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27 Jan 2009 : Column 38WH—continued

Many Members are interested in bringing their constituents’ concerns to the attention of the House, but in a Westminster Hall debate, no matter how brief we make our remarks, there simply is not time for everybody to participate. That adds to the general feeling
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that the Government are hoping to put this issue to one side, so that people will not have the chance to raise their concerns in a meaningful way. Perhaps they are even hoping that a general election will intervene before they have to make the difficult decision.

Bob Spink: The hon. Gentleman will be aware that the right hon. Member for North-West Hampshire (Sir George Young) called for such a debate, and that the Leader of the House said that she would refer the matter to the business managers. However, we have heard nothing since. Will the hon. Gentleman encourage the Minister to commit to such a debate? Does he believe that in such a debate—in Government time and on the Floor of the House—the Government should introduce hard proposals for an interim payment scheme, so that those suffering terribly, and who might die before a scheme comes on stream, can receive compensation?

Mark Hunter: I concur with the hon. Gentleman. The response received by the right hon. Member for North-West Hampshire (Sir George Young) was probably exactly the same as the one I received from the Leader of the House last week.

Mr. Alan Reid (Argyll and Bute) (LD): My hon. Friend is correct in saying that this matter should be debated on the Floor of the House. The ombudsman’s report was to Parliament, not to the Government, and Parliament should take the decision. It should have the chance to vote and to decide whether to implement the ombudsman’s report in full by paying compensation, without means-testing, to everybody who lost out.

Mark Hunter: My hon. Friend makes a very important point and is, of course, absolutely right. There is no clearer demonstration of how isolated the Government have become on this issue than how Members here—a few have had to leave—have chosen to seat themselves. With great respect, it would not have been possible for the Labour Members here at the start of the debate to have sat any further away from the Minister than they chose to do. It was almost as if they were frightened of being tainted by the Government’s pathetically inadequate response to date.

I want to speak out on behalf of the many constituents who have contacted me about their policies held in Equitable Life and the many more who, I am sure, have been adversely affected. My constituents, and those of hon. Members around me, have waited long enough—years, in fact—to hear their fate and whether their savings will be returned to them. Despite the Government’s announcement, they are still none the wiser. They are left waiting in limbo. That is disgraceful, particularly in the current economic climate, when people find things so difficult.

The Government announced that they would fund a compensation scheme only for those who had been “disproportionately affected”. That is the term used in their response. The Government would decide who those people were by checking

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As we have already heard, that is tantamount to means- testing. Does the Minister really believe that that is fair to all policyholders, who have been waiting so long to hear whether their pensions will be saved?

The ombudsman’s report also made it clear that the aim of any compensation scheme should be

That is not what the Government propose. They decided to disregard the ombudsman’s recommendations by helping only those whom they decide are worthy. When will the Government accept the ombudsman’s report in full and put in place appropriate compensation for all those who are affected?

After the Government acted so promptly and with such urgency to bail out bankers in their moment of difficulty, and acted promptly for other depositors, who lost money in the Icelandic and other banking situations, does not the Minister believe that the same treatment should be afforded to Equitable Life policyholders?

11.56 am

Mr. David Heath (Somerton and Frome) (LD): It is a pleasure to participate in the debate and I congratulate my hon. Friend the Member for Northavon (Steve Webb) on introducing it so ably. I am sorry that my hon. Friend the Member for Twickenham (Dr. Cable) cannot be here as he is involved in other parliamentary business.

I take hon. Members back to a time not long ago when we had sound financial institutions in this country and mutual societies that were seen as rock solid in their propriety. Some of those, such as Equitable Life, had been in existence since the 18th century. Then came the get-rich-quick age, when all those institutions were torn apart and put together again, and management acted to maximise their profits rather than safeguard the interests of their depositors. That is the legacy of Equitable Life.

Bob Spink: Will the hon. Gentleman give way?

Mr. Heath: Let me just say a few words; the hon. Gentleman has made a couple of interventions.

I do not seek to diminish the role of the management and the pseudo-Ponzi scheme that they were operating within Equitable Life, or their culpability in creating the circumstances that came about, but we must and do also accept the role of the regulators—the Department of Trade and Industry, until 1997, and then the Treasury, and after January 1999 the Financial Services Authority and the Government Actuary’s Department. With all those taken together, there was a toxic mix of rule-bending within a financial institution and failure by the safeguarders of the public interest to do their job properly. That is why we ended up in a mess.

Since that time, we have had endless debates on the subject. I reread a speech made by my hon. Friend the Member for Twickenham on 27 November 2002, at column 67WH of Hansard. It was a superb exposition of the position at that time. My hon. Friend looked forward even then to the ombudsman’s report and to what he hoped would be the resolution of a sorry saga. Since then, as we know, the Government have decided to play it long. We have had a succession of questions, speeches and interventions. I participated in a Westminster
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Hall debate just before Christmas, and the Minister answering on that occasion, the Economic Secretary to the Treasury, cut a sorry figure. He was unable to answer any question cogently.

Daniel Kawczynski: Feeble.

Mr. Heath: I think that is an accurate description of the Minister’s position.

[Mr. Roger Gale in the Chair]

When the House resumed in January, we finally had a statement from the Chief Secretary to the Treasury, which was the culmination of eight years of waiting. We have had 13 reports on Equitable Life. In 2001, there were reports from the Corley Institute of Actuaries, the Treasury Committee and the Financial Services Authority. In 2003, there was the parliamentary ombudsman’s first report. There was the Penrose report in 2004, Paul Myners’s review of corporate governance of mutuals and Sir Derek Morris’s review of the actuarial profession.

In March 2007, we had the Faculty of Actuaries consideration of Ranson and Headdon. There was an FSA report on Penrose in July 2004, a Financial Ombudsman Service report in March 2005 and a report by EQUI, the European Parliament’s Committee of inquiry into the matter, in June 2007.

We also had the report in relation to the joint disciplinary scheme for the Institute of Chartered Accountants, which has not yet been published, and in July 2008 the parliamentary ombudsman’s second report.

Therefore, although we have had no shortage of reports on the issue, the Government have effectively announced yet another review and yet another report. They issued an apology, but it was partial, not an apology for the things for which an apology was needed.

Uniquely, after an ombudsman’s findings of maladministration and injustice, no compensation was offered. Ex gratia payments were made to a few people who were affected. We had this concept—again unique in response to an ombudsman’s report—that the money was not to go to those who suffered the injustice or the maladministration, but to those whom the Government considered needful of support. That cannot be right.

I have a series of questions to put to the Minister. Why is Sir John Chadwick’s brief so restricted? Why has it been pared down to such a point that he cannot consider what many of us feel to be the crucial questions? Will that not ensure that the payments are minimal? Sir John Chadwick’s review is designed to ensure that the minimum amount, not the right amount, is paid out as proper compensation.

What has happened to the oft-quoted precedent that the Government cannot compensate everybody who finds themselves at a disadvantage, when they are prepared to compensate the depositors of Icesave without any culpability on the part of the regulator? No one is suggesting that the regulators were at fault in the circumstances of the Icelandic banks, yet the Government were prepared to make compensation. In this example, in which the ombudsman has clearly demonstrated that the regulators were at fault, the Government are trying every technique that they have in their armoury to avoid payment.

What estimate has the Minister made of the proportion of with-profits annuitants who will receive ex gratia payments? Many feel that it will be a small proportion
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of those who should be compensated. Has she even made such an estimate? Are the Government walking into this with their eyes closed?

Does the Minister believe—this is the crucial question with regard to the role of the ombudsman—that the payments will put individuals in the position they would have been in had maladministration not occurred? That is the whole point of the ombudsman system. It is not the role of the ombudsman to compensate for commercial losses; everybody accepts that. The question is, will everyone who has suffered an injustice and a loss—not just those who find themselves extremely hard up—be placed in the position they would have been in had the maladministration not occurred? The answer is transparently clear—they will not.

Why have the Government conceded the findings of maladministration but not injustice? Why do the Government take this pick-and-choose approach to the ombudsman’s report, which enables them to assess that the ombudsman is absolutely right when the findings are inconsequential, but absolutely wrong when the findings are damaging to the Government’s reputation? If the Government take the view that they can pick and choose from the ombudsman’s findings, what future is there for the ombudsman?

I have asked that crucial question in a couple of debates on this subject. What is the point of having a parliamentary ombudsman—an Officer of the House, not of this Government—if the Government are found wanting and to have created maladministration and injustice, but then walk away from those findings and are prepared to ignore them?

What is “disproportionate effect”? How are we going to assess the consequences of this review if we do not know what factors Sir John Chadwick will be asked to take into account in assessing what “disproportionate effect” means? Is a person’s losing half their life savings disproportionate? I would say it is, but I suspect that the terms of reference will mean that, unless someone is virtually destitute, they will not receive compensation and their loss will not be considered as having disproportionate effect. That is wrong.

Anne Main: The hon. Gentleman mentioned the word “destitute”, but as we know many pensioners who are affected are in the benefits system in a way that they may not have been before. I am not sure whether the Government have truly assessed the impact of deciding to give money to some people and the effect that that will have on their benefits, or even on their tax burden. It is worrying that, in deciding who they award compensation to, the Government have not considered the impact on the future benefits of pensioners.

Mr. Heath: I am grateful to the hon. Lady for that intervention. There are two interpretations: either the Government know precisely what they are doing but are not prepared to tell us or the people who were investors in Equitable Life, or they are blundering around finding yet more delaying tactics to stave off the evil day when they finally have to do something, rather than talking about possibly doing something at some time in the future. I suspect that it is the latter, but we may hear the Minister say which of those two interpretations is so.

I have another question to ask on a point that has, I think, been raised this morning. What is the position of the estates of deceased members? The Chief Secretary
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was unable to answer that question when the statement was made. Perhaps the Treasury has now thought about it and perhaps the Minister will tell us today whether the estates can benefit from the compensation that would have been paid to the person were they still living. That will affect a lot of people, as we have heard.

Will the process be open? That key question was asked by my hon. Friend the Member for Northavon. Will we know what is happening with regard to Sir John Chadwick’s considerations or will that be a matter between Sir John Chadwick and the Treasury, to be filtered, bowdlerised and released at convenience and, probably, to be delayed, as has been the case with the history of this whole episode?

Why are there to be no interim payments? That is a fair way to deal with people who are very elderly and are waiting—and have waited so long—for justice in this matter. Why must they wait yet another two or three years, or however long it is going to take to conclude this protracted process?

It seems that most hon. Members feel that this episode smacks of injustice to those who are not necessarily, as some might caricature it, rich people who chose to invest their money, but are ordinary people who invested their life savings in an institution that they trusted. There has been injustice done to those people. This Government find themselves in the shameful position of having so devalued the parliamentary ombudsman that I am not sure we can see a genuine future for that office. That makes the Government look extremely shabby. That is not my concern, although it makes politics looks shabby, which is something we should be worried about.

This episode gives the impression that regulators can fail without consequence, which undermines the whole system of regulation. After all, over recent years we have built up a pantheon of regulators that govern so much of public business. If we do not trust the regulators, we do not trust the system. Not trusting the system discourages people from taking sensible decisions about their money, discourages them from saving and makes the economic situation in this country even more parlous. The Minister has a lot of answers to give us. A lot of questions remain outstanding.

12.10 pm

Mr. Greg Hands (Hammersmith and Fulham) (Con): I welcome you to the Chair, Mr. Gale, and congratulate the hon. Member for Northavon (Steve Webb) on securing the debate. His case was well-crafted, well-marshalled and strong, as all the contributions have been. To single out a few, the hon. Member for Sittingbourne and Sheppey (Derek Wyatt) made a brave contribution, my hon. Friend the Member for Chichester (Mr. Tyrie) was extremely helpful with his expertise, the hon. Member for Cheadle (Mark Hunter) gave an accomplished presentation on behalf of his constituents and my hon. Friend the Member for St. Albans (Anne Main) gave a particularly impassioned speech on behalf of hers.

I thought that I would turn round the usual way of summing up a debate by starting with questions, partly in order to give the Minister a bit more time to prepare
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the answers. I recall that at the last such debate, in November, we had no answers at all, on the basis that the Economic Secretary to the Treasury was awaiting a statement from the Government before anything could be answered. Today the Minister has a little more time to answer the many questions raised.

First, the reports from Sir John Chadwick were promised by the Chief Secretary in a statement two weeks ago. How will they be made? Crucially, will they be made available to the House and Parliament? Secondly—this point has cropped up several times—the Minister needs to explain the word “disproportionate”, which the Chief Secretary mentioned in her statement in terms of those affected by Equitable Life. In the same vein, the Minister needs to explain properly the situation in cases where the policyholder has, sadly, died. Most important, the Government must give at least some indication of what time frame is likely to be needed for compensation to be assessed and paid. That is the crux of the argument in today’s debate.

This is the first time that I have spoken from the Opposition Front Bench on Equitable Life. In the short time available, I will not be able to chart the background of the sorry state of affairs before us, but I can tell Members that during my time in the financial markets, I saw quite a lot of malpractice and maladministration. However, what I saw normally affected major institutions that arguably could or should have known better. In the case of Equitable Life, we are talking mainly about a set of small investors who were naturally risk-averse. Indeed, they were generally placing their life savings, or a part thereof, in trust with what they believed to be a distinguished, venerated and properly regulated institution.

We have known about the regulatory failings since the Penrose report, in which Lord Penrose criticised both the regulatory system and the fact that the regulators failed to act after becoming aware of a problem. The Opposition therefore welcome the ombudsman’s conclusion that maladministration took place and the Government’s apology. We welcome the fact that the Government have accepted at least some of the ombudsman’s findings of maladministration and some aspects elsewhere. However, did they make representations about the findings of maladministration and injustice before the ombudsman published her report, or did they simply trot out their earlier arguments all over again?

The main purpose of today’s debate is to look forward and to deal with the urgent and overdue problem of compensating those who lost out. The last debate in Westminster Hall on Equitable Life was on 25 November. Thirty Members were present on that day, and 31 Members are present today. I share the opinion of the hon. Member for Cheadle that such debates should take place on the Floor of the House to enable more Members to speak. After all, about 1 million policyholders have been affected, which means that an awful lot of Members have constituency correspondence and issues to raise.

Since November, we have heard the Chief Secretary’s statement, but the saga goes on. The Opposition very much share the concerns raised during the statement and again today about the extraordinary and completely inexcusable delays in making the payments that policyholders deserve and, in many cases, so desperately need.

Many Members—

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