She talked about one possibility might be a hardship fund. I wonder how that commends itself to you, taking your point about fat cats and the fact that some of these people are extremely old and in great need. If the Government came forward and said that, due to public purse considerations, there are limited funds and we would like to address hardship, would that be a reasonable way to proceed?

Mr Braithwaite: Absolutely not.

Mr Scawen: Of the people who litigated recently, I can think of three individuals. The payment one of them finally received made no difference to him at all. He was a very wealthy man. Another man was struggling financially and having to sell property but managed to avoid the issue. The third man was on the point of being evicted by the bailiffs. They are all receiving the same amount of money. It is quite difficult to think of a way where you can look at someone's situation and say, "I will pay you but not you, who is hard done by." You almost get into the same situation with legal aid. It is sometimes difficult to make it work in practice.

Q62 Chairman: Given the fact that it is all very difficult, is not a good working principle that those people who are suffering real hardship because of what has happened should have priority over those who are not, who have many other policies, many other sources of income?

Mr Scawen: It smacks of injustice. Why should any one individual receive less because by chance they happen to be better off than someone else? Is that reasonable?

Q63 Chairman: That is what justice usually is.

Mr Scawen: It now appears to be the reverse of the law favouring the rich. The law favours the poor.

Q64 Chairman: You are all against the notion of any hardship test?

Mr Braithwaite: Yes. The regulator was there to perform statutory duties on all of our behalfs, rich or poor. A very thorough investigation has found that the claims that the regulator has fallen down on, on our behalf, have been vindicated. It is not satisfactory to say, "We will dole out on a hardship basis." There is a finding of injustice here and an obligation to redress that. That is the recommendation of Parliament.

Q65 Chairman: You have agreed there is a public purse constraint and within the public purse constraint obviously it is not implausible to start thinking about who has most claim on the public purse in terms of their situation, is it? That is not a completely unreasonable approach.

Ms Kwantes: I think you will find the cost of trying to find out who is a hardship case and who is not will eat up an awful lot of the hardship fund anyway.

Q66 Kelvin Hopkins: Would it not be possible to have a hardship fund which was taken into account when eventual settlements come through? Once one has a nod from government that something is going to come through, modest amounts of hardship could be paid out and taken out of what they will receive ultimately. That would be a way of making it just as well as dealing with the immediate hardship.

Mr Scawen: If you are saying that this individual is on his beam ends and we must help this man now and deal with a general claim later on, I have no problem with that at all. That is not quite what Dr Wright said, which was if you are poor you get something; if you are rich you do not.

Q67 Kelvin Hopkins: The benefits and tax system hopefully will take care of those things to an extent anyway. Clearly, government is going to look at the overall sum. They are not going to want some agreement which is open ended and likely to creep higher over time. They will want some kind of understanding of where the line is and how much they are going to be finding. If it starts off, say, nominally at four billion and then, six years later, we are talking about 12.5 billion, the Government has an obligation to try to be responsible in this respect as well as at the same time being fair to policy holders.

Mr Slater: That is precisely what EMAG has put forward. Parliament decides what the aggregate sum of compensation should be and pays it to the compensation tribunal and lets them get on with distributing it. That puts a stop to the creeping additional cost and it also means that the compensation tribunal has the money to get on with doing it. The actual doing is not hugely difficult because we know who lost. On 16 July 2001, Equitable Life policy holder values were cut by 4.8 billion. We know who those people were. We know how much they were all charged up for that policy value cut. There is no real need for a claims system. We do not have to keep going on about claims. It is really only a matter of getting the money into the hands of somebody who is trusted to distribute it in a fair and sensible fashion and letting them get on with it.

Q68 Mr Prentice: There were people who were misled because they read the company's documentation. There were others who did not read anything. You are inviting us to take the view that those who diligently read the company's materials should in effect subsidise those who did not bother to do that.

Mr Slater: Maybe that is how it works.

Q69 Mr Prentice: It is. That is what you are saying.

Mr Slater: That is one of the things I mean by "rough and ready".

Q70 Mr Prentice: That is very rough and ready.

Mr Slater: Maybe, but the alternative is to get very elderly people to dig out some very old documents to try to prove or not prove that they would or would not have done something many years ago and argue about it for years and years. By the time they all get paid half of them will be dead.

Q71 Mr Prentice: How did you get to this 37 % discount figure?

Mr Slater: I got to 30 % as being a reasonable estimate of the sort of number of people who would have moved their money had they known.

Q72 Mr Prentice: That is supposition though, is it not?

Mr Slater: Absolutely.

Q73 Mr Prentice: It is putting your finger in the air.

Mr Slater: Yes, but it is not entirely stupid supposition.

Mr Scawen: One of the difficulties with the annuitants is that our losses are broadly in the future. Investors' losses are broadly historical and can be relatively easily determined. If you are going to come in with a sum of money, we have to find a way of separating out the classes of claimant. Otherwise, I can see the investors and the annuitants at war with each other for the next thousand years.

Q74 Mr Prentice: That is a fundamental point, is it not? You tell us you are the trapped annuitants. You are stuck with it.

Mr Scawen: We are certainly trapped, yes.

Mr Prentice: The policy holders are not trapped and that is the fundamental difference between the two groups.

Q75 Paul Rowen: Can you tell us why your figure is so much higher than the figure we have from EMAG?

Mr Scawen: No.

Q76 Paul Rowen: How have you arrived at your figure?

Mr Scawen: I can talk about the figure that we have for annuitants. That follows obviously from a detailed, case by case evaluation of the losses for the people who went through the litigation. I cannot go into greater detail for reasons you will understand. This is confidential. From that sample base we can project outwards and say, "This happened to these people. Multiply out and you come up with this number." It is a large number. I do not know how EMAG calculated the number but I am confident, not least because the actuaries looked at the number, that our figure is fairly robust.

Q77 Paul Rowen: Does it take account of changes in the market?

Mr Scawen: Yes. You have a problem because part of it is what are future bonus rates. How are you going to discount back to present value? Those are judgment figures somebody has to make. I can verify with my lawyer behind me if you want me to but these are based, I believe, on the figures that were used. Yes, there is obviously some movement there. That will change with market conditions.

Q78 Paul Rowen: With respect, we have a fairly detailed submission from EMAG that explains how they have arrived at the figure. We do not have the same sort of thing from yourself. How can we just accept a figure that seems very largely to have been plucked out of thin air?

Mr Scawen: Not quite out of thin air. It is a robustly calculated figure. I can supply it to you. Because I am skating on the edge of what is confidential and what is not in our settlement with Equitable Life, I would like if I may to submit that in writing later on.

Q79 Chairman: Of course you may. We are talking about large sums of money here. If you are asking the Government to stump up for a bill from a very tight public purse, we have to have some sensible idea about what we are talking about. We have EMAG saying 4.7 billion on their best estimate when they do the calculations. You come up with 6.8 billion just for the annuitants. Then you are saying, on top of that, there is everybody else, which may take it up to 12 or 14 billion. We have not yet heard from the company what they think it might be. It makes devising any scheme rather difficult, does it not?

Mr Scawen: Before you get to a way of compensating people, should that decision be made, we have to come up with some robust figures that you are comfortable with. I accept that. That is why I am saying I will put it in writing.

Mr Braithwaite: Can I come back to your compassionate suggestion of a hardship fund? What is sticking in my craw about that is essentially it is a means tested, self-nominating thing and the English are very reticent. We have 15,000 members. They are really quite self-effacing. In the last session you referred to a letter most altruistically from a Mr Wilson. I really shy against any form of means testing. It seems to me slightly offensive when we look back at the occupational pensioners, which was a previous very parallel case here. The occupational pensioners received the full support of this group and, subsequent to the legal action, they have been settled for what over time will total 6.9 billion. I do not recall ever seeing a suggestion that that should be hardship related. It seems to me that what we are veering towards here is, "Oh, that is blue collar workers in south Wales. These are white collar people so it should be means tested." I do not understand why there is any difference between the Parliamentary Ombudsman making a recommendation and the fact that there has been maladministration which warrants compensating people.

Q80 Chairman: I was trying to suggest something which derived from evidence from the Ombudsman herself. I just wanted to know what your reaction to it was, which I have now seen. You are suggesting there should be a cap on the whole amount, are you?

Mr Braithwaite: Yes. I think Colin's paper makes clear that the swiftest way to address this - and we are talking about people dying daily and therefore that is a very sensible suggestion - and the most practical thing would be for Parliament to arrive at a figure, be it 12 billion which obviously EMAG does not agree with, or five billion or even four billion, but a figure that it then gives to the tribunal to work with those involved to dispense as fairly as possible.

Q81 Chairman: Do you think that a cap on individual amounts might be a sensible idea, as well as an overall cap?

Mr Braithwaite: I think that is for Parliament to decide.

Q82 Paul Flynn: What Mr Wilson said last week, is that there is a huge sum of compensation, 12 billion, an enormous sum. It is not coming from just the Government; it is coming from the pockets of the poorest pensioners, as you rightly mentioned. It comes from the taxpayer. Is it fair that we have a system now where we seem to be blaming not the criminal but the policeman? We have a system of regulation where the problem here was caused by Equitable Life. It was added to by the problems of the actuaries and the auditors employed by Equitable Life; yet the whole of the compensation is demanded from the regulators. Would you like to state what percentage of the blame you put on this? How much percentage of the blame can be put on Equitable Life? How much on the auditors? How much on the actuaries? How much on the regulators? What would the proportions of blame be?

Mr Braithwaite: The bail outs of Northern Rock and the major banks are all borne by ----

Q83 Paul Flynn: That is very different.

Mr Braithwaite: In what way are they different? They are companies that operated dodgy business models with dubious management.

Q84 Paul Flynn: It was a very different situation. There was a question of overruns on all banks which caused collapse in the economy in the country. You are asking for compensation because of problems with the company. If this happened 30 years ago, there would be no question of the taxpayer coming up with a free insurance scheme for people.

Mr Braithwaite: Gordon Brown in 1989 spoke extremely eloquently on behalf of those people who invested in Barlow Clowes and said that this must not be allowed to happen again. He endorsed the Government's recommendation of compensation in a similar situation.

Q85 Paul Flynn: Are you saying that ultimately the taxpayer should compensate any firm that goes to the wall?

Mr Braithwaite: Only where there has been a failure of the statutory duty of the regulator.

Q86 Paul Flynn: The regulator came in relatively late on this. The problems were caused by Equitable Life itself; then by the auditors and then by the actuaries. Where would you put the proportion of blame?

Mr Scawen: I think your logic is faulty. The fact remains that the society was allowed to perform in a way which was in breach of regulations for a period of 10 to 12 years. Yes, you could say the society got things wrong but the fact is the regulator allowed that to happen. Therefore it falls to the regulator to pick up the bill. If it is exclusively a company issue ----

Q87 Paul Flynn: None of you has given me an answer to my question which is how you would apportion blame. Is it not true that you are apportioning blame on the regulator because it is only the taxpayer who can pay the compensation? No one else is going to do it. You put all the responsibility on the regulator.

Mr Scawen: The regulator got it wrong for between 10 and 12 years. I think I speak for many of my members. I would not have bought my with profits annuity with Equitable Life, had I understood the financial situation of the company. That was known from almost 1990 onwards. It was in a difficult situation. It was known to the company. It was known to the regulator and it was known to the industry.

Q88 Paul Flynn: Can I put it another way? I am not getting an answer. Are you saying that 100 % of the responsibility should be put at the door of the regulator?

Mr Scawen: Yes, that is exactly what I am saying.

Q89 Paul Flynn: You would want 100 % compensation from taxpayers. What effect do you think this would have on future regulation? There were certain decisions the regulator had to make about the future of the company and it was very much a judgment. There could have been the possibility that someone could have come along and rescued the company but they did take a decision which, in hindsight, we know to be a wrong decision. That has been mentioned as one reason for compensation. Does this not mean that regulators in future will be over-cautious and they will not be able to take any decision in which there is any risk whatsoever because ----?

Mr Scawen: I am under heavy doses of medication for health reasons which need not concern the Committee. The medical industry is very well regulated but, when things go wrong with the medical industry, people get compensation and are entitled to get compensation. It is not a question of whose fault it was. Was it the man who did the clinical research? Was it the doctor who prescribed the wrong product? The fact is the products were wrong and caused harm and distress.

Mr Slater: We have seen very clearly over the last few months what happens to a regulator like the FSA which is responsible to nobody. The FSA is exempt from being sued. The FSA since 2001 is outside the jurisdiction of the Parliamentary Ombudsman and we have seen what they have done. They had lessons to learn in Equitable Life, two in particular. One was to watch very carefully companies with unique business models, which may sound familiar and was certainly Equitable Life. The second one was to look very hard at complex legal documents which purported to be worth huge sums of money. If they had had to pay compensation in 2001 as a result of not doing those things, they would have tried much harder in the subsequent period and we may not have had Northern Rock, because they would have seen that business model coming. We may not have had much of the banking crisis because they would have looked much harder at all those collateral debts and whatever they called them, the various complicated documents that turned out to be valueless. The cost of that has been infinitely more than the cost of paying up for Equitable Life in 2001.

Q90 Paul Flynn: This bill is going to be paid across the board by taxpayers, by rich and poor. Why would you object to a scheme that would give to those in greatest need, the hardship scheme, which seems to be the most effective one to us?

Mr Slater: The Government has not given us any scheme yet.

Q91 Paul Flynn: This is a huge sum to be paid out. Clearly, any government would be reluctant to commit itself to this sum because of the consequences for future policy. If it is a scheme that is done on the basis of the needs of people and the hardship of some, that would be one that would be easier for any government to adopt.

Mr Slater: I think it is wrong to have regulators who are exempt from everything.

Q92 Chairman: The difficulty we are having here - and we have had it in previous discussions about this - is trying to isolate out the component of responsibility that comes under the heading of regulatory failure. We are not disputing the regulatory failure. We have accepted absolutely what the Ombudsman has told us about this, but we know that there was loss that came from what happened to the industry as a whole because of stock market prices. We know that the company, as Penrose has told us, was largely the author of its own misfortunes and we know that there was regulatory failure. When we come to compensate, knowing all that, the question is how much compensation is triggered by the component of regulatory failure. On your formula from EMAG, if I have this right, you only have a ten per cent discount for the non-company bits of this. Someone knowing the history of this issue would find that to be a rather small sum, given that ----

Mr Slater: It is a small sum. It is a small percentage because ----

Q93 Mr Prentice: It is a small percentage of what could be a very large sum.

Mr Slater: It is a small percentage because of the way the regulators acted. They got it hugely wrong in 1990 with a relatively small society and ----

Q94 Mr Prentice: Can I just press you on the ten per cent because this is a figure that seems to be quite arbitrary. You settled on this figure after taking counsel's opinion.

Mr Slater: Correct.

Q95 Mr Prentice: What did counsel advise you on the appropriate level to take account of the company being the author of its own misfortunes? What was the justification which led to this recommendation of ten per cent?

Mr Slater: That was what I was going to explain. The justification depends on the way in which the regulators handled it and they handled it very, very badly. They were pretty awful. They let the company get away with things it should not have done. They effectively encouraged it to expand as it should not have been allowed to. It brought on more and more people. It got worse and worse. By the time we get to 1999 they are starting to cover it all up. They are not saying, "This is a problem we should have dealt with." They are telling lies to cover it up and then it gets worse. By the time we get to 2000 they are still doing the same thing. They are telling the policy holders lies then.

Q96 Julie Morgan: I do not see how that relates to the ten or 90 %.

Mr Slater: Could you explain it the other way? Are you going to tell me that the regulators did it all perfectly and it was all great stuff and they really ought to get a 100 % reduction?

Julie Morgan: I understand what you are saying but I wondered how you reached the ten per cent and the 90.

Q97 Chairman: We are just simple souls, trying to get to the bottom of this. If we read that Equitable Life, as we have said endlessly and you have repeated today, is primarily the author of its own misfortunes and then we see a discount only of ten per cent to reflect that, we think that is a bit odd.

Mr Braithwaite: Ann Abraham on 30 October I think handled this very well for you when she quoted the full paragraph from Lord Penrose. The only bit that people remember is that they were the author of their own demise. The paragraph went on to say that it should not have been allowed to happen if there had been a resilient, regulatory regime. That was the point that she was making. It seems to me that this fuss is merely because it is a big bill. She also made the point to you that being a big bill is not an excuse not to pay out. It is very important to the regulators to learn the lessons for having to be accountable for big bills.

Q98 Paul Flynn: Ann Abraham makes it clear too that she has no responsibility for making any judgment on Equitable Life, their auditors or their actuaries. If we want to have a common sense view of this and look at it objectively, I would suggest perhaps the blame should be apportioned as something like 70 % Equitable Life, ten per cent their auditors, ten per cent their actuaries and ten per cent the regulators, something on those lines. If you disagree with that, why do you disagree with that? In what proportions would you place the blame?

Mr Scawen: If the society had been properly regulated, as I have said, we would not have bought with profits annuities. We would have bought annuities that were guaranteed and level. As such we would be completely immune to market forces because we would have had a fixed annuity for life. As far as the with-profits annuities are concerned, the effect of the market on us is absolutely zero. You may disagree with the six billion. We can argue about that another day. The fact is whatever number we come up with is fixed. You can make it smaller. You can give us five per cent if you want to, but we would have bought a product that was completely immune to the market.

Q99 Mr Walker: First of all, I think you have an overwhelming moral case for compensation. However, having said that, I am not sure you are going to get it and I will come to that in a moment. Am I right in thinking that during 1990 the FSA was really just an executive arm and the Treasury were regulating? Who was regulating in the 1990s?

Mr Braithwaite: The DTI.

Q100 Mr Walker: And the Treasury. This was going on under the Government's watch in a sense. You would agree?

Mr Scawen: Yes.

Q101 Mr Walker: Do you think Equitable Life may have been trading while insolvent for part of that time?

Mr Slater: Our advice is that they were insolvent for most of the 1990s.

Q102 Mr Walker: Do you not think it amazing that that was not picked up by the DTI or the Treasury, or do you think they did pick that up but chose not to act, presumably because it was too embarrassing? "Perhaps, if we keep schtum, it will trade its way out of this situation"?

Mr Slater: Ann Abraham found that they did not ask the questions. They should have asked the questions. The facts were fairly obvious.

Q103 Mr Walker: There are some very clever people in the Treasury, are there not? It is not like them not to ask questions. That is what civil servants do. Perhaps they chose not to ask the questions.

Ms Kwantes: There seemed to be a cosy relationship.

Mr Braithwaite: The Treasury took over prudential regulation on 1 January 1998, so the Treasury had no involvement until 1998. It is my belief that the Treasury did spot the deep, black hole which was not just guarantee related. It was capital base related. The Treasury began to realise what a mess it was then. It was the DTI who were not asking the questions.

Q104 Mr Walker: We have the DTI, the Treasury and government ministries allowing people to invest in a company throughout the 1990s, in good faith, while the Government knew there were severe structural problems with that organisation. Explain to me where your concerns over the performance of the FSA come into play.

Mr Braithwaite: The FSA acted as prudential regulator on behalf of the Treasury for the hand over years of 1999, 2000 and 2001. They looked at their own role in the 23 months up until the closure of the society and they grossly misled everybody that they were meant to be protecting. The FSA has two roles: confidence in the industry and protecting consumers. Seeing what a mess Equitable Life was in and hearing very clearly from the industry that the financial services compensation scheme would not be honoured by the industry, essentially they fudged and covered up the period right the way through the 2001 compromise. The FSA's period in 2001 is the subject of a finding of maladministration. I feel sure there was maladministration after that. As Colin Slater has alluded to, it seems risible that the FSA is not accountable to the Parliamentary Ombudsman. The FSA knew that this society was insolvent in July 2001 and it fudged its way through rather than admit it.

Q105 Mr Walker: Why do you think the FSA finds it so difficult to protect consumers? At the bottom of every financial document that a consumer sees, you always see, "Regulated by the FSA" and the consumer is meant to take some comfort from that. We saw problems with Equitable Life. We now have problems in the mortgage market where we have had self-certification mortgages, people sold mortgages worth 125 % of the value of the property. Why do you think the FSA has proved to be so bad in protecting consumers? Do you think it is because the relationship between the FSA and financial organisations, be it banks or Equitable Life, is too close?

Mr Braithwaite: Yes. It is funded by the industry. I go every year to the FSA's annual public meeting. Every year I ask questions and criticise the way the FSA acts. It is like walking into a very rich man's club. One feels as a consumer very much the outsider, having walked into a den. Up until the switch in chairman to Adair Turner, I think the FSA was not fit for purpose. My personal view is it should be stripped of responsibility for protecting policy holders. When push comes to shove, they always sacrifice the investor.

Q106 Mr Walker: Going back to my original opening remarks, you have an overwhelming moral case, in my view, for compensation. The problem is the government has to find 10 billion, for argument's sake.

Mr Braithwaite: That would be nice.

Q107 Mr Walker: It is difficult for you to say, "Yes, but they found it for the banks." That may sound perfectly reasonable but it is difficult to make a direct comparison between the banks and your need for compensation with government. They have to find the ten billion. You must have thought about it. How do you think the Government will come up with the money to compensate your members? How do you think it should fund that compensation?

Mr Braithwaite: I think you are looking down the wrong end of the telescope. The Government managed to find 37 billion to bail out the banks. They found 1.7 billion during the Crewe by-election. The point we have here is an unequivocal finding of maladministration. There was nothing of that kind to substantiate the bailing out of banks. I think our case is morally absolutely watertight.

Mr Scawen: In the case of with-profits annuities there is one solution which is to basically pay a replacement annuity and therefore, while the sum does not change, the cash flow changes significantly, and that is a possibility that could be explored. It does not help the investors at all but it is a way of easing the cash flow, if that makes life a bit easier.

Q108 Julie Morgan: I also think you have got a case for compensation because of maladministration. I have got lots of Equitable Life members in my constituency in South Wales who are all writing to me and I have every sympathy with them. I think it is difficult to divide the blame and then translate that into what compensation is paid and I wonder if this ten per cent is really just a reflection of what you would like rather than any sort of logical decision

Mr Slater: No. We took counsel's opinion on the subject and that is what they said. We are open to listening to alternative views but at the moment we have no word from the Government whether they accept the Ombudsman's report or not.

Q109 Julie Morgan: Can you tell us what counsel's opinion was?

Mr Slater: It is quite long. We can supply it, I think.

Q110 Julie Morgan: But can you just give us a brief outline of how they based it?

Mr Slater: Yes. It went through the circumstances of the way that the case was mishandled by the regulators and it took a view that that was the right sort of percentage.

Q111 Chairman: In case it is helpful perhaps you could let us see it, as long as no fee comes with it. No - it would be very helpful to have that.

Mr Braithwaite: It was a top insurance silk.

Chairman: That is why I think it would be helpful if we saw it.

Q112 Julie Morgan: As far as you are concerned that would be a satisfactory conclusion?

Mr Slater: Yes.

Q113 Julie Morgan: That is what you are looking for?

Mr Slater: We are looking for a satisfactory conclusion, yes.

Q114 Julie Morgan: And that is what your members are looking for?

Mr Slater: Yes.

Q115 Julie Morgan: How much consultation have you got with your members?

Mr Slater: Quite a lot.

Q116 Chairman: Can I pick up, just so we do not lose it, this business about whether there are different categories of claimants here? Mr Scawen, you say of the whole life annuitants that they are, in your words, "uniquely different from other policyholders", but Mr Braithwaite has written to us to say that others are just as deserving. Both these things cannot be true, can they?

Mr Scawen: No, of course they can both be true. Everybody is deserving of compensation. I am not arguing that with-profits annuitants should be compensated at the expense of other people; that is not what I am saying at all. The point I am trying to emphasise is that the calculation of the compensation, for example, would be quite different. As you have pointed out already, we are trapped; we cannot go anywhere else. We have a very different situation from some of the investors who have had the opportunity to take the money and leave. We are a different class of claimant but we are not a preferential claimant.

Q117 Chairman: You have no greater claim?

Mr Scawen: No, only in terms of money, of course.

Ms Berry: I am a with-profits annuitant myself and I can assure you that the loss of my pension and cut by painful cut for nearly ten years has severely affected my life. Whilst I agree with what Peter says, I also have to put the point of view that there are many other groups of Equitable Life investors equally badly affected. I have heard the arguments fleetingly today and on other occasions that other investors could have got out at any time and taken their money elsewhere, but in view of the crippling market value adjuster that has been imposed at times, I think at times up to 16 %, many investors whose Equitable Life savings, pension funds, represented a lifetime's savings for their pension and who were within not very many years of retirement in effect were equally trapped. They could not have taken their money and put it elsewhere without really severe financial loss. They would have lost up to 16 % at the time, plus the costs of starting a fund elsewhere. I hear both points of view. As I say, I can speak as an annuitant and it has severely affected my life but I also think that there are many other groups equally badly affected.

Mr Braithwaite: Can I just expand on the point of the other groups? It was the job of the board to ensure that the pain was shared equally. You may want to take that up with Vanni Treves and Charles Thomson a little bit later but there are plenty of examples of people who had consolidated their savings into putting their pot into Equitable Life and many of those did that in 1999 and 2000 and they lost a good chunk of their capital. There are a lot of people who, like myself, may have built a successful small business and essentially realised the gain from that as a pension payment which may have been 100,000-300,000 paid into Equitable Life. They have lost part of their capital. I think it is obscene to say that those people who have succeeded in creating money for their own retirement should, because they are not a steelworker, be subject to means testing or can afford to bear their losses. That is their saving into what they believed was the John Lewis of prudent companies.

Q118 Chairman: Just so that we are clear on this, in terms of any scheme is it the case that you can identify different categories of claimant but you do not think that any particular category has more claim than any other category. Is that broadly what is being said?

Mr Scawen: No, not at all.

Q119 Chairman: I thought you were agreeing with that a little while ago.

Mr Scawen: I do not believe any category has a special claim over other people. We have an equal claim but there are different numbers involved. That is not the point we are arguing about. I do not think we are anyway.

Q120 Chairman: I thought my summary was the one that we had arrived at. I think we will stick with that or we will get into trouble.

Mr Scawen: I apologise.

Q121 Paul Rowen: I also think you have a very good case for compensation and I would like to explore how we could take that forward, because obviously a key point Ann Abraham makes is that speed is of the essence and there is this issue about case-by-case compensation. If I take you back to when the Pension Protection Fund was set up, which was set up to deal with occupational pension schemes where companies had gone into administration, that deals with it from two angles. There is a maximum limit that is payable and there is a certain percentage. What would you see as being a way of ensuring that people got payment within the two years from the Ombudsman's report but was fair to everybody? If you start going through things one by one your costs go up for a start and the amount of money that is available decreases. If you could give us something in broad principles that you could say would be able to treat the various groups of people fairly, what would it be?

Mr Slater: Are you talking in terms of how much money per group?

Q122 Paul Rowen: I think it is wrong and iniquitous and I take the point that you have made that you should not say because you are X you can have it all, but there has to be some means, whether you put a cap on it, whether you pay a percentage, of doing it. What would you see as a way forward?

Mr Slater: Let me put it to you this way. Equitable Life was a pensions house. Ninety-odd per cent of its business was pensions related one way or another. Either it was people saving for a pension or it was people who were being paid a pension and so that represents 90 % of the business. Of that about 14 % was with-profits annuities which we represent as well as Peter here and they are a special case but they are only 14 % of the total fund. The point I am making is that we do not have a huge array of different types of people to worry about. We do have the with-profits annuitants. They are subject to a different type of calculation and they are relatively small in terms of the overall picture, but the vast majority were people saving up for a pension and the methodology of calculation for them is relatively straightforward because they all lost 16 % on one day, so we know who they are, we know what they lost and it is not too difficult to come to a reasonably broad-brush approach to dealing with how they should be compensated. Certainly the with-profits annuitants are a different category because they have got future losses to worry about and they have to be dealt with differently. Those are the only two material classes. We are not talking about a great mass of different types of claims so I think it would be quite possible to come up with a scheme that would deal sensibly with the money.

Mr Braithwaite: Ann Abraham makes clear that she believes it should be an independent tribunal and that tribunal would be charged with getting this dispensed within two years and EMAG obviously would be willing to help with that with the great deal of expertise and knowledge we have now. We have commissioned a report, an academic study, an actuarial study, we have a great deal of knowledge. We are non-partisan to any particular group. The Ombudsman team itself has a great deal of expertise so there are advisers who could fast-track this. What we do not want it to get into is that it sinks into the policyholder protection fund and 10 million goes in year one in administration, meanwhile another 5,000 die.

Q123 Mr Prentice: You must be very bitter about the people who dropped you in this, the company directors, the individual auditors and so on. There was a legal action against them which apparently was settled in 2005. What was decided?

Mr Braithwaite: I think this is really a question for Vanni Treves a little later. It was an action conceived by the board to hold the previous board and the previous auditors to account and there is still a financial investigation under the joint disciplinary scheme going on. This is the fifteenth action on Equitable Life and it is possible that that will find Ernst & Young many hundreds of millions of pounds; that is my personal conjecture. Unfortunately, none of that money will flow to any of the sufferers. The action that was brought by the board against the previous board was stillborn and was dropped.

Q124 Mr Prentice: And the company actuary has been kicked out of the Institute of Actuaries.

Mr Braithwaite: In terms of who do we feel bitter about, it is apparent that the company was run by a consecutive series of, in effect, three actuaries - Barry Sherlock, Roy Ranson and Chris Headdon - and the non-executive directors, many of whom were in court 76 for many court days in one of the most expensive actions ever, were kept rather in the dark. You could say a non-executive director's job is to make sure that they are fully informed but we are in profound actuarial matters here so I think it is difficult for us to feel bitter about non-executive directors who were kept in the dark.

Q125 Mr Prentice: Okay, but you take the view that the whole regulatory system, as Ann Abraham told us, just did not function as it should have been expected to function. Do you think that the regulators ought to be taken to court for acts of omission or commission? Insofar as this Committee makes a recommendation would you like to see that happen, bearing in mind what Paul said earlier, that this may mean that regulators are in future risk averse? Does anyone have a view?

Mr Scawen: My own personal view is no. If you want to avoid regulators being risk averse change your method of regulation. The Government of the day chose to regulate the industry in a certain way. It is not the only way in my opinion to do it. I am sure smarter minds than mine can think of different ways. Unfortunately, the regulator is part of the Government. It does not have to be that way. There may be different ways.

Q126 Kelvin Hopkins: I agree very much with what Charles Walker, Julie Morgan and Paul Rowen are saying and I sympathise. Had there been no regulator and the Government had said, "This is the market place. You are a mutual. You are a private company. You are on your own", you would not be here now?

Mr Slater: That is correct.

Q127 Kelvin Hopkins: But the Government, to provide confidence in the providers, chose to regulate you.

Mr Scawen: Yes.

Q128 Kelvin Hopkins: And in a sense gave a guarantee, "The Government is behind these people". They will look after you. They will assure you that your savings are secure.

Ms Berry: Yes. I think this is something that does need to be acknowledged. I have become fairly knowledgeable about financial matters because of what has happened but I think I am fairly representative of many hundreds of thousands of Equitable Life investors. My area of expertise lay elsewhere entirely, in healthcare. All I wanted was somewhere safe to put my money and eventually somewhere safe from whom to buy my annuity. I saw "regulated by the Financial Services Authority" on every piece of paper that I read, every document produced, and I believed what it said. I thought I was safe. I thought regulation meant regulation when in fact it did not.

Q129 Kelvin Hopkins: Indeed, and those people are extremely cautious people. I should say that what savings we have personally we put into national savings certificates, because they are the Government.

Ms Berry: Yes.

Q130 Kelvin Hopkins: But if I wanted to make a lot of money, be a ducker and diver, a bobber and weaver, I would have gone into the stock market, got into investment trusts, and I would have lost a lot of money because the stock market has gone down.

Ms Berry: But I did not do that. I put it into Equitable Life.

Mr Braithwaite: We thought we were joining John Lewis. The analogy I have always drawn is that it is like having quite a powerful car which has got seat belts and the seat belts give you a sense of security but unfortunately those seat belts, the regulator, were not anchored. They gave you a false sense of security. If it had been caveat emptor that would have been fine, I would have understood it.

Q131 Kelvin Hopkins: But even with a mutual the Government chose to regulate. I tend to trust mutuals more than I do private companies but they chose to regulate the mutuals as well, and it was a failure of regulation that has caused this problem. That is why you are here today and that is why you have a claim against the Government.

Ms Berry: Yes.

Mr Braithwaite: But we paid for that regulation.

Kelvin Hopkins: I personally accept your case.

Q132 Chairman: Just on this point, so that we are clear, and we explored this with the Ombudsman too, there was not at the time an understanding that regulatory failure of this kind would trigger compensation. There was about mis-selling and all the rest of it. That was all explicit and contractual. It was not a contractual understanding that the kind of regulatory failure that is being talked of now was also one that would trigger compensation because that, as people have asked, would have raised questions about the whole regulatory system.

Mr Braithwaite: But Barlow Clowes paid out in 1989. When Ann Abraham invited people to make submissions on should she look again and more thoroughly at Equitable Life, and the raison d'etre of the Ombudsman was recommending compensation, the Treasury had the opportunity then to say, "We do not believe compensation should ever be paid for financial service regulatory failure", which they did subsequently say two years later, but only after they had received the first draft of the Ombudsman's report.

Q133 Mr Prentice: Assuming your members are compensated, would this set a welcome precedent that the regulator, this great constellation of regulators, would know that if they overlooked something they should not have overlooked then the consequences could be quite significant in terms of compensation? You would like to see this establish a precedent?

Mr Braithwaite: Yes, and essentially inspire the confidence that has sapped away in the last half a dozen years. There is no confidence in the FSA. Northern Rock is the proof of it, the people queuing outside the door on the news that the money is guaranteed.

Q134 Mr Prentice: What about the Law Commission that is consulting on this? The Law Commission has been saying that the sums of money are so huge that you cannot give people an open-ended cheque even where there is regulatory failure. This is not their final conclusion but they have floated this. What do you think about that? If there has been regulatory failure and the consequences are so huge there must be some limit on the compensation that is paid out. Do you think that is fair or do you accept that that is inevitable when we are talking about billions and billions of pounds? I am not looking at anyone in particular.

Mr Scawen: May I pose an alternative first, Chairman? Let us suppose the next generation of nuclear power stations are badly designed and the Atomic Energy Authority gets it wrong. Will you just walk away and say, "Sorry, boys, made a mistake"? It is the same issue.

Chairman: I have a deep desire not to go down that particular path.

Q135 Mr Prentice: Do not get me going on nuclear power. Really, it is not worth it.

Mr Braithwaite: With respect, your question is crystal-ball gazing.

Q136 Mr Prentice: No, it is not.

Mr Braithwaite: This is going on now and this report is about the period to 2001.

Q137 Mr Prentice: It is a very simple and straightforward question in that the Law Commission has circulated a paper saying that in certain circumstances the cost to the public purse is so stratospheric, so huge, that there might be limits on the amount of any compensation that is paid out despite a regulatory failure. That is a very simple question and I am just inviting you to say whether you agree with it or disagree with it.

Mr Slater: We do not agree.

Mr Prentice: Okay; that is fine.

Q138 Mr Walker: But I think you have accepted that there would be limits because I think earlier in your evidence you said that it would be up to Parliament to set the figure of compensation and that you would work within that figure to distribute it equitably.

Mr Slater: Yes.

Q139 Mr Walker: So I think you accept the principle that there would have to be a figure.

Mr Slater: Yes.

Q140 Chairman: I think it is also the case, just so that we close this bit of the argument off, that the Ombudsman has said that in fact she set the bar of failure very high.

Mr Slater: Yes.

Chairman: But she is not talking, as it were, about marginal or even routine regulatory mishaps. She is saying that she deliberately has set the test extremely high, so we are not talking about any kind of regulatory failure; we are talking about regulatory failure of a severity where there are consequences. That is something that we have to explore as well.

Q141 Paul Flynn: A quarter of the members of this Committee stand to gain by compensation from Equitable Life and I think this is reflected throughout Parliament. There are about 150 MPs who stand to gain from compensation. Should we be treated on a people basis as a retired nurse or a retired steelworker who are on income support?

Mr Slater: Why not?

Ms Kwantes: If you have paid insurance -----

Paul Flynn: Because we are rich and therefore is this concept one we should grasp - it is better to give to the poor rather than to the rich?

Chairman: I think, by the way, Paul says things that are not necessarily always quite true. It may be the totality of Members of Parliament, I do not know, but it is not the totality of this Committee. I think we have one member of the Committee in that situation.

Paul Rowen: I have to declare publicly a small interest in Equitable Life.

Q142 Chairman: We have one member of the Committee who has declared an interest, just for the sake of accuracy, as we say. Can I just put Paul's question in a different way as we end, which is that if we accept your rough and ready approach and we have your sliding scale, surely the effect of that would be that it would go against what the Ombudsman has said where she says that she is far from concluding that all members suffered loss? In fact, you would be compensating those who did not suffer loss, as it were, at the expense of those who did if you had this kind of sliding scale arrangement from a fixed pot, would you not?

Mr Slater: We would try to eliminate as much as we could within reason. There would be a balance between what could be done realistically and what would take far too long.

Q143 Chairman: That is why I was going to ask finally do you think there is some sort of middle course that is worth developing between your advocacy of a rough and ready approach and a more individualised FSA-type, case-by-case approach?

Mr Slater: The methodology which I would imagine the compensation tribunal would adopt would be to look at some of the large groups that there are and take some samples and to try to put together an approach that would fit particular groups and to cut out as much rough-and-readiness as possible.

Q144 Chairman: Okay. We could go on but I want to end it. I want to thank you very much for your evidence, both your written evidence and what we have been able to talk about today. I am sure you will understand, because you know how committees operate, that our job is to test the evidence. You see that there are varieties of perspective that Committee members bring to this, as to everything else, but our job is to test the evidence and then on a consensual basis try and say something useful, and that is what we are doing in relation to this, as with other things and we are grateful for your help in doing that.

Mr Braithwaite: Can I just finally say that it is an astonishingly good piece of rigorous work and the Ombudsman and her team are to be congratulated and we look to you to support that, having scrutinised it closely.

Chairman: Okay. You have had the final word. Thank you very much indeed.

Witnesses: Mr Vanni Treves, Chair, and Mr Charles Thomson, Chief Executive, Equitable Life Assurance Society, gave evidence.

Q145 Chairman: Let us move into the second half of our proceedings and extend a welcome to Vanni Treves, who is the Chair, and Charles Thomson, the Chief Executive, of Equitable Life. Thank you very much for coming along. You know why we are doing this inquiry following the Ombudsman's report, and obviously we would like your contribution to it. Thank you for the paper that you have let us see. Would you like to say anything just quickly by way of introduction?

Mr Treves: Having heard, Chairman, what the PO had to say and what has happened this afternoon, I will spare you my burnished prologue.

Q146 Chairman: Is that it?

Mr Treves: That is it. That is my burnished prologue.

Q147 Chairman: Similarly, Mr Thomson, you want to be spared, do you?

Mr Thomson: Yes, certainly.

Q148 Chairman: You know what we are grappling with. We are grappling with the basis upon which there ought to be some kind of compensation scheme, that is the issue itself, and, secondarily, the nature of any such compensation scheme if there were to be one. Can you help us with a number of things to start with? Can you help us with the cost issue? We have had these different estimates which are large numbers of billions of pounds different. Can you provide us with any kind of reliable cost estimate of what a compensation scheme of the kind that you think would be acceptable would involve?

Mr Treves: We cannot. We have thought very hard about this and we have thought about it even harder since you started taking evidence, and we associate ourselves with the Ombudsman in finding ourselves unable, in advance of the Commission doing its work, to come up with any reliable figure, or even an unreliable one.

Q149 Chairman: This is difficult because if EMAG can do it and if the annuitants' group can do it it is very odd that you running the show cannot.

Mr Treves: It may be that they are cleverer than we are, but everything depends on the assumptions that are made. Who is covered? How do you measure relative loss? What period is covered, from when to when? Depending crucially on those and other assumptions you get a huge variability of figures and we simply cannot do it in any way that is helpful without knowing the assumptions that are to be made.

Q150 Chairman: How on earth is the Treasury going to do it if you cannot help them at all with this? You say that any scheme should exclude both market losses suffered by policyholders and any compensation already paid by Equitable Life, so you can do that calculation, can you not? You can look at all the compensation that has already been paid, you can look at what is happening to the market generally. You know the policyholders, do you not, better than anybody else? Surely you can make some calculations.

Mr Treves: It is for the Commission, which, as we know, has to be independent and transparent and simple in its work, to come up with the principles, and we will assist it in coming to those principles, as will others, as it takes evidence. Once the principles are established then certainly we can assist it in applying those principles to the hundreds of thousands, possibly a million policyholders, that were affected. Until then we do not think it is helpful to bandy figures about.

Q151 Chairman: I am not sure bandying about is what I want. I want an informed estimate based upon the knowledge that you possess.

Mr Treves: Indeed.

Q152 Chairman: It makes it very difficult for us to say anything sensible to the Government if we cannot offer them any reliable indication of what sum of money we are talking about.

Mr Treves: It is very difficult. We have tried very hard. We think it would be irresponsible to offer you figures.

Q153 Chairman: But your submission is emphatic on the fact that government should cough up; you are adamant about that.

Mr Treves: Yes.

Q154 Chairman: But then you cannot help with the next bit, which is how much they should cough up?

Mr Treves: We cannot do that in advance of the Commission doing its work.

Q155 Mr Prentice: What about the percentage then? We spent a lot of time talking about the ten per cent that would cover the various commissions of the company's directors at the time, with 90 % being borne by the taxpayer.

Mr Treves: We do not recognise that percentage. We agree entirely with the principles that the Chairman enunciated an hour or two ago. There was market failure here, or market losses. There was the responsibility, which we fully accept and for which we have apologised, of our predecessors, authors of our own misfortune, and we know what has been paid out by the Society in order to make good the losses for which the Society was responsible. That is set out in the appendix and if you total all the amounts given out, the compensation comes to about 1.5 billion. That is roughly what the Society has paid out as the author of some part of its misfortunes. Then there is the rest, and the rest, which is the hard stuff, is what proportion of the losses of policyholders not attributable to our fault, not attributable to market decline, is attributable to regulatory maladministration. That is the hard bit.

Q156 Mr Prentice: But you will not even make a stab at that, will you?

Mr Treves: No, we would not.

Q157 Mr Prentice: We are talking about percentages.

Mr Treves: We would not.

Q158 Julie Morgan: You do not recognise ten per cent?

Mr Treves: We do not accept that figure.

Q159 Mr Walker: But you guys specialise in numbers, for crying out loud. You have to have an idea; that is what you do for your business. I see that Mr Thomson was Chairman of the Life Board of the actuarial profession. You do numbers. You have to have an idea.

Mr Thomson: We do numbers particularly when they are within the company, and if you ask us about our schemes we can give you numbers. What we cannot evaluate in this case is how you construct relative loss. The Parliamentary Ombudsman spent years on it and has not produced a definition. I do not think it is appropriate for us to try to speculate what that should be. It involves different groups of policy types, different dates coming in, different dates going out, but I do believe that if these parameters are set down and relative loss is looked at in a handful of cases it would then be possible to expand that across the entire population in order to get a figure, but that is the job for a Commission, not for us.

Q160 Mr Walker: So if there is a consultation on what type of compensation and how much should be paid and the two of you are asked to contribute to that consultation you will shrug your shoulders and say, "We have got nothing useful to add, I am afraid"?

Mr Thomson: Not at all. We would be very happy to try and assist with trying to home in on what the Ombudsman has defined as relative loss and to assist in that process.

Q161 Paul Rowen: But the Ombudsman in her report makes certain findings of fact which go back to 1990, and each one of those is attributable to regulatory failure.

Mr Thomson: Yes.

Q162 Paul Rowen: I am not an actuary but I would have thought that, starting from 1990, given the ten facts which are established and known and knowing when policyholders went into your company, you could then establish a figure, because if at 1990 the stock was put and the company was stopped from proceeding clearly anybody who has invested since would not have suffered and would have gone elsewhere.

Mr Treves: That is absolutely right. Each of those ten findings will have impinged upon every policyholder in a different way at different times in different amounts. That is work that we have not done and the balance that needs to be reached in due course is the balance on the one hand between what the Ombudsman says about treating each case individually, but there are a million such cases, and on the other hand not concluding this exercise at a time when all the policyholders are dead. Therefore, at some stage in the process, the two-year process, we hope (shorter we would like to think), there has to be a balance reached between individual "claims" on the one hand (there may not be a claim system), and on the other hand what was characterised earlier as "rough justice", and we think that probably there will have to be groupings, there will have to be segments, there will have to be parameters, and people falling within those groupings, within those segments, within those parameters, will be dealt with in a similar way.

Q163 Paul Rowen: Yes, but I would have thought, and this comes back to the point the Chairman was making, that you as the people that are sitting on the information, you have the policies, you know when people joined the scheme, you know how much they invested, you know the findings of fact, you ought to be able to come up with a scheme in these groups of people that are affected by this decision, this decision, this decision, therefore the compensation should be so-and-so.

Mr Treves: Once we are guided by the Commission we will help in every way possible. We have a society to run and we simply do not have the resources to go pursuing speculative hypotheses on what might happen if the Commission says this or that or the other thing. Once we have some guidance we will assist in every way we can.

Q164 Chairman: Once there is agreement on the underlying principles of any scheme, if there is to be a scheme, how quickly after that could you help with the detail of it?

Mr Thomson: We have policy records from the time. They are not perfect but we would expect them to be good enough to deal with a scheme that is designed to be relatively simple, and by that I do not mean particularly broad-brush, so we would expect to be able to assist with that, and the Ombudsman's idea of completing this within two years once the parameters are set is something that we believe would be a realistic ambition.

Q165 Chairman: Just to go back to where we started, I just want to pin you down a bit on this, if you say that you do not recognise ten per cent as a discount figure what would you recognise? 20 %, 30 %, 40 %?

Mr Treves: I would not like to put it in percentage terms. It is unquestionable that the Society was very substantially at fault for what happened. We have accepted that from the beginning and we have paid a huge amount of compensation and have apologised deeply for what our predecessors did, but I do not think it is helpful to delve into percentages.

Q166 Chairman: You have intimate knowledge of the history of this issue that we are looking at. We have to try and make some sense of it. You have explained why you cannot give us the detailed costings figure now, and I suppose we accept that, but you have accepted that there are components of the issue. One is what happened to the market, one is the failure of the company, and the third is the failure of the regulators. I do not think it is too much to ask you just to tell us what you think the respective percentage components are, knowing what the identity of them is.

Mr Treves: We cannot sensibly answer. The compensation that was paid of 1.5 billion or thereabouts was paid to huge numbers of people in very different amounts to compensate them for very many different kinds of losses over very many different periods, so it is not as if we can say that there were 100,000 people, say, - in fact there were many more than that; there were several hundred thousand - to whom we paid 1.5 billion compensation and therefore it works out at X per policyholder. That is not the way it works.

Q167 Chairman: That is not what I am asking you for. You objected to the ten per cent discount figure that EMAG had come up with. They say they have it on the basis of good counsel's advice and so on. You dispute that and therefore it is quite reasonable to say that if you dispute that what is your best estimate.

Mr Treves: I think I said I did not recognise it. My visceral feeling is that our responsibility was much greater than that but I am not going to be drawn on how much greater it was.

Mr Thomson: If I may try and help, the company has accepted responsibility for what it got wrong and has done its best to try to put that right between policyholders and in general terms. We do not take responsibility for the maladministration of the regulator and therefore we would see the regulator as 100 % responsible for that maladministration and the consequential losses that flow from it, and that is where we get into difficulties with the number because that relative loss that the Ombudsman is portraying, what is that? How do you calculate it? If you put in a set of assumptions, as EMAG have done, you quantify the loss as at July 2001 but not all the policyholders ended their contracts in July 2001 so what does that do to market losses that happened between July 2001 and, let us say, March 2003? You are getting compensation which is unequal between different people, so unless you have a set of assumptions about how you are trying to calculate that relative loss you can get enormously different numbers and we do not believe we have anything useful to put in as a number unless we have agreed assumptions to start with.

Q168 David Heyes: Are you going to continue this stonewalling approach to assisting progress on this when you are asked for assistance by the tribunal when it is set up? You have already said that you will assist the tribunal in coming to the principles. You are clearly not prepared to assist this Committee in coming to some conclusions about that. How are you going to assist the tribunal? What is going to be different about your approach when the tribunal ask you?

Mr Thomson: I think the issue is that the Commission will have the obligation of producing their answers to how they think relative loss can be fairly calculated.

Q169 David Heyes: Mr Treves said that you would assist the tribunal in coming to their principles.

Mr Thomson: Yes, we will try to.

Q170 David Heyes: That is what we are trying to probe here. You are saying, "We will wait until the tribunal has come to its principles". Is that just a simple contradiction? Do you not intend to assist the tribunal in coming to its principles?

Mr Thomson: We would be happy to try to assist the tribunal, but it would be a tribunal judgment.

Q171 David Heyes: How are you going to do that?

Mr Thomson: By discussing the issues that are of relevance to it in terms of how you might adjust the company's data, the history of Equitable Life, how with-profits bonuses were added over the months and the years, how reductions in terminal bonus were made in 2001 and later, and what happened generally in the market.

Q172 David Heyes: In brief, by bringing your experience to bear.

Mr Thomson: We would try to assist.

Q173 David Heyes: You seem to be reluctant to share that experience today when this Committee are asking you to do that.

Mr Thomson: I do not think we are reluctant; I think we would be happy to, but the issues do become rather complex. We can certainly endeavour to try and write some of these things down but the interaction of smoothing policies in all the different companies in the market and how that interacts with market falls and therefore avoids market-related losses, which the Ombudsman is clear should be avoided, I think is a very major issue in how you try to identify relative loss.

Q174 David Heyes: Mr Treves, you have no comment to make on that?

Mr Treves: I think it would be irresponsible to go further than we have done. I am just not prepared to bandy around figures which we cannot sustain.

Q175 Mr Prentice: In your written submission to us, which was very interesting, you talk about the policyholders whose claims have been settled by Equitable Life, and in the paper you tell us you have settled over 100,000 claims. I may have misheard you, Mr Treves, but did you say several hundred thousand or did you just say several thousand?

Mr Treves: No, 100,000. I think the total was probably about 150,000.

Q176 Mr Prentice: So of the 150,000 claims that you have settled is it possible to give a percentage of the claim that was met by Equitable Life? Clearly not everyone who approached you for settlement got the 100 %, but what was the percentage that they got on average, that 150,000?

Mr Treves: It varied enormously and the major variation was in the 2001/2002 compromise scheme where the percentage recovered was of the order of 30 % or even slightly less than that where the Society was at that time in an extremely parlous state, arguably on the very verge of insolvency, and the court sanctioned scheme - the compromise scheme as we call it - under section 425 of the Companies Act enabled those who had suffered GAR related losses to recover of the order of 30 %.

Mr Thomson: For the non-GARs 220 million was added with a potential claim of 850 million.

Mr Treves: In other cases the loss accrued or recovered was in many cases approximately 100 %. In many of the cases the pursuit was through FOS. FOS has now a cap of 100,000 but anything ordered by FOS up to that limit was paid out in full.

Q177 Mr Prentice: But the records that you spoke about earlier of the individual policyholders are all computerised. You, Mr Treves, talked earlier about the resources that were needed but it would be possible to use the computer power of the company to establish the losses, assuming the parameters were agreed, the point that you made earlier, to come up with a figure that individual policyholders would recognise as what they had lost.

Mr Treves: We could certainly contribute very much by reference to our computer records in coming to a figure.

Mr Thomson: With regard to the former non-GAR policyholders, as we call them, those who did not have guaranteed annuity rates in their policies, there was a scheme for those who left before the compromise scheme in February 2002, and to carry out that scheme we had to do precisely what you are talking about. We had to know what the details of each policyholder were and look on an individual basis at the potential loss they had suffered. That sort of system can be done but before you can start it you need to know the assumptions you are making about the dates and the comparator group that you are using.

Mr Prentice: I understand.

Q178 Paul Flynn: Do you think that Equitable Life is primarily responsible for the losses suffered?

Mr Thomson: I think we have no problem with Lord Penrose's comment that the Society was the author of its misfortune.

Q179 Paul Flynn: Could you answer my question? Do you think Equitable Life is primarily responsible for the losses suffered?

Mr Thomson: That means that the company had to be responsible before it was possible for others to be guilty of maladministration or whatever, so yes, primarily they were responsible.

Q180 Paul Flynn: You are answering the question yes?

Mr Thomson: They were responsible first primarily, but the others managed to have maladministration also.

Q181 Paul Flynn: You answered the question "yes". I believe you are saying your responsibility is for at least 50 % of the losses.

Mr Thomson: That was what I thought you were trying to get me to say and I was declining to say that.

Q182 Paul Flynn: Why do you come here and expect to make a good impression on this Committee and expect it to be sympathetic to you when you seem to be deliberately not answering our questions? You, Mr Treves, have said that you would not be responsible for answering the questions. Is it responsible to demand a sum of money from the taxpayers without saying whether you have any idea what that sum of money is?

Mr Treves: That is exactly why the Ombudsman -----

Q183 Paul Flynn: So the taxpayer should pay?

Mr Treves: That is why the Ombudsman recommended the establishment of a Commission, in order to do the work that has not yet been done independently, simply, with transparency, to come up with a fair figure.

Q184 Paul Flynn: If you look at the possibilities of the most generous compensation and the most austere compensation for the Equitable Life loss, should that be a ball park figure between a billion and 20 billion? You surely must have some idea what sum it is likely to work out at. We are not asking you to commit yourselves to the nearest billion.

Mr Thomson: The reason why we have not answered the question is that you have seen this afternoon figures that are measured in significant numbers of billions and the other end of the scale, if you have very restrictive definitions of relative loss, are significantly more modest, orders of magnitude less.

Q185 Paul Flynn: We have a figure from the two groups who represent those that had the losses and, quite understandably, one presumes they would have gone for the higher figure, for the maximum compensation that is likely to be obtainable, but we could get from you possibly a more realistic one on what the true figure might be if it is generous or if it is austere. Who else could give that? How can Government make a judgment unless they have an idea what the commitment is likely to be?

Mr Treves: If the Government can make a judgment eventually when the Commission reports, and if at that stage it says, "We cannot afford it", or, "We can only afford it over a period of time", so be it.

Q186 Paul Flynn: If we presume the ten per cent figure is right and the compensation figure that is mentioned, the 12 billion, is right, and we take it on the ten per cent, not the 50 per cent figure, is Equitable Life in a position to compensate on that scale?

Mr Treves: Equitable Life has already compensated everybody in full for that which it was responsible for, and that is made terribly clear by the Ombudsman: "It is important to remember that the wrongs done here and the injustice here described in this report are wrongs done by the regulators".

Q187 Paul Flynn: I am sorry to interrupt you but we have all read the papers.

Mr Treves: We have paid out.

Q188 Paul Flynn: Are you in a position to compensate if it is decided that a billion pounds should be paid out of the coffers of Equitable Life?

Mr Treves: There is no question of the Society being required to pay anything more to anybody for anything. We have done that over the last seven or eight years that we have been in office.

Q189 Paul Flynn: That is your case.

Mr Treves: It is not just a case. It is a fact. Look at the audited accounts. Now it is a question of trying to apportion the responsibility of the regulators and pay compensation -----

Q190 Paul Flynn: Please do not bother. You are obviously not going to answer the question. I am asking -----

Mr Treves: Let me try and understand the question.

Q191 Paul Flynn: You can say yes or no. Are you in a position to pay out?

Mr Thomson: We do not think Equitable Life has to pay any more since Equitable Life has already paid.

Q192 Paul Flynn: That is not the question. That judgment will be made.

Mr Thomson: It would be inappropriate use of policyholders' funds to pay for government maladministration.

Q193 Paul Flynn: It is clear you have decided to stonewall and not answer the question, so there is not much point in asking you any more questions.

Mr Treves: We have always made provision, Mr Flynn, for everything that the Society could reasonably be responsible for from the day we took office. That provision has come down from huge figures to a very small figure now, the accounts are clear about that, in order to reflect the fact that we now believe, and our auditors accept, that the Society has only minimal responsibility to anybody for anything other than, of course, paying out the policies as they become due. We are now here talking surely about the responsibility of regulators, whatever it is, for the clear findings of the Ombudsman for regulatory maladministration.

Q194 Paul Rowen: Can I ask you about culpability? On page 3 of your submission you say that legal action against former directors and former auditors began in 2002 and was settled in 2005. Can I ask you how much you have recovered from that?

Mr Treves: Nothing. We failed to recover anything there. That litigation was a huge disappointment and the only recovery, if I can call it that, was that we were not required to pay the costs, the very large costs, of some of the defendants.

Q195 Paul Rowen: Could I ask why that is the case? It is clearly obvious, having read the Ombudsman's report, that certain key people -----

Mr Treves: We believed that we had a strong case. We believed and were advised that we had a duty to pursue it. We failed. That is the way of litigation. It was absolutely gutting.

Q196 Mr Walker: Do you speak to the Treasury now and then as to what is going on?

Mr Treves: No.

Q197 Mr Walker: No?

Mr Treves: You mean over the last year?

Q198 Mr Walker: Yes, with Treasury officials.

Mr Treves: We have not. We have had, I think it is, three conversations with Kitty Ussher, who was assisted by various people at that time, and none of them was substantive.

Q199 Mr Walker: What did you discuss with her? What was the point of seeing her? What were the discussions about?

Mr Treves: The first meeting on 7 July was a review of the state of the Society and the subsequent conversations followed upon the publication of the Ombudsman's report. We were calling on her please to let us know, to let everybody know, quickly what the Government reaction was going to be. So far we have not heard anything of any substance. We have asked for a meeting with Ian Pearson. That has not happened. We have asked to have a meeting with the Chancellor. That has not happened either.

Q200 Mr Prentice: You say on page 4 of your submission to us that you looked at the possibility of taking legal action against the regulators.

Mr Treves: Yes.

Q201 Mr Prentice: You go on to say, "Regulators enjoy a very high level of protection from legal action -", something we know, but then you say, "effectively, a case would need to show misfeasance, not simply negligence or incompetence". I looked up "misfeasance" because it is a word that I do not use all the time, and it told me that misfeasance is "not technically illegal but mistaken or wrong".

Mr Treves: Speaking as a lawyer, I regard misfeasance as connoting or denoting fraud, and the advice we received, which we published, was quite clear that what we needed to show went beyond gross negligence or gross incompetence to something tantamount to fraud, and that was never suggested.

Q202 Mr Prentice: So because no-one was conspiring to commit fraud then the negligence, overlooking things that should not have been overlooked, was just incompetent?

Mr Treves: Exactly. There was no wrongdoing in that technical sense.

Q203 Mr Prentice: I see. Is the Society in rude health now, Equitable Life?

Mr Treves: Yes, I am glad to say it is.

Q204 Mr Prentice: I read somewhere in this huge pile of documentation we have got, it may have come from EMAG, I do not know, that Equitable Life is now being run down and broken up, and then we read stuff in the financial press about Equitable, but you tell us that it is in good health.

Mr Treves: We are in a stable and solvent condition.

Q205 Chairman: Can we just go back a little bit and regroup? Gordon asked you about how many people you had compensated and in your written evidence to us you say you have made payments amounting to hundreds of millions of pounds to hundreds of thousands of policyholders.

Mr Treves: Yes.

Q206 Chairman: But now you tell us that you have only dealt with 150,000 policyholders, so there is a bit of a difference there, and then you have told us that the total cost now is 1.5 billion.

Mr Treves: Yes.

Mr Thomson: We had several different areas and that was why we set this out in the written evidence that the compromise scheme which was approved by the court in February 2002 dealt with everybody who was still involved with Equitable Life and had an interest in the guaranteed annuity-related rates issue. That involved probably over a million people at that time and the money that was flowing in different directions as a consequence of that scheme was measured in at least hundreds of millions, possibly over a billion pounds, so there is a great deal of money tied up in that either in cash or in value. The separate schemes that are listed were mis-selling reviews and other arrangements that we did with groups of policyholders affected in specific ways by the actions of the company, and these were individually discussed with the FSA or they involved the Financial Services Ombudsman or whatever.

Q207 Chairman: You can see how it is puzzling because we are dealing with different figures here. I am not going to go back to the ten per cent question; well, I am actually but in a slightly different way. You have paid out one and a half billion pounds. Do you think regulatory failure should pay out more or less than one and a half billion pounds?

Mr Treves: I think regulatory failure should pay out the consequences of that failure.

Q208 Chairman: That does not help us. You have been through a compensation exercise, deals have been struck, you have paid out one and a half billion pounds and you have told us that you think the ten per cent discount is not right. It really is not difficult to say whether you think the regulatory compensation bit should be more or less than one and a half billion pounds.

Mr Treves: The claims, Chairman, are very different, they are for different things. If I have a claim against the Society, say, for mis-selling then the consequence of that mis-selling can be worked out quite clearly either by us or by whoever. The consequences of regulatory failure, as we have tried to explain, are much more opaque and, therefore, with respect, I think you are comparing apples with oranges. You are not saying, "Ah, because you paid one and a half billion pounds for the failings we have identified there, therefore regulatory failure must be more or less than that", they are just wholly different areas.

Q209 Chairman: Well, I am probably being very dense but it does not seem to me to be an odd kind of question. People have been compensated and you have described the compensation in your submission as "enormous", that is the word you have used.

Mr Treves: Compensation that we have paid out.

Q210 Chairman: Yes, and the total amount of this enormous compensation is one and a half billion pounds. You say there ought to be some compensation for regulatory failure but you disagree with the EMAG figures of about ten per cent discount. Given the fact that we are talking in global figures here, we are not talking about how we do the scheme but respective responsibilities, to ask whether you think the compensation for regulatory failure should be more or less than one and a half billion pounds does not seem to me to be an odd question.

Mr Treves: I think we are circling back to the original problem and I wish we could help you. We had a great many discussions with the Ombudsman on this very subject because, of course we were being pressed very hard by the Ombudsman who in turn wanted to come up, presumably at the time of the discussion, with some kind of figure. The debates that we had produced in the end statements which we are all familiar with from the Ombudsman, but she in turn has been unable to come up with any figure and, if you like, she says it is for the Commission to seek to come up with a figure having established the principles and so on. That is the best we can do.

Q211 Chairman: Is it because you do not know whether it will be more or less than one a half billion pounds or that if you do know you do not want to tell us?

Mr Treves: No, absolutely the former.

Q212 Chairman: You do not know. You simply do not know how much it will be.

Mr Treves: We absolutely do not know. I can emphatically tell you that.

Q213 Chairman: When you settled these compensation schemes, as I understand it, you did not settle them for the full value of the claims, you came to deals ---

Mr Treves: In some cases.

Q214 Chairman: In a lot of cases because of the state the company was in so people took a percentage of what they had claimed.

Mr Treves: That was true with the section 425 scheme at the very beginning; it was not true in the later stages.

Q215 Chairman: So it was true of some of the schemes?

Mr Treves: Yes.

Q216 Chairman: Do you think there will be an equivalence in the way that we think about a compensation scheme for regulatory failure too?

Mr Thomson: I think it is perhaps the question that you asked earlier about the public purse. The Society, as a mutual, has one pot of money and the compromise scheme in 2001 and 2002 was dealing with the attribution of that pot of money to different groups of policyholders with competing claims. There was no extra money that could be brought in from anywhere - it was about the allocation of it. What we are talking about with government maladministration is what was the effect of that maladministration, what bill results from it in terms of relative loss and then I think it is a valid question can the public purse actually cope with that payment or not.

Q217 Chairman: Can you help us with that at all because you could not help us with the cost figure? EMAG have said they accept that there should be a cap on this total amount. Do you have any sense of what a reasonable cap might be?

Mr Treves: The cap presumably will depend upon the state of the public purse at the time.

Q218 Chairman: It is dire, is it not?

Mr Treves: At the time that the Commission reports.

Q219 Chairman: It is going to be even more dire by then.

Mr Treves: I fear so. It is not for us to speculate as to what the Government, the state, the taxpayer can then afford. If there is a cap, I have enormous sympathy in any event with the suggestion that there be a hardship fund in the interim because we do know that many of our policyholders are in dire straits. If there were some kind of interim hardship fund, the payments to be made on account of the eventual payments by the taxpayer, that I think would be very helpful.

Q220 Chairman: If I may say so, that is the first concrete proposal that you have given us. I wonder if you have given any thought as to how such an interim hardship fund might ---

Mr Treves: We have not, and the reason we have not, Chairman, is because the first time we thought about it was when we heard about it an hour and a half ago. That is the reality.

Q221 Paul Flynn: The report from this session of the Committee on what we have learned from it will be a very brief document, I think. Will you come back to us and answer these questions at a later date if you can come up with the answers to the questions we have raised perhaps when the Commission reports?

Mr Treves: We will reflect certainly on the questions that you have asked which you believe we have failed to answer, but I doubt whether we will be able to help you much because we have thought about this very carefully and this is the best we can do.

Q222 Chairman: Perhaps you would write to us with any of the outstanding matters that you have not been able to deal with today, or if we suggested various approaches perhaps you might respond to them.

Mr Treves: Certainly.

Q223 Mr Prentice: I do not know how long it takes for a hardship fund to be up and running because you would have to deal with individual claims, but anyway. The former directors of the company, you told us a few moments ago, walked away scot-free. I want to come back to this point about misfeasance that I raised earlier and you told the Committee to be hauled before the courts it would have to be shown that a regulator acted in a fraudulent way. Given that the Law Commission is now looking at this whole area of the law - I am not a lawyer, you are - is there a case for criminal negligence where someone, the directors of the old Equitable Life, if I could put it that way, who were the authors of this terrible misfortune for hundreds of thousands of people, could be held criminally liable for the decisions that they took?

Mr Treves: They could be if the crimes existed, as it were, on the statute book, and I do not believe at the moment they do.

Q224 Mr Prentice: The point is that the Law Commission is looking at the law in this area.

Mr Treves: If Parliament were to say ---

Q225 Mr Prentice: Sorry to interrupt, but I am asking you. Given everything that we know about Equitable Life, the fact that policyholders are eking out an existence and you talked about a hardship fund, we know that the directors of the old Equitable Life have walked away scot-free, the company actuary was struck off the list from the Institute of Actuaries, and that was about it, my question is if the Law Commission looks at this area then perhaps there should be a new offence of criminal negligence? That is what I am asking you.

Mr Treves: I think the law is moving in that direction. We are speculating here, but there is no doubt that the duties and responsibilities of directors are increasing over time and there may well come a point where the misbehaviour of a director in the performance of his or her duties is so egregious, so outrageous, that it leads to criminal responsibility, but we are not there yet.

Q226 Kelvin Hopkins: It strikes me that if the Government is going to have regulation it should be strong, fierce, tough regulation that works, or no regulation at all. Is not what we have had, which is apparent regulation which is incompetent, weak and does not work, the worst of all possible worlds in trying to make investors and savers have confidence in organisations where it was not due?

Mr Treves: I was very taken, Mr Hopkins, by what both Penrose and the Ombudsman said on that subject. In the case of the Ombudsman, she said: "This was not a failure of the regulatory system, this was a failure to operate the system" and Penrose came to much the same conclusion, the system was there, the structure was there, it was simply that it was not operated as it should have been. Therefore, I do not think we could say that there were serious failings in the system but if people do not operate it properly then we have the results that we know about.

Q227 Chairman: As we end, could I just take you back to what a scheme might be. Earlier on, Mr Thomson, you said in passing that you could envisage a kind of scheme that was not just rough and ready but actually did the business reasonably quickly, something of that type. I just wanted to make sure that we had understood what it was you had in mind as to how such a scheme might work.

Mr Thomson: I think what I have in mind is broadly what I think the Parliamentary Ombudsman had in mind, that the Commission in its first six months would investigate the issues, would define how relative loss is calculated and you would then be able to set up a scheme which worked on a limited number of parameters, like the class of policy, the date or dates money was paid in, the dates money was taken out, and work out a matrix on the basis of those parameters what the loss was related to those and you would then have something that you could build in a computer model and push through for the very large number of people affected. It would be both individual and fair and relatively simple once you had constructed it. That is the kind of idea that I would be proposing if I am asked.

Q228 Chairman: Does that put you on the EMAG side of the argument in terms of a sliding scale, or does it put you in terms of an FSA approach through individual case-by-case?

Mr Thomson: I think it is an individual approach case-by-case but the brush is not so broad that it would give compensation where compensation was not deemed to be due.

Q229 Chairman: Finally, what about the issue about whether people have to demonstrate that in some way they relied upon information that was faulty and so on and need to demonstrate their reliance upon this in making a claim? Is that a path that is fruitful or is it one that we should not go down?

Mr Thomson: I cannot remember the reference but I think there is a statement that given the passage of time it would be unreasonable to expect people to produce all of the evidence that they might have had ten or 12 years ago. Having said that, I think it is important the system is designed to be fair, that it should not take more money out of the public purse than is fair and it should not under-compensate.

Q230 Chairman: I suspect that is as far as we are going to get with you. I know that you have tried to be as helpful as you can be.

Mr Treves: We have.

Chairman: But we have not found it overwhelmingly concrete. Maybe we shall hear from you again. If we write to you following up some of the things that we have asked you today, and you know what we are after, if you can help us further than you have been able to help us today we would be extremely grateful, but meanwhile thank you very much.