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19 May 2009 : Column 351WH—continued

The hon. Member for Bognor Regis and Littlehampton asked how we define low risk. It is a simple question with a complicated answer. I would have to refer him to building bulletin 100, which he referred to and which I am sure he has assiduously read. On page 25, there is a formula for measuring risk assessment. Risk is the summation of hazards or scenarios multiplied by the frequency and the consequence of those scenarios. There is further explanation in appendix H, but it is all quite complicated. In essence, if there is a history of arson or fire in a building, that obviously raises the risk. I am confident that, if the tools are used, they will indicate that fire sprinklers should be installed in the vast majority of cases.

Bob Spink: The Minister is making a characteristically thoughtful response to this debate, for which I thank him. Does the cost-benefit tool that he just described include any savings on insurance over the years if sprinklers were fitted, and has he had any input from the Association of British Insurers on what the cost saving might be?

Jim Knight: As we put the tool together, we had contact with the ABI but principally with Zurich, which has been frequently mentioned in this debate. I understand that it is a dominant insurer in the schools insurance market—there are few, if any, other insurers in this market, which is why it is a useful source of information and advice. I do not disagree with the statistics that others have used about the kind of savings that could be made. They certainly have been included in the cost-benefit tool that is used by local authorities.

Alongside requiring the use of the tool, we have significantly tightened up requirements for the installation of sprinklers in new academies and in all new projects built under the new contractors’ framework. Sprinklers will be installed unless the local authority specifically requests that they are not. Local authorities can also use funding outside the Building Schools for the Future envelope to install fire sprinklers and other fire safety measures.

In private finance initiative projects, lower insurance premiums mean that sprinklers pay for themselves in 10 to 12 years. Most PFI providers automatically install sprinklers to get reduced insurance premiums—they are more concerned about whole-life cost—thereby providing good value whatever the risk.

We have also published on TeacherNet design guidance for the primary capital programme which sets out our expectation that primary facilities should provide a safe and healthy environment. It recommends the use of our fire safety and sprinkler guidance.


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We have made good progress, but it is fair to say that because of the lead-in times around designing and building schools, and with the new guidance only being introduced in 2007, it is difficult for us yet to be able to judge what the impact has been. The early indications are that whereas previously less than 10 per cent. of new schools had sprinklers installed, as many as 75 per cent. may now have them. I would like to see the figure higher still, but it is clear that some progress is being made.

Further to the suggestion of my right hon. Friend the Member for Makerfield, I am happy to meet the Local Government Association, Partnerships for Schools and, given its understanding of the market, Zurich. I make a commitment to the House that I will do that in order to refresh my understanding of how thorough implementation of the guidance is across local authorities, and whether there is more that we can do.

Mr. McCartney: I thank my right hon. Friend for that suggestion of a way forward. If he has a chance, could he respond to the allegation that I made in my speech that aquamist systems have not been properly evaluated and are not yet available for putting into schools instead of sprinkler systems? Could he give some indication about that?

Jim Knight: I share my right hon. Friend’s frustration that we have not yet had that evaluation from the Building Research Establishment. As I understand it, such systems are used in maritime environments. The relevant authorities for the maritime environment have a good understanding of those systems, which, for those who have not familiarised themselves with the technicalities, emit a fine water mist, as the name suggests, rather than a water spray from a sprinkler head. As long as there is not a large fire draft, that water mist is attracted to the fire and dampens it down.

I understand that Wigan is attracted to the water mist system because there is a problem in terms of being able to provide the pressure needed to run a sprinkler system and because of the associated cost of a tanking system to make the sprinkler system work. I would be cautious about a water mist system, because we do not yet have the analysis from the BRE as to its effectiveness in a school environment. I hope that that analysis can be hurried along.

It is important to say that there are exceptions in respect of the use of sprinkler systems. Ultimately, it is for the local authority to decide whether it installs them, based on its presumption and on building regulations set by the Department for Communities and Local Government. We expect schools to install fire sprinklers—I remain a strong advocate of their use—but there will be exceptions when installing them is judged to be unnecessary and not cost-effective. For example, academies or other schools—I know of one academy in particular—with large, complex atrium spaces can be difficult to protect with fire sprinklers and so might require a different fire engineering solution, which would include a more in-depth risk analysis than the standard risk and cost-benefit analysis tools would produce, providing, ultimately, a solution better tailored to that particular building and balancing more passive and other active measures of fire safety.

In schools deemed to be very low risk, or in minor new build or refurbishment projects, it would not be cost-effective to install sprinklers. For instance, in projects
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in the late stages of design when the new policy was announced or already under construction it is difficult to have ceilings and walls redesigned to incorporate fire sprinklers. It is important that authorities have clear policy positions in favour of installing sprinklers right from the outset, so that architects and construction companies and those involved in the design understand from the start that sprinklers need to be installed. I am pleased to see that a considerable number of the authorities that we have surveyed so far, which are included in a list that I have been given, are now saying in principle that they would always want sprinklers to be installed in schools.

We must be clear that fire sprinklers are not installed in schools solely for the purpose of saving lives, but are also for saving property. A school building designed in accordance with the building regulations that prioritise life safety will be safe whether or not it includes fire sprinklers. We have heard all the arguments about why we should install them for other reasons. Having completed the test set out in building bulletin 100, my right hon. Friend’s neighbouring local authority in Manchester decided that fire sprinklers would not be the best method of fire protection in its schools.

Local fire and rescue services are actively monitoring which new and refurbished schools are fitted with sprinkler systems. Officials in my Department are in contact with them and with Zurich, which also monitors sprinkler systems and follows up cases where sprinklers are not installed to find out the reason for such a decision and to apply pressure, where necessary. I will have that meeting—I will invite my right hon. Friend to it as well—and we can explore what more we need to do.

So, in conclusion, the decision about exactly which fire safety measures are employed to protect local school buildings is for the local authority to make, based on what would most effectively protect those buildings and what represents the greatest value for money. Every child has the right to learn in safe, secure surroundings. Every local authority must ensure that school buildings—and the work, property and individuals within them—are as safe as they can possibly be.

10.53 am

Sitting suspended.


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Equitable Life Report (Government Response)

Mr. Bill Olner (in the Chair): I see that there is a lot of interest in this debate. I have taken advice as I am an interested party, but as there are no amendments to select and so on, I am happy to chair the debate and will restrain myself from participating.

11 am

David Davis (Haltemprice and Howden) (Con): On the way over here, someone asked me whether my ministerial pension has an Equitable Life component. I do not believe that it has, but in case it does, I make a precautionary declaration now.

As well the specific issue facing us, broader and more fundamental issues are at stake. The parliamentary ombudsman concluded that there had been maladministration and injustice, yet the Government are fiercely resisting paying compensation. There is an absolutely unbreakable moral and logical chain from maladministration through consequent injustice to required compensation. That is the fundamental core of this debate.

Equitable Life is the oldest surviving mutual life assurance company in the world, and, as a mutual, its profit-sharing policyholders share in any profits or losses incurred in running the society’s business. That has some logical outcomes. The Government Actuary recommended Equitable Life for public servants, which gives it a particular interest, but below the surface the organisation made no provision for guarantees against low interest rates on policies issued before 1988, and it therefore declared bonuses out of all proportion to its profits and assets.

In 1994, Equitable Life introduced differential terminal bonus policies involving the payment of different bonuses, depending on whether policyholders exercised their right to an annuity at a fixed rate. In July 2000, the House of Lords ruled that that was unlawful. There were a number of dramatic consequences, and on 8 December 2000, the society stopped writing new business with immediate effect. Since then, it has undergone a difficult period and has implemented cuts in the value of its with- profits policies and the income derived from its with-profits annuities.

More than 1 million people lost money when Equitable Life collapsed, which means that we all have hundreds or thousands of constituents who are affected. Many hon. Members will want to intervene, and I will give way to any who wish to do so.

Mr. Lindsay Hoyle (Chorley) (Lab): I thank the right hon. Gentleman for securing this debate and allowing us to contribute to it. He is right that the issue is a moral one. Policyholders are suffering from a seeping wound, and we have put a sticking plaster on it, but we have not treated the suffering below. Does he agree that there is now an obligation to move quickly to end the suffering for the rest of the policyholders?

David Davis: The hon. Gentleman is entirely right, and the thrust of my speech will be aimed at the Government’s absolute responsibility, which they have
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tried to avoid for reasons that I will outline. He is absolutely right about the moral and logical aspect. The responsibility is absolute.

Andrew Selous (South-West Bedfordshire) (Con): I welcome this debate. Does my right hon. Friend agree that the issue touches not only on policyholders’ disgust at how they have been treated, but on saving for the country as a whole? If people lose faith in saving for the future, that will have dire consequences not only for public finances, but for millions of our citizens.

David Davis: My hon. Friend is entirely right. The regulatory system’s role is particularly important, and I will return to that. The Government must recognise that one purpose of the regulatory system is to encourage saving by providing a degree of guarantee that malpractice—not maladministration—or serious misjudgment should not happen. That is fundamental to the million or so policyholders, and to the future of savings.

Nick Herbert (Arundel and South Downs) (Con): Will my right hon. Friend give way?

David Davis: I will take one more intervention, and then make a little progress and take some more later.

Nick Herbert: I believe that this is the first time that I have intervened on my right hon. Friend. [Interruption.] It may not be the last. Does he agree that the ombudsman’s position is at stake? What is the point of having an independent ombudsman if the Government can so easily ignore and sweep aside her reports? Is not the ombudsman’s role to protect people, such as my constituent, Mr. Peter Ricket, whose two Equitable Life pensions lost more than half and two thirds of their value, and who at the age of 78 he still has to work?

David Davis: That may be the first time that my hon. Friend has intervened on me, but it is not the first time that he has interrupted me. He makes a good point, and crystallises the impact of the losses on people who are not well off and who have no other course to take. What strikes me about all pension failures is that people at that stage of their life have no other options available.

Gregory Barker (Bexhill and Battle) (Con): Will my right hon. Friend give way?

David Davis: I want to make some progress, but I will then give way to my hon. Friend. I will try to give way to all hon. Members, but I can see what is happening.

There have been a number of reports on Equitable Life, including Penrose in 2004. In 2008, the ombudsman’s comprehensive report into the regulatory failures behind its collapse was entitled, “Equitable Life: a decade of regulatory failure”. The title tells the story. The ombudsman reached 10 determinations of maladministration—one against the then Department of Trade and Industry, four against the Government Actuary’s Department, and five against the Financial Services Authority, with each representing a failure


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most notably in the way in which public bodies scrutinised the records returned by Equitable Life. She found five determinations of injustice, which is the key to the problem. There was a sequence of maladministration, injustice and the need for compensation, which my hon. Friends and the hon. Gentleman have raised.

The ombudsman made two simple recommendations. One was cheap for the Government—an apology. The other was a compensation scheme, which was implicitly expensive—between £3 billion and £5 billion. Given the length of time that the problem had dragged on, she proposed a time frame of two and a half years for that to be completed. The report was welcomed by everyone involved in the fiasco, including the groups representing those who had lost money, MPs on both sides, many of whom are in this Chamber, who campaigned on behalf of constituents, and Equitable Life’s board. The only people who remained silent were the Government.

Time is a crucial factor in the problem. Being a pension scheme, many of the potential losers are elderly and need justice sooner rather than later. More than 30,000 Equitable Life policyholders have died during the decade since it collapsed, and it is estimated that 15 more die every day. Regardless of that, the Government took six months to respond to the ombudsman’s report and recommendations, during which time more than 2,500 policyholders died. Astonishingly and despite the ombudsman’s comprehensive work over four years, which was described over 3,000 pages, the Government rejected vast swathes of the report and, even after six months, produced a flimsy, 48-page response. An apology was offered for the maladministration that the Government had to admit, but no more.

Gregory Barker: I congratulate my right hon. Friend on securing the debate. He will know from our earlier conversation that I had a public meeting on this issue in Bexhill very recently. The point that he is making about the time that it is taking to come to a determination and pay the compensation is the key point that makes people most angry. There is bafflement at what is happening, after all these years. It is so clear, as my right hon. Friend has spelled out, that the Government are not getting on with it and paying the money to those people, who clearly deserve compensation and are extremely vulnerable.

David Davis: My hon. Friend is exactly right and has perfectly illustrated my point.

The Government made three objections to the ombudsman’s report. They said first—there is an element of sense in this—that the responsibility to minimise risks and prevent problems from occurring in a particular financial institution lies first and foremost with the management of that institution. However, that misses the point that my hon. Friend the Member for South-West Bedfordshire (Andrew Selous) made about the key aspect of regulation in guaranteeing that certain things do not happen in these institutions. As a result of what they said, the Government refused to accept that it would be appropriate to establish a compensation scheme in the way the ombudsman recommended. They did, however, believe that some Government action was justified and agreed to make some ex gratia payments. That means that the Government are willing to pay some money to those worst affected, but not to accept the responsibility for the failure.


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John Barrett (Edinburgh, West) (LD): Does the right hon. Gentleman understand the anger of many of my constituents who have lost so much with Equitable Life about the fact that the Government have gone the extra mile for those who have lost money in the Icelandic banks or the nationalised banks, but they have not given the same treatment to those who have lost often greater amounts through Equitable Life?

David Davis: The hon. Gentleman pre-empts a point to which I shall return, but he is absolutely right. It defies logic and any sense of equal treatment that there are massive payments to certain groups—payments that are currently embarrassing—but no proper payment to an area where we have a clear moral responsibility.

Despite the ombudsman’s recommendation to keep things quick and simple, the Government have proposed a scheme requiring the level of each person’s loss that could be attributed to the regulatory failure that they accepted to be established. That is not impossible, but it will be an incredibly slow task; the scheme guarantees that the process will be slow. The Government tasked Sir John Chadwick to establish, first, the extent of relative losses suffered by Equitable Life policyholders; secondly, what proportion of those losses can be attributed to the maladministration; and thirdly, which classes of policyholder have suffered the greatest impact—they have all suffered some impact, but for some it has been very clear. Fourthly, he was asked to consider what factors arising from that work the Government might wish to take into account—not just accept—when reaching a final view on whether disproportionate impact has been suffered. The Government will consider Sir John’s advice on the relevant factors before setting out the criteria for the payment scheme, so even when we get to the end of Sir John Chadwick’s activity, we will not yet be at the end of the road.

Sandra Gidley (Romsey) (LD): The right hon. Gentleman is being very generous about giving way. Does he share the concern of many of my constituents that there will in effect be means-testing? There will be those who have taken a loss, but who may be deemed to have been able to afford to do so. Why should they be penalised more than someone who has taken a lesser loss, but is in a much worse financial situation? There is a lack of clarity about whether people will be compensated on an equitable level.

David Davis: The hon. Lady is right. When I first saw that proposal, my response was that it was just an attempt to reduce the cost of the scheme and not pay any respect either to any sense of justice or equity or to speed. I can understand the concern to which she refers. One point that the ombudsman makes in her comments is that the disgust, almost, that is felt by the policyholders is of itself an extra pain being caused by this failure, so I absolutely agree with what the hon. Lady has said.

Sir John Chadwick was not given a time scale. The Government’s only comment was that it might take significantly longer than the two and a half years laid down by the ombudsman. The universal outrage about that was predictable and right.


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