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Yvette Cooper:
I am disappointed by the tone of the hon. Gentleman’s response. The Government recognise that serious events occurred at Equitable. As the Penrose report set out, those were principally the responsibility
of the society. However, we recognise that maladministration took place. Today, I have apologised to the House and to policyholders on behalf of successive Governments and the public bodies that were involved. I would hope that the hon. Gentleman’s party will join in that apology on behalf of the previous Conservative Governments, who were, of course, also responsible for the regulatory bodies in a way that affected Equitable Life and policyholders over that period.
The hon. Gentleman also quoted from the Penrose report, which said that events might not have unfolded in the way that they did had there been in place an appropriate regulatory structure. The Penrose report indeed pointed to a series of faults with the previous regulatory regime, which stretched back to the previous insurance Act and the regulatory framework that had been put in place and supported by the previous Conservative Government over very many years.
I did not seek to make that a political point in my statement and my response to the House. However, as the hon. Gentleman raised the matter, I must point out that it was this Government who introduced substantial reform of the regulatory process, which took account of many of the failings by Equitable Life and was based on the Penrose report. Indeed, that report welcomed many of the reforms that were under way as a sensible response to the failings of the regulatory regime as it affected Equitable Life— [ Interruption. ]
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I am sorry to interrupt the right hon. Lady, but the crossfire of sedentary comments across the Chamber is doing us no good at all.
Yvette Cooper: The hon. Gentleman asked a series of questions, and I shall try to deal with them. He asked when we expected Sir John to report. We would like him to report continually on an interim basis, because we need to engage in practical work to deliver a payment scheme alongside his work. We should not simply wait for the judge to come up with final conclusions, but work alongside his assessments, so we have asked him to update us continually on his work and conclusions.
On the question of why we have not pursued the overall principle of compensation as set out by both the ombudsman and—as the hon. Gentleman rightly said—the Select Committee, I set that out in my statement. It is important that financial regulation does not come with a taxpayer guarantee. It is important for the future interests of the taxpayer and the relationship between the Government and the financial markets that if a company gets into trouble or takes dodgy action and the regulator fails to prevent that, compensation by the taxpayer is not automatic. I think the hon. Gentleman would agree that that would fundamentally change the relationship between the regulator and the financial markets, and between the Government and the financial markets.
We recognise, however, the points that many hon. Members have made about the difficult circumstances facing their constituents as a result of the events at Equitable Life. That is why it is right to set up the ex gratia payment scheme. That is the right approach, and I hope that hon. Members recognise that although the process is not simple, we are trying to be fair to both policyholders and the taxpayer, and to take the matter forward as fairly as possible.
Dr. Vincent Cable (Twickenham) (LD): I thank the Chief Secretary for her statement. I welcome the apology, and I welcome more guardedly—because we do not yet know the full details—the compensation principle. However, that comes after the long, shabby and disreputable treatment of policyholders. The endless delay and dissimulation have angered up to 1 million of them, many of whom have lost up to half their pension to the extraordinary extent that a period of maladministration that occurred largely under the previous Government has become a massive own goal for this Government. That makes it all the more surprising that the Conservative shadow Chancellor did not think it worth his while to turn up today—[Hon. Members: “What about the Chancellor?”] Well, I am here.
We are celebrating the 20th anniversary of the Prime Minister establishing his reputation as a parliamentary star by speaking for the then Labour Opposition in defence of Barlow Clowes’s policyholders. He made a passionate speech in their defence. A question that has often been asked since is why the compensation that was eventually accorded to those investors was not reproduced for Equitable Life policyholders. The answer was always that nothing could be done without an ombudsman’s report. We now have one, nine years after the company’s collapse, and it is worth rehearsing the endless delays, many of which were deliberate.
The ombudsman said that, in 2001, the then Chancellor’s delay in holding an inquiry was “iniquitous and unfair”. There was then a long period before the Penrose report and the establishment of another ombudsman inquiry. Eventually, last year, even after the Maxwellisation process, there was a six-month delay before the matter came to the House. However, it is here, and the Government have announced a compensation scheme.
Has the Treasury doctrine of compensation not changed fundamentally following what happened last year with the Icelandic banks, when people who had chased yields in high-risk accounts were fully and promptly protected by the Treasury? In contrast, prudent, careful investors in Equitable Life have been kept waiting for a highly uncertain scheme for the best part of a decade. That matters, not just because many of them have retired, but because many of them have died. The issue would never have been maintained but for the persistence of the Equitable Members Action Group, which I commend.
Finally, can we try to bring the matter to a conclusion by having an early debate not just on today’s statement and the ombudsman’s report, but on the report of the Select Committee on Public Administration and the European Parliament’s EQUI report, so that we can look forward to early settlement of many deserving cases?
Yvette Cooper: I welcome the hon. Gentleman’s welcome for the key elements of my response to the report. Hon. Members asked about the whereabouts of the Chancellor, and he is in Prague talking to the European Presidency about international banking reforms and capital adequacy in advance of the next ECOFIN. Clearly, it is for the Conservative Front-Bench Members to explain the whereabouts of the shadow Chancellor and Chief Secretary.
Mr. David Gauke (South-West Hertfordshire) (Con): Where is the Chancellor?
Yvette Cooper: Hon. Members on the Conservative Front Bench are clearly not listening. I have just explained the Chancellor’s location.
The hon. Member for Twickenham (Dr. Cable) referred to what happened with the Icelandic banks and asked whether the approach to compensation had changed. That issue was different because it involved systemic risk. It arose at a time when there was considerable movement of money from one account to another, and significant anxiety about confidence in the banking system as a whole and in retail deposits and savings. In that climate, we believed that it was right, for reasons of financial stability, to put in place additional support for the existing financial services compensation scheme. He will be aware that that scheme is funded by the industry. We recognised that additional Government support was needed, just as additional Government guarantees were needed for Northern Rock because of the wider risk to financial stability. I do not think that that sets a precedent for other individual cases and institutions.
The hon. Gentleman asked for an early debate, and I will pass his request to business managers.
Mr. Deputy Speaker: Order. Without disrespect to the importance of the subject—I doubt whether any hon. Member does not have constituents who are concerned about it—we cannot continue with it for an unlimited time as many hon. Members want to take part in the debate on Gaza, which is also important to many people. My aim is to conclude this debate at 2.20, so I beg for brief questions and answers to facilitate that.
Dr. Tony Wright (Cannock Chase) (Lab): I thank my right hon. Friend for accepting the essentials of the ombudsman’s report. The decision was difficult for the Government, but I think they have come to the right conclusion. The apology is right, the acceptance of maladministration is right, the acceptance of injustice is right, and setting up a compensation scheme is right. Nevertheless, why did the Government decide not to adopt the ombudsman’s recommendation to set up an independent tribunal, but instead to ask Sir John Chadwick to give further advice?
Secondly, will my right hon. Friend explain the phrase “disproportionate impact”? As I understand it, she is trying to identify a category of policyholders who have suffered a disproportionate impact and saying that only they will come under the rubric of a compensation scheme. Does that not excessively narrow the scope of such compensation in a way that the ombudsman did not recommend?
Yvette Cooper:
I welcome the work that my hon. Friend’s Committee has done to look into this matter. The ombudsman’s recommendation was to set up an independent tribunal that would then consider individual cases. We believe that in order to set up a payment scheme, we need additional advice on the position that policyholders are in. We also need to consider the relative losses they experience, as well as at how far those losses can be fairly attributed to the regulatory failure and to mistakes made by the society and others. My hon. Friend will recognise that we need independent advice on the issue and that that is preferable to the Government’s simply making a decision on how to
apportion responsibility fairly. The issue is complex and that is why we felt that appointing an independent judge to provide us with that advice would be the most sensible way to proceed, as well as the swiftest, rather than setting up an independent tribunal to do the same job.
My hon. Friend raised the matter of disproportionate impact. We have asked Sir John to give us advice on how we should interpret disproportionate impact by considering the experiences of policyholders. We would expect that interpretation to include consideration of the extent of somebody’s losses and how great they were as a proportion of their income—that is, at whether they were relying on that income or had other sources of income.
We know, for example, that there is a difference, as I hope the House would recognise, between someone who relies on their Equitable Life pension for most of their income and has seen significant reductions in it as a result, and someone who might still be in work, and has alternative ways in which they can invest. For example, in the debate that took place in Westminster Hall, the hon. Member for Cities of London and Westminster (Mr. Field) brought up cases of his constituents who had been particularly heavily hit, while the hon. and learned Member for Harborough (Mr. Garnier) said that he was an Equitable policyholder. Clearly, there is a big difference between those circumstances. We believe that it is right to be able to take such circumstances into account. However, we are asking the advice of the judge in order to inform our final decisions.
Mr. Iain Duncan Smith (Chingford and Woodford Green) (Con): Will the right hon. Lady reflect on what she has just said? Surely the simple question is whether the Government were culpable in any shape or form, and today the Chief Secretary has admitted that they were. She has apologised, and that apology is accepted. Surely the reality is that the money lost is money lost. If the Government have any involvement in the process, they have a duty to ensure that those other people are properly compensated and not to investigate who has a right to be compensated and who has not just because some are slightly better off than others.
Yvette Cooper: The right hon. Gentleman is advocating a pure compensation scheme. I set out in my statement exactly why I think that that would not be the right approach and why it would fundamentally change the relationship between the Government and the financial markets were we to set up a system in which the taxpayer was always to pay out whenever there was regulatory failure. We believe that that is an important principle, but we also think that it is right to focus on those who have been hardest hit and to recognise where there has been disproportionate impact. The shadow Chancellor has also said:
“As the Ombudsman makes clear, policyholders cannot expect to receive payments for the full losses suffered and any payment scheme must be consistent with...public finances”.
Members on both sides of the House recognise that there are difficult issues that need to be taken into account. We believe that we should be fair and recognise the difficult circumstances that some policyholders, in particular, have been hit by.
Andrew Miller (Ellesmere Port and Neston) (Lab): I welcome my right hon. Friend’s statement. A considerable number of my constituents will be waiting to see the detail. On a practical point, many of the people involved are getting old—some of my constituents are getting extremely old. Within what kind of time frame—weeks, months or years—should they expect to get money in their pockets?
Yvette Cooper: My hon. Friend makes an important point. The ombudsman recommended a two-and-a-half-year time scale within which to begin payments and we are mindful of that recommendation. We want to set up a scheme that can pay out as speedily as possible. The ombudsman also said that there were potential difficulties and trade-offs between a scheme that is speedy and swift to implement and one that is fair to individuals and to the taxpayer. We have to take all those things into account. We will be working with Sir John on an ongoing basis to try to assess some of those practical issues as speedily as possible and we will keep the House updated on the progress that we make.
Mr. Michael Fallon (Sevenoaks) (Con): Will the estates of policyholders who have died be able to make a claim, and in which quarter of which year does she now expect the first payments to be made?
Yvette Cooper: Clearly, the issue about people’s estates when they have, sadly, died is important. We will need to take it into account as part of the consideration of disproportionate impact. We will ask the advice of Sir John Chadwick on how that issue should be addressed. I cannot tell the hon. Gentleman the precise time scale or which steps that we will be able to take, but I can tell him that we are keen to do this as speedily as possible.
Mr. Andrew Love (Edmonton) (Lab/Co-op): I congratulate my right hon. Friend on her statement. I have two points. First, on the time scale, she has come up with what she describes as a simpler scheme. Does that mean that it will be quicker than that suggested by the ombudsman? Secondly, she said that hardship would be a significant criterion for compensation. Will she describe that a little more? Can she reassure those who have lost significant sums of money in Equitable Life that they will still be compensated?
Yvette Cooper: My hon. Friend asks what the time scale will be relative to the ombudsman’s scheme. My view is that the ombudsman’s own proposals would have taken some time to implement. We will all be aware from examples in our constituencies of different payment schemes or compensation schemes that have taken considerably longer than was originally intended. We are mindful of that and, in the design of the scheme, we need to take it strongly into account. We need to aim to design a scheme that can pay out as swiftly as possible, and that will be part of our considerations. It will also be one of the issues that we will discuss with Sir John Chadwick.
My hon. Friend also asked what we will take into account when it comes to considering disproportionate impact. Some policies might have been hit harder than others and have been more heavily affected, and some people will have seen larger losses. The ombudsman said that she was far from concluding that all the
complainants had experienced financial loss as a result of the events at Equitable. Policyholders are in a wide range of circumstances and a wide range of impacts have been experienced. It is right that we should take that all into account in designing a fair scheme.
Mr. Graham Brady (Altrincham and Sale, West) (Con): I, too, am appalled at the proposals to means-test the compensation. Given the fact that tens of thousands of policyholders have already died without compensation, may I press the urgency of compensation on the Chief Secretary? In particular, will she consider looking at interim payments for people to ensure that they get some benefit, especially for those who might be approaching the end of their lives?
Yvette Cooper: Again, we have asked Sir John to consider what disproportionate impact might be. That might include a range of issues, such as the scale of the impact on someone’s policy, rather than simply their current circumstances. Secondly, I completely appreciate the hon. Gentleman’s point about the urgency. However, he will understand that there are a series of practical difficulties. We do not have the information about policyholders yet, and the information that the ombudsman held meant that she was constrained in setting out how any kind of scheme should work. We are prepared to consider whether there are ways of speeding up payments for particular groups or whether there are different approaches that can be taken, but we will need to take the advice of Sir John Chadwick and to look at the policyholder detail in order to be able to do so.
Miss Anne Begg (Aberdeen, South) (Lab): I welcome the fact that the Government have accepted that there needs to be conversation, and the fact that they have said that the process has to be speedy, but may I express a word of caution? Of course it has to be speedy, but it also has to be fair. With other compensation schemes, such as the financial assistance scheme and the cod war trawlermen’s scheme, our experience has been that the Government have had to go back and look at them again. In some cases, there has had to be another trawl of applications. My advice is to make sure that we get the scheme right from the beginning. The scheme that we are talking about will be much more complex than either of the two compensation schemes I mentioned. I also wonder whether there is anything that MPs who have large numbers of Equitable Life policyholders in their constituencies can do to help the Government to find out about the different types of people who have been affected.
Yvette Cooper: My hon. Friend raises an important point. She is right that the issues involved are complex. Assessing relative losses, and how far policies might have changed simply because of market conditions, raises a series of wider questions. We know that there are many people who hold similar policies with other companies whose policies changed in value, or made losses, in particular periods. So the issues are complex, and we have to take that into account.
My hon. Friend also asked what MPs can do. My hon. Friend the Economic Secretary to the Treasury will write to all MPs with updates on what the next
steps will be. I know that he will be happy to talk to her about what else MPs could do to take the process forward.
Mr. Crispin Blunt (Reigate) (Con): If the scheme ever does come to a conclusion—unlike the Liberal spokesman, the hon. Member for Twickenham (Dr. Cable), I do not think that the matter is concluded—it will take into account the position that the public finances are in when the scheme pays out. That position could hardly be worse. How much will that discount the possible amount of compensation?
Yvette Cooper: As I have said, we will take account of Sir John’s advice, the relative losses experienced, how far the responsibility is fairly apportioned between the regulatory bodies, the society and others, and the public finances. As the ombudsman has said, it is right to do that, because in effect we are talking about taking account of the interests of taxpayers; it is fair to do so. The shadow Chancellor has said that any payment scheme
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