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19 May 2009 : Column 369WH—continued

He spoke for many of my—and others’, I am sure—constituents. It is hard for members of the governing party—I know so many of them—not to feel sympathy for people such as Mr. Lee and his judgment on Government behaviour. Those people have been waiting for justice for so long and have suffered more false dawns than they should ever have had to endure. To make them wait another two and a half years, when dozens of them are dying every week, is cynical politics in the extreme.

Some hon. Members have suggested that interim payments should be made to those worst affected. What discussions has the Minister had with Sir John Chadwick about ensuring that that happens? All kinds of people are affected: from people with quite a lot of means to those with none. I was struck by a letter that I received from one lady—another constituent—who wrote:

and are waiting for justice. I hope that the words of such people will have some effect on the Minister today.

I was struck by another letter:

These are the people whom we are talking about, and we hope that the Minister will respond positively on their behalf.

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11.54 am

Dr. Vincent Cable (Twickenham) (LD): I congratulate the right hon. Member for Haltemprice and Howden (David Davis) on introducing this debate. He is one of several—probably many—Members who have introduced such a debate. If it is not too immodest, I would like to point out that I did so in my time—nine years ago—and the fact that we are still debating the matter, often in much the same terms, speaks volumes about how it has been dealt with. I also congratulate EMAG, whose doggedness and passion has kept this matter on the agenda. It could easily have gone away, but it has not.

It is worth placing this debate in the wider context of the dreadful mess in this House at the moment. We are in the middle of a constitutional crisis, but this debate touches on another constitutional crisis of a somewhat different kind. It centres on the respect for the office of the ombudsman and, therefore, for Parliament and parliamentary institutions. Many people outside might not be enormously concerned about what their MPs say here, but they are concerned that, when they are subject to maladministration by a Government, regulator or bureaucracy, there is somebody to whom they can turn and trust. That mechanism, and the recognition that injustices must be compensated, are at stake.

My hon. Friend the Member for Northavon (Steve Webb) quoted the key passage in the ombudsman’s last report, but I shall quote it again, because it is the kernel of the whole debate. She wrote:

We are addressing a big constitutional issue. It is also political, but not party political, and the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski) and other colleagues are to be congratulated on trying to work in a cross-party way with those in other parties. Ultimately, that is the only way to resolve this matter. It should not be a party political issue, and many people are genuinely trying to build a consensus.

The Government are their own worst enemies in that respect. Let us consider the history of this issue. The Prime Minister built his reputation as a champion of investors. I think that his first major speech in Parliament, when he was a Treasury spokesman, was on Barlow Clowes. He doggedly defended the rights of wronged shareholders. Ever since, he has argued that the difference between Barlow Clowes and Equitable Life investors is that the former had on their side an ombudsman’s report and that once we had such a report for Equitable Life, the latter could also be compensated. We have had the report, but the consequences have not followed as promised. The logic of that process has not been followed through.

There is another irony that would be hilarious if it was not so serious. In their comments on the ombudsman’s last report, the Government could have said, “Well, we have had maladministration. It occurred under the Conservatives, and it has occurred under us, so we are all to blame.” However, they have insisted, in their last response, that all the maladministration occurred under this Government and that that which occurred under the previous Conservative Government was not maladministration at all. They said that to minimise their liabilities. However, when historians reflect, they will find a funny irony in a Government desperately
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trying to exempt the previous Government from blame, which is what they appear to have done in their final response.

In pursuit of this cross-party approach, I tabled an early-day motion a few weeks ago that has attracted widespread support. My hon. Friend the Member for Northavon asked what would happen if there was a change of Government, and I say this partly in response to that. My motion has received encouraging support from both sides, including from some very senior people—

Mr. Oliver Letwin (West Dorset) (Con) rose—

Dr. Cable: I take it that the right hon. Gentleman is also a signatory of my motion. The language on compensation might not be as strong as EMAG would wish, but it certainly moves us forward. The motion reads:

There is no reference to means-testing or other delays, but it is an improvement.

Mr. Letwin: I certainly am a signatory of the hon. Gentleman’s motion. Does he agree that the character of this constitutional issue is particularly acute because the ombudsman admitted that the Government could take account of the public expenditure consequences? The Government have refused to follow the dictates of an ombudsman, even though the latter has gone the last mile and tried to recognise that the Government are the guardians of the public purse.

[John Bercow in the Chair]

Dr. Cable: That is indeed the case. In due course, we will have to look at the exact bill. The face-value number—£4 billion—possibly frightened the Treasury at the outset, but payments would be paid over a long time and only to very restricted groups. The hon. Gentleman is quite right that the ombudsman has acknowledged that there is a public expenditure constraint, and that all of us have to live within that—including Treasury spokesmen. None the less, it is a constitutional, political and moral point, as my hon. Friends have suggested.

My hon. Friend the Member for Edinburgh, West (John Barrett) mentioned the Icelandic banks. The point about those banks is not just that the Government protected all the investors, but that the investors in Icelandic banks were pursuing high yields and risky investments. In the case of Equitable Life, the investors were highly prudent people who wanted safe and reliable investments.

John Barrett: Does my hon. Friend also agree that if the means-tested assessment of compensation entitlement comes through, the most prudent people will suffer a double whammy because those who have made further provisions will be hit hardest and receive the least?

Dr. Cable: Yes, and the language in the Government response is that only those who are dependent on Equitable Life pensions will be compensated. That penalises people who are prudent and who have diversified their investments.

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I have two central criticisms and concerns. One relates to the endless foot-dragging, and the other to the compensation mechanism. Let me remind everyone of the foot-dragging and how it happened. It first came to light in a debate in 1999. There was a very long period in which hon. Members of all parties pressed for an inquiry. Lord Penrose himself said that it was “iniquitous and unfair” that no inquiry was established until 2001. Then we had the Penrose report, which took two and half years to compile. In the findings, we had a mixture of policy failure, which is not a compensation injustice issue, and administrative failure. Lord Penrose clearly and explicitly acknowledged that administrative failure had taken place.

I recall going to the ombudsman five years ago with my hon. Friend the Member for North Norfolk (Norman Lamb). Others will have done so at about the same time. The ombudsman’s report took an awfully long time, and it eventually appeared in February 2007. It took the Government two years to respond to the ombudsman, thanks to the Maxwellisation delays and endless responses to requests for additional information. Now we have all the additional delay imposed by the compensation process. Therefore, endless foot-dragging has been the defining characteristic of every stage in this process, and it continues to this day. As hon. Members have said, time is of the essence for the pensioners. Some 30,000 have died since the collapse occurred.

As for the compensation mechanism itself, several hon. Members have reminded us about the defects of the existing system. My hon. Friend the Member for Northavon aptly summarised them, and I shall make the key points. First, the ombudsman specifically recommended a tribunal system that was genuinely independent and transparent. Instead, we have had a Treasury-led process conducted by an adviser, who may be an admirable individual but simply does not have the powers to adjudicate in compensation that the ombudsman recommended.

Secondly, the mechanism will relate only to those injustices accepted as such by the Treasury, which effectively has reduced by 90 per cent. the potential claims identified by the ombudsman. Thirdly, we have the means-test concept that has been introduced. The hon. Member for Pendle (Mr. Prentice) helpfully intervened to explain the difficulties that that would present. Fourthly, we have the problem of the apportionment of blame, which still has to occur and goes contrary to the ombudsman’s advice. We have had the rejection of interim payments, and we now have in place a slow, onerous and costly process that individual pensioners have to pursue. It is a dreadful story, yet, to this day, we have had no satisfactory resolution. I hope that the Minister will make some progress in this thoroughly reprehensible tale.

12.4 pm

Mr. Mark Hoban (Fareham) (Con): I congratulate my right hon. Friend the Member for Haltemprice and Howden (David Davis) on securing this debate and setting out very clearly the failings of the Government’s response to the ombudsman’s report. As hon. Members have said throughout the debate, the ombudsman is an Officer of this House, and she is entitled to our respect. Her report and the work that she does are very important because they give justice to our constituents. The theme
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of the Public Administration Committee’s first and second reports on the ombudsman’s report—“Justice Delayed” and “Justice Denied”—typifies the experience that many hon. Members have had when they have spoken to their constituents about the Government’s response. There has been foot-dragging to get to this point in the first place, then, in the Government’s refutation of the ombudsman’s findings, there has been an attempt to deny justice to many people.

My hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski), acting as recruiting sergeant for his all-party group, made a powerful plea for his constituents, as did other hon. Members on all sides of the House. Two themes emerge from the debate to which the Minister must respond. The first relates to the inadequacy of the Government’s response to the ombudsman’s report. That comes across very clearly in the Select Committee’s report. In the supplementary memorandum to that report, the ombudsman gives examples of where she believes the Government have sought to reinterpret her findings, and where they have not given sufficient explanation of their response to those findings. The Treasury have sought to rebut such examples. The rebuttal of her findings is an important issue. An earlier legal case established that the Government were not bound to accept her report but had to give reasons why they chose to reject it. People want to see some cogent reasons for the rejection of her findings so that they can see whether the Government’s approach was well thought through, logical and right or whether it was open to challenge.

As the hon. Member for Twickenham (Dr. Cable) mentioned, when the ombudsman published her report in July, there had been a lengthy period of “Maxwellisation” beforehand. It is clear from reading the ombudsman’s report that there had been significant discussion between the Government and the ombudsman about her findings and her approach. It is almost as if the Government are coming back for a second bite of the cherry.

Given the number of findings of maladministration and injustice, which the Government have rejected, people expected that the Government would produce something more substantial than their command paper in January. When the Minister was quizzed on this matter by the Public Administration Committee, he said that he wanted something that was accessible and readable. The Committee rejected that approach. It wanted to see a much more substantial rebuttal of the ombudsman’s findings to demonstrate that the Government had cogent reasons.

The Minister should take the opportunity today to accept that the Government’s command paper was inadequate and to say that they will produce a much more substantial paper that sets out the real reasons for rejecting the ombudsman’s findings. The Minister would do himself and the House a great service if he made that commitment today. At the moment, the policyholders feel that the Government are searching for some weak arguments to try to deny them justice. It is incumbent on the Minister and the Government to produce a much more substantial response that explains, in a logical and clear way, why the Government sought to reject the ombudsman’s findings. That would provide the opportunity for a further debate on the Government findings. Such a
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debate may even prove that we are wrong and that our cynicism and scepticism about the Government’s motives are incorrect.

The second theme that runs through this debate is the process that the Government kicked off with Sir John Chadwick. By that I mean the basis on which payment should be made to policyholders. The process is not straightforward. In paragraph 5.26 of the Government’s response, the Government set out four steps that Sir John would have to take. The first, they say, is to assess

From looking at the PAC report, I know that there is no agreement, not even on what relative loss means and how it is calculated. Without that first step, it is very difficult to see how the second, third and fourth steps can be taken.

One hon. Member suggested that Equitable Life had spent one hour with Sir John Chadwick to explain where the situation was and for Sir John to give his view. When will Sir John and the Government reach conclusions on relative loss and whether and when it will be calculated? Only when we understand the relative loss that people have suffered will we be in a position to take the debate further. We could then move on to the question of what proportion of the losses can be attributed to the maladministration that has been accepted by the Government in the actions of Equitable Life and other parties. However, the ombudsman’s report was very clear: it set out the failings of the regulatory system and where injustice flowed from that maladministration. It is therefore hard to understand why the Government believe that there should be a sharing of responsibility between Equitable Life, the regulator and other parties.

The concept of “greatest impact” has had very little explanation by Ministers. Is it about hardship? Does it involve means-testing? Is it a question of which policyholders have lost the most or the least? There is a lack of explanation from the Government. Only when we have such explanation will Sir John be in a position to advise the Government on what factors might be borne in mind to design a payment scheme for the policyholders who have suffered losses.

My overwhelming feeling is that the Government, having delayed, hesitated and prevaricated for years in responding to the problems at Equitable Life, are again seeking to kick it into the long grass. In the same way that it took them months to respond to the ombudsman’s second report, they want to delay dealing with the problem for years and to deny policyholders justice for yet longer—for years. That is not fair to the policyholders. Hon. Members talked about the numbers who have died awaiting justice. We know that many policyholders will be suffering losses and living on reduced pensions and annuities, waiting for the day that they can receive justice from the Government. Where is the Government’s urgency in responding?

On the Chadwick process, are the Government able to give any undertaking as to the time scale? The Minister said that it was not going to take as long as two and a half years, but when will policyholders begin to receive payments? When will Sir John publish his interim report, and will it include a timeline? Will the Government publish Sir John’s interim reports in full and immediately? How many staff has Sir John recruited? I understand that he has sought some legal support
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from his chambers, but how many staff has he recruited? Does he have the necessary actuarial expertise on his team? How much have the Government allocated to Sir John, not only for his own fees, but for the team he will need if he is going to comprehend these complex issues? Those are important questions, and the answers will demonstrate whether the Government are taking the matter seriously, or whether they are seeking to avoid responsibility.

The Minister said in an intervention that he thought that the Opposition would do the same as the Government. Let me be clear on the difference between us and the them: we have accepted the ombudsman’s findings and recognise the claims of maladministration and injustice that she found. We also accept, as she made clear in her initial report and the section 10(3) report, that the relative loss that policyholders have suffered should be reflected. That concept has been agreed on both sides. We also accept, as she said, that the costs to the public purse need to be recognised. I was pleased that the hon. Member for Twickenham accepted that point when it was made by my right hon. Friend the Member for West Dorset (Mr. Letwin).

The ombudsman’s recommendations need to be accepted. I welcome the fact that the Government have apologised for regulatory failures, but it is important for us to move forward quickly to provide justice for those policyholders. They cannot wait much longer. My concern is that every sign from the Government tells me that they want to kick the problem into the long grass and avoid dealing with it, meaning that justice will be denied to people who are suffering as a consequence of the regulatory failure of Equitable Life.

12.14 pm

The Economic Secretary to the Treasury (Ian Pearson): I congratulate the right hon. Member for Haltemprice and Howden (David Davis) on securing this debate. As hon. Members have noted, this is the latest of several Westminster Hall debates on Equitable Life. Scrutiny of, and debate on, the Government’s position is absolutely right.

Evidently, hon. Members have deep concerns about the Government’s decision not to accept the parliamentary ombudsman’s recommendation for a compensation scheme, and I shall say more about our reasoning. Those concerns were also articulated in the parliamentary ombudsman’s “Injustice Unremedied” report.

Before saying anything else, let me be very clear that it is a matter of regret to the Government that the parliamentary ombudsman felt it necessary to lay her report. The Government have the greatest respect for the office of the ombudsman. Her important role in the maintenance of standards and public service is unquestioned. We departed from her findings in her main report only after very careful consideration, and we did not view her further report lightly. However, the Government must act in a way that we believe to be just, legal and fair, and in a way that balances the legitimate interests of the taxpayer with those of policyholders who have been affected by events at Equitable Life. That is exactly what we have done.

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