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27 Jan 2009 : Column 26WH—continued
“Affordability and sustainability of bonus declarations...finding of injustice not accepted”.
Neither have they accepted finding three of injustice, or finding four of injustice about valuation rates. One would never know any of that from listening to the Chief Secretary’s statement.
Mark Simmonds (Boston and Skegness) (Con): The hon. Gentleman makes a powerful case and is being generous by giving way yet again. Is he aware that because of the reasons that he has just articulated, it is estimated that perhaps more than 90 per cent. of those who have lost out through the Equitable Life scandal will not be compensated at all? Will he join me in expressing concern for the people of Lincolnshire and those where his constituency is? This issue is causing people major concern that needs to be rectified as swiftly as possible.
Steve Webb: It is all right; no one knows where Northavon is. The hon. Gentleman makes a serious point: the process has curtailed massively the people who might be even potentially eligible. It is interesting that the ombudsman says in her report:
“My second—and central—recommendation is that the Government should establish and fund a compensation scheme”.
However, I have read the Chief Secretary’s statement word for word, and I cannot find the word “compensation” anywhere in it. What we are discussing is a hardship fund that will work on a charitable basis and probably be means-tested, and that is the fundamental problem.
Mark Hunter (Cheadle) (LD): Is my hon. Friend as struck as I am by the contrast between the Government’s approach on this issue and the swiftness of their decision to bail out the bankers in their hour of need? They acted with great urgency to assist the banking industry, while many hundreds of hard-working families who have investments in, or are policy holders with, Equitable Life feel that they are being asked to wait an extraordinary length of time for what is simply natural justice.
Steve Webb: My hon. Friend is absolutely right. Other bail-outs have been provided—one thinks of the situation involving Icelandic banks—but this case is dragging on and on with no obvious end in sight. As we have heard, the worry is that people are dying as it goes on. Even if that is not the case, the situation is causing constant anxiety. I appreciate that there is a range of circumstances, but some policyholders are scrabbling to get by and are seeing their real-terms income declining year on year. I had not appreciated that until I talked to the Equitable Members Action Group, to which I pay tribute for its tireless campaigning. One of my constituents says:
“My Equitable Life pension has fallen from £7306.79 per annum, when I took it out, to £5525.76 now, despite being transferred to the Prudential...To add insult to injury, I understand that it will continue to fall year on year until it dwindles to nothing, if I don’t die first.”
The situation is not even static—it is getting worse.
Bob Spink (Castle Point) (Ind): The hon. Gentleman will be aware that the Government are relying on the earlier Penrose report, which stated that Equitable was the author of its own misfortune. However, even Penrose pointed to serious shortcomings regarding the regulators, which failed policyholders. The Government’s policy, with its reliance on Penrose, is flawed. Even if we go back to the first report, we find that the Government should be giving compensation. Some 30,000 affected pensioners have already died.
Steve Webb: They have indeed. The Chief Secretary has quoted selectively from Penrose. Penrose goes on to say that
“it may be appropriate to comment that the practices of the Society’s management could not have been sustained over a material part of the 1990s had there been in place an appropriate regulatory structure”.
It is a both/and situation: clearly the society’s management and operation were at fault, but the regulatory regime should have picked that up and did not.
Peter Bottomley (Worthing, West) (Con): Does the hon. Gentleman agree that one necessary task for the Prime Minister is to explain why the Chief Secretary did not give the House the information in the report or the Government’s publication that followed shortly afterwards? Does he also agree that it would be suitable for the Liaison Committee to concentrate on that the next time the Prime Minister comes before it, in order to show that Parliament will not be treated in that way, especially when there is an issue of injustice?
Steve Webb: If members of the Liaison Committee raised the point with the Prime Minister, I would welcome that. I am sure that we would get an answer.
Mr. Andrew Turner (Isle of Wight) (Con): The sorry saga of Equitable Life has rumbled on for eight years. The Chief Secretary to the Treasury said that when blame rests with the owners of a financial institution,
“it is not generally appropriate for the taxpayer to pay compensation”.—[Official Report, 15 January 2009; Vol. 486, c. 378.]
However, the ombudsman made it clear that the Government should pay up. Those Equitable Life policyholders who are left cannot afford to wait another few years while the Government procrastinate.
Steve Webb: The hon. Gentleman is quite right. The waiting has gone on long enough; it is time for justice.
This is the fundamental problem. We have a process involving a parliamentary ombudsman who is independent and to whom our constituents, through us, can go for redress where maladministration has occurred. For many decades, what the ombudsman said went, and that was an entirely good thing. Sometimes when I have complained to the ombudsman, she has not found in the way that I wanted, and sometimes she has. The point is that we accept the outcome in either case. I am worried that the Government are essentially being defendant, judge and jury simultaneously. They do not like the verdict, so they are simply saying, “We’ll have this bit of it, but not that bit.” What is the point of an ombudsman process if the Government behave in that way?
Let us consider what Sir John Chadwick has been asked to do. I do not know a great deal about him, but I understand that he is a retired senior judge and I am sure that he is an expert. However, I feel instinctively uneasy that the whole process has been handed over to a good chap. We are asking a good chap to go away and think deep thoughts; to set up, presumably from scratch, an office and a structure to gather data; and to report not to Parliament, but to the Treasury. As far as one can see, he will report privately and in secret. I do not imagine that the Minister will say much that is helpful this morning, but if she can at least say that we will have access to what Sir John says to the Treasury and that we will see his findings and recommendations as we go along, that will offer a little transparency to the process that might otherwise be totally lacking.
Susan Kramer (Richmond Park) (LD): Does my hon. Friend agree that nothing in Sir John’s remit addresses the issue of justice? Justice lies at the foundation of the claims of Equitable Life policyholders. If regulators cannot be held to the standard of justice, we can have no confidence in our financial system generally.
Steve Webb: My hon. Friend raises an important point about confidence in the financial system. One of my constituents wrote to me:
“My own children, seeing what has happened to me, have decided not to bother saving for pensions.”
The Government’s response is so worrying because there is a presumption among the public that when they invest in the private sector, there is a regulatory framework to protect them. It may not protect them from all risk—nor should it—but at least it should ensure that companies are properly run. However, it did not do so in this case. If the Government walk away from their responsibilities, why should anyone else trust those institutions, especially given that Equitable was a gold-plated
mutual with a nice crest on the letterhead, and all of that? If people cannot trust Equitable Life and the Government do not help, why would they ever invest?
Mr. Brian H. Donohoe (Central Ayrshire) (Lab): I congratulate the hon. Gentleman on securing the debate. I have had the opportunity in the past to partake in such debates.
The hon. Gentleman has just mentioned the Government’s not giving a commitment to Sir John. However, I understood that they had given such a commitment. Indeed, Equitable Life states just that, noting,
“the commitment by the Chief Secretary to the Treasury to relay this information back to Parliament at regular intervals.”
Steve Webb: There is a difference between what Sir John says privately to the Treasury, which is then filtered and relayed to us, and direct access to what he is saying—in other words, the incoming material not filtered through the Treasury. That is my point. If what Sir John says to the Treasury is placed in the public domain, I shall be delighted, and if the Minister can confirm that, I am happy with that. We need to hear what is said at the time, rather than what is filtered some time later.
Gregory Barker (Bexhill and Battle) (Con): What angers my constituents in particular is that the payment of compensation, as was made clear by the Committee, is not a matter of charity but a requirement of justice to redress a wrong, yet the Government have concluded that compensation will be paid on a means-tested basis. That is their whole remit. Can the hon. Gentleman think of any other case where justice has been dispensed on a means-tested basis?
Steve Webb: The two concepts certainly do not sit well together. Clearly, if someone has suffered an injustice, the matter of whether they have other means or are still of working age and can earn money from somewhere else does not seem material in remedying that injustice.
Many Members want to contribute to the debate, so I shall just run through the fundamental flaws of the Government’s approach to Sir John Chadwick’s work. First, to assess people who have suffered disproportionately —although I do not think that is the right question to ask—an assessment of their circumstances and those of other household members, along with their other incomes, would be needed. A complicated household means test of some sort would be needed, which would be bureaucratic and time-consuming, and money that should be spent compensating people would be spent on bureaucracy. I do not recall the ombudsman saying that the compensation scheme should just be for those disproportionately affected and I am concerned that that element has been allowed to creep in. As the hon. Gentleman says, if the scheme is about justice, I cannot see why there should be a test for disproportionate effects.
Secondly, Sir John will be asked to apportion blame between the management of Equitable Life and the regulators, but I do not see how he can do that. If the company messes up and the regulators fail to stop it and alert policyholders, whose fault is that? It is both their faults. However, the Government are responsible for the regulatory regime. Why should the policyholder receive less compensation for the injustice that they
have suffered from the failure of regulation just because somebody else was the ultimate cause? I do not follow the logic of that. How can Sir John put a number on it? I assume that he will have to do that and then say, “It was half the regulator’s fault and half the company’s fault, so we will pay half compensation.” It does not make sense.
Thirdly, we have talked about speed, which is so much of the essence. I understand that the average age of annuitants is 80, so the consequences are obvious. There are already plenty of Equitable widows—and widowers, for that matter—who simply need to know where they stand. I hope that the Minister will reassure us today that the estates, and thus widows and survivors, will benefit. It is not their fault that their loved one—the policyholder—died. Why should they suffer again because of delay in the process?
Jo Swinson (East Dunbartonshire) (LD): I congratulate my hon. Friend on securing this important debate.
On the issue of speed, eight years have passed already, and even the ombudsman has suggested another two years, which would take the period to more than 10 years. However, the Government, dragging their feet, suggest that it will be even longer. Can my hon. Friend think of any other case in which justice has been so long delayed? Let us compare Equitable Life with the Icelandic banks situation, where the Government acted quick as a flash. Why does the Equitable case not require urgency from the Government?
Steve Webb: I congratulate my hon. Friend on the leadership that she has shown on this matter and on the debate she introduced in this Chamber some months ago. Sadly, there are other examples in which justice has been similarly delayed, but of course that does not justify the situation that faces us today. That is the key point.
A further point about Sir John’s study is how independent it will be. Crucially, the ombudsman wanted an independent tribunal, but Sir John has been appointed by, and is answerable to, the Treasury so how can he be fully independent? Let us bear in mind that he will be advised, presumably by the Treasury, which is ever so slightly implicated in this whole thing, and by the Government Actuary’s Department, which also has ink on its hands—I suppose that is the phrase. Surely, if such a structure is to be used, at the very least we need involvement from a policyholder representative. Just asking one decent chap to do the decent thing and give some advice does not seem up to the scale or urgency of the problem. Surely the Government should have acted on what the ombudsman said, not invented yet another structure and delay.
Anne Main (St. Albans) (Con): I congratulate the hon. Gentleman on securing this important debate. Will he expand on the point he was making? The lack of transparency in the original process led to what my constituents have called a cruel deception—when Equitable Life was technically insolvent, but they were still encouraged to invest. Without the involvement in the process of such good men as the hon. Gentleman described, people will have no faith either in the Government or the transparency of the process that they are trying to put in place.
Steve Webb: There has been a series of regulatory failures under consecutive Governments, the answer to which has always been transparency. Had we known what was happening inside Equitable Life, many of those things would not have happened, but now we need to get inside Sir John’s mind. The whole business seems extremely strange to me. The structure that the Government have adopted is a new creation and another way of kicking the matter into the long grass. We need an open process to respond positively to what the ombudsman said.
Miss Anne Begg (Aberdeen, South) (Lab): Every Member in the Chamber today is here because they have constituents who have suffered as a result of the situation being discussed. They will be looking for something a little more concrete. I have not yet heard the hon. Gentleman say how much he thinks it will cost to put right this wrong. Without quantifying the amount that hon. Members think the Government should invest in a compensation scheme, all we are hearing today are warm words.
Steve Webb: I have to disagree with the hon. Lady; she is starting in the wrong place. She asks how much we can afford and says that afterwards we should tweak the scheme to meet the bill. We are talking about an injustice that needs to be righted. She knows that figures of up to £4 billion have been talked about. That is one estimate. However, we do not have access to data on scheme members—how much they have lost and the different categories—so it is difficult to know how much the bill would be. The starting point must be to remedy the injustice. Of course, we will have to put a figure on that, but to start by asking what we can afford is not the way to remedy the injustice.
My final concern about the John Chadwick process is the following fundamental issue: is it about hardship, charity and discretion, or about righting injustice? Surely it must be the latter, which is why the ombudsman process was involved. Was there maladministration leading to injustice? The ombudsman said yes. The Government said, “Well, probably not.” However, they excluded most of the ombudsman’s expensive findings. The Government say that they agree with five in 10 of the findings, but those are the cheap five. The position is so constrained that it is not acceptable.
Tim Farron (Westmorland and Lonsdale) (LD): One of the Government’s objectives must be to draw a line under the whole case. If Sir John draws further conclusions with which hon. Members and, more important, policyholders, are not satisfied, it will leave the matter up in the air and it will return to the Government’s desk time and time again. Justice must be achieved quickly and with an end.
Steve Webb: My hon. Friend is right. I suspect that the parliamentary process will not produce justice, so again the courts will probably have to do it. The winners will be the lawyers, and the losers—we hope—the Government. Sadly, the taxpayer will have to pay more money so that the case can be fought in the courts. I hope that Equitable policyholders get justice, but I have a nasty feeling that it might be in the courtroom rather than through Parliament. That is depressing for all of us who have gathered here today.
I shall end with a quote from a constituent:
“My husband is 80 in May and is suffering from dementia and Parkinsonism and is unable to cope any longer... his pension diminished by a quarter to a third several years ago when all the problems became apparent. Although the monthly amount we received is extremely small that little extra that was deducted makes a difference.”
We are not talking about fat cats or people on the take; we are talking about ordinary, decent people who saved and trusted. They deserve justice.
11.25 am
Derek Wyatt (Sittingbourne and Sheppey) (Lab): I add my congratulations to those given to the hon. Member for Northavon (Steve Webb) on securing a debate on the inequitable life fiasco. Two things come out of the issue. First, I hope that at some stage we will enshrine the role of the ombudsman in law, and, secondly, despite not just this case, but the occupational pensions case and all the banking issues that have arisen over the past six months, hardly anyone has said anything about the auditors. Those who audit these things write them off, put their reputation on the line, and get off scot-free. We must examine the law on auditing and auditors, but that is for another time.
I completely associate myself with the remarks made by the hon. Gentleman, and I will not repeat them because I know many hon. Members want to speak. In terms of compensation, there are some extraordinary parallels with the occupational pension scheme debate that I started in the House back in July 2002. We met the Secretary of State for more than a year and there were lots of warm words. If we had had 50 per cent. of the occupational pension scheme that we wanted, we would have signed. Those concerned were happy to go for 50 per cent.—they would have gone for anything because they had nothing. Instead, however, they sensibly dug in. Amazingly, they also had an ombudsman report, which found in favour of my and other constituents. There were only 126,000 people involved—not 1 million—but all were individuals with a case to be answered.
What did the Government do? They started by saying, “Let’s hang something out. Let’s have £400 million. That seems a good figure. Let’s go to £1.2 billion. No, that’s not enough.” Gradually, as the campaign developed, they said, “Let’s go to £3 billion.” Eventually, we got our justice, which was £8 billion.
It seems that exactly the same parallels exist in relation to Equitable Life and I simply do not agree that it is right for the Government to concentrate only on those who are needy. Let me give an example from just one constituency case out of 500. Lorraine and Richard Baker state:
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