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24 Jun 2009 : Column 280WH—continued
The case for compensation is straightforward. The maladministration by the regulator was a direct cause of the injustice suffered by policyholders. The regulator was a Government responsibility, so the Government
should accept the ombudsman’s recommendations to establish a compensation scheme to pay those who suffered the injustice. That injustice was caused by the failure of public bodies. The aim of such a scheme should be to put those who suffered a loss back into the position that they would have been in had the regulator’s maladministration not occurred.
The ombudsman said that it would be reasonable to expect a compensation scheme to be established within six months of any decision by the Government and Parliament to establish such a scheme. Given the advanced age of many of the policyholders, it is important that the Government and Parliament should aim to meet that timetable. However, the remit that the Government gave Sir John Chadwick is utterly inadequate. It is greatly restrained by the fact that Sir John is allowed to take into account only those recommendations that the Government accepted. I believe that that breaks the link in the chain between maladministration, injustice and compensation.
David Davis: I have been contrasting the approach that the Government have taken in the case of Equitable Life with the much better approach that was taken over the state earnings-related pension scheme disaster, which the hon. Gentleman may remember. One reason for the difference in approach was that, after the SERPS disaster, two Committees of the House—the Public Accounts Committee and the Public Administration Committee—received evidence and made strong recommendations. It was their thrust that made the Government spend some billions—I think it was £3 billion; the hon. Gentleman will remember, because he served on one of the Committees. A problem now is that Chadwick is reporting not to the House but to the Treasury, whose primary interest in the present economic disaster is saving money. The issue is a moral one, as all the speeches this afternoon have highlighted. Therefore, should not Chadwick report first to the House, not the Treasury? The House is the moral guardian in the matter of Equitable Life.
Mr. Reid: The right hon. Gentleman is perfectly correct. It is important also to remember that the ombudsman is the parliamentary ombudsman, and not the Government ombudsman. Parliament, not the Government, should take the decisions. I hope that through the deliberations of the Committee that we shall set up tomorrow, we may get to a situation in which individual hon. Members can initiate motions in the House—I believe that that used to be the situation, long before I entered the House—as early-day motion 1423 on Equitable Life, which many hon. Members have signed, could then be debated and voted on in the House.
In May, the ombudsman used what has been described as the nuclear option. She used her ultimate sanction of laying before Parliament a short report expressing her gross dissatisfaction with the Government’s inadequate response to her original report. Like that original report, her follow-up report is accurately titled: “Injustice unremedied”. She used the phrase “deeply disappointed”, which is strong language from an ombudsman. I hope that the Government will reflect on it and implement the recommendations.
I also ask the Government to reflect on the signal that they are sending out. Unless compensation is paid, what is there to encourage people of working age to save for their retirement? The regulatory failure is the Government’s responsibility, so natural justice demands that they implement the ombudsman’s recommendations.
Mr. Martin Caton (in the Chair): I will call the hon. Member for Richmond Park (Susan Kramer) now, but I should be enormously grateful if she would sit down at 3.30, so that we can hear the winding-up speeches.
3.22 pm
Susan Kramer (Richmond Park) (LD): I shall take that as absolute direction, Mr. Caton; in fact, I am being instructed to take an even shorter time, perhaps to allow one more hon. Member a couple of words, if possible.
I particularly want to congratulate the hon. Member for Leeds, North-East (Mr. Hamilton) on obtaining the debate, because debates keep up the constant pressure. Although relatively little that is new happens between each of the Westminster Hall debates on the subject under discussion, the Government must know that the Members of this House are not going to go away. That is a critical message.
I also congratulate the Equitable Members Action Group, whose activities have made it clear that pressure from policyholders is not going to go away. It will continue, and they will have their day in the High Court, pursuing their judicial review, towards the end of July. I wish them the best. Perhaps most importantly I congratulate the 272 Members of Parliament who have signed the early-day motion. That is practically a voting majority in the House, particularly if we take into account the number of hon. Members who simply do not sign EDMs. I think it is the No. 1 EDM, if one can calibrate them in that way. That carries through the incredibly important message that were the motion to be put to the House, which, it seems to me, should be the ultimate decision maker, it would almost certainly pass, and would uphold the ombudsman and her report, and the decision for compensation. I join the others who have argued that as we look, now, to reforming the House, a crucial message is being given, to drive us towards creating opportunities for the House to have its say on such crucial matters.
I read with dismay the proposals from Sir John Chadwick on the approach that he would adopt and the issues to be addressed in his work on the Equitable Life ex gratia payment scheme. I know that I am putting words into his mouth, but between every line one discerns a great sense of virtual despair as Sir John repeats again and again that he is limited by the terms of reference that require him not to address any issues that have not been accepted by the Treasury. Going through the document one gets his sense that his work is practically pointless because it covers so few issues and can bring about so little compensation.
There have been discussions of the cost of compensation, but they come in the context of a banking crisis in which the Government have stepped in to rescue many individuals facing hardship, often, again, because of regulatory failure. The underlying principle that the Government should compensate for regulatory failure
seems to me fundamental for a civilised society. We are not asking the Government to compensate for market failure.
The issue is one on which the House is exercised not only because of the victims—the Equitable Life policyholders—but because it represents the dismissal, once again, of Parliament’s voice, in Parliament’s ombudsman. If that role is to have importance and strength Members of Parliament must stand behind the ombudsman. If we choose not to do so in a situation of this kind, where the case is so evident, we shall be ceding powers that should be retained by Members of the House, and not transferred even to so important a body of Government as the Treasury.
Mr. Martin Caton (in the Chair): I call the right hon. Member for Berwick-upon-Tweed (Sir Alan Beith) with the same appeal to conclude at 3.30.
3.27 pm
Sir Alan Beith (Berwick-upon-Tweed) (LD): Yes, Mr. Caton; I am very grateful to my hon. Friend the Member for Richmond Park (Susan Kramer). I declared earlier a tiny interest in respect of a small pension policy of my late wife.
Why did people save with Equitable Life? It seemed the right place for people of a cautious disposition. It was a mutual. Its elegant notepaper claimed that it was the oldest mutual in the world. It was the choice for their own savings of many of the professionals who gave advice to others. It was a body that seemed the appropriate choice for people who simply wanted to make cautious and prudent provision for their retirement.
I want to enunciate some principles. First, compensation is compensation, and should not be means-tested, which is the real implication of the statement by the Minister referred to so often today. Secondly, compensation is an essential discipline of the regulatory and governmental system. If no consequences follow from regulatory failure, either for the regulating body or the Government, there will be much more regulatory failure in the future. Just as the market has its disciplines, so must the regulatory system.
No one is suggesting that what happened is all down to regulatory failure. The ombudsman has provided the Government with a basis on which to proceed to an assessment of how far regulatory failure affected the savings and stake of policyholders, compensating only for regulatory failure, and even taking account of the fiscal position. The ombudsman has done a very careful and responsible job.
What is our position now? The credibility of the ombudsman system is at stake—that system that we recommend to people as a way of putting their case, which we take to the ombudsman on their behalf. With it the credibility of Ministers is at stake. It is not satisfactory to appear to be responding to ombudsman’s recommendations, but not to carry them out, particularly when that affects those who have been so vividly described by hon. Members during the debate, whose vulnerability has been clearly set out, and who deserve a great deal better than they currently get.
3.29 pm
Mr. Jeremy Browne (Taunton) (LD):
Thank you, Mr. Caton, for giving me the opportunity to contribute to this extremely important debate. I start as is customary
but also appropriate by offering my congratulations and gratitude to the hon. Member for Leeds, North-East (Mr. Hamilton) on raising the topic. I welcome the Exchequer Secretary to her position. She is new to the Treasury. I hope that I do not sound churlish when I say that it would have been better had the Economic Secretary, who continues to serve in the Treasury, been present, because that would have offered greater continuity with the many previous debates in which he has given statements or replied on the Government’s behalf. Nevertheless, we look forward to hearing the Exchequer Secretary’s response.
The background to this matter will be familiar to most if not all hon. Members present. The Government, through the then Department of Trade and Industry, the Financial Services Authority and the Government Actuary’s Department, had responsibility for ensuring that the company Equitable Life acted properly and prudently. There have been no fewer than 13 reports on the failure of Equitable Life. The ones cited most often include those by Lord Penrose and by the FSA on its role from 1999 to 2000. Even the European Parliament issued a report on the subject.
However, the report that everyone concentrates on and that has been mentioned repeatedly during this debate is by the parliamentary ombudsman. It cost, I am told, £3.5 million and took four years to bring to a conclusion. An extremely thorough report, it is entitled “Equitable Life: a decade of regulatory failure”. The report does exactly what it says on the tin. We almost do not need to read the report; the title itself tells us the verdict that was arrived at. Nevertheless, it is worth pulling out a few quotes. The ombudsman said that the Government’s restrictions on earlier inquiries were “iniquitous and unfair”. The DTI’s oversight of Equitable Life had been “passive, reactive and complacent”. The FSA’s regulatory efforts had been
“largely ineffective and often inappropriate”.
“a justifiable sense of outrage”.
The language is stark. We are used to reading official reports in which some of the criticisms are couched in more guarded terms, but the ombudsman’s conclusions could not be more explicit.
I had the opportunity, from the exact position in which I stand now, to debate the situation, as it then existed, in this Chamber in November 2008, and many of the hon. Members present today were also present at that debate. We were assured by the Government and later by the Prime Minister himself that the Government would respond to the ombudsman’s report by the end of 2008. I think that the Prime Minister said that it would be by Christmas 2008, rather than by the end of the year, but we would have been willing to grant him the extra week. In fact, the Government did not respond to the report within the timetable that they had promised, and when they did respond, the response was, by common consent, wholly inadequate.
Since the debate in this Chamber in November 2008, there have been further contributions on the matter. The Public Administration Committee undertook an inquiry into the ombudsman’s findings. Its report, entitled “Justice denied? The Government’s response to the Ombudsman’s report on Equitable Life”, said that the Government’s excuses were
“shabby, constitutionally dubious and procedurally improper”
and that the ex gratia payment scheme looks “slow and onerous”. It is a constant theme that the Government appear to be playing for time and dragging their feet. We heard earlier that that has consequences for all our constituents who are affected by this matter, who are dying on a daily basis without having the financial remedy that they rightly feel that they are owed.
The ombudsman published a further report on 5 May 2009—very recently—entitled, “Injustice unremedied: the Government’s response on Equitable Life”. We have already discussed that to some extent. It made a number of points, all of which were critical of the Government—no, to be fair, many of them were critical of the Government. The overall tone was critical of the Government’s approach. Even the Equitable Life chairman, Vanni Treves, asked in relation to the Government’s response,
“why haven’t our policyholders been treated as well as Northern Rock and RBS depositors have? At any other time this would have been regarded as an absolute scandal.”
The Government have put in place yet another review. There is a lot of frustration on behalf of Equitable Life policyholders. To use the familiar phrase, the matter continues to be kicked into the long grass. We have yet another review and more institutional delay. The review is under the auspices of Sir John Chadwick. By common consent, that review is inadequate. There is no definite timeline, unless the Minister can offer us one this afternoon. Very few resources are available to Sir John Chadwick to carry out the review in a way that many, including possibly him, would regard as desirable. The reporting process itself has been called into question. Ann Abraham, the ombudsman, said:
“Whatever the outcome of the work that Sir John Chadwick will undertake, it is clear that the injustice I have found to have resulted from maladministration will not be remedied.”
We could not have a more unequivocal response from the ombudsman than that.
The question now is what can be done, given that track record of reports and the Government’s lamentable record in responding to them. It is worth saying first that the Equitable Life fiasco was caused by systemic failures that go back a reasonable way. To pre-empt what the Exchequer Secretary might say, the seeds of the problem, according to both the Penrose report and the ombudsman’s report, date back to a period before Labour was in government. I do not want the debate to be unduly party political; I want the Minister to respond on behalf of the Government of the day, rather than us having a debate along party lines. On that basis, let me concede that the Labour party could say with some justification that the problem did not start on 1 May 1997, when it came into government, although the problem has mainly been apparent and has grown since that date.
It is imperative that the Government undertake a period of negotiation with policyholders. Why? We have just heard from my right hon. Friend the Member for Berwick-upon-Tweed (Sir Alan Beith) that many people sought to behave responsibly and Equitable Life was seen as the gold-standard saving option. It was seen as beyond a normal commercial decision with the inherent risks that such investments inevitably involve. It was seen by our constituents as the cautious, safe, prudent way to save for retirement. The point was made earlier
that we must incentivise people, as the population grows older, to save for their retirement, and it is precisely the people who are heeding that call and seeking to behave responsibly whom we should be seeking to assist, rather than deter from saving.
More than anything else, we need to act with speed. The greatest frustration for most of the policyholders is the Government’s inability to come to a speedy resolution. The money given to policyholders ought not to be means-tested, because that is not the nature of the arrangement. I say as a concluding note and in a conciliatory spirit—I hope that the Minister will engage on that basis—that no one or very few people are saying that they expect the compensation to be 100 per cent. There is recognition that improper or ill-advised judgments were made by those directly responsible within Equitable Life. There is also—this is a mature contribution to the debate—recognition that we are, as a nation, borrowing £480 million every single day and that that backdrop must be taken into account when considering whether the Government can be expected to commit to additional public spending.
Nevertheless, even with those two important caveats, the Government have a responsibility, as the regulator, to compensate for regulatory failure. The Exchequer Secretary must bring this issue to a head now on behalf of the scores of constituents that I and all hon. Members have whose quality of life has been severely affected at the most vulnerable time of their life, because of the loss of savings due in large part to the regulatory failure over which the Government presided.
3.39 pm
Mr. Mark Hoban (Fareham) (Con): I congratulate the hon. Member for Leeds, North-East (Mr. Hamilton) on securing this debate. It is vital that we continue to put pressure on the Government to respond properly to the report of the ombudsman, and to ensure justice for Equitable Life policyholders. We have had four debates on the subject and today’s is the third in which I have taken part as a Front Bencher, but I fear that it will not be the last. It has a long way to run. The longer it takes, the more will policyholders be denied justice.
Sir George Young (North-West Hampshire) (Con): My hon. Friend is right to point out that this is the fourth debate, but none of the debates has ended with a vote. Would not the right way to resolve the matter be for the Government to put a proposition to the House, and to see whether the House supports them in a vote?
Mr. Hoban: My right hon. Friend makes an interesting proposal. The Government are seeking to renew the House to make it the centre for decision making, and to increase interest in Parliament. Using a long-running issue such as Equitable Life would be the ideal way for the Government to demonstrate their commitment to democratic renewal. I hope that Labour Back Benchers would encourage the Prime Minister, the Chief Whip and the Leader of the House to have the debate in Government time, to make the point that they want to see Parliament making such decisions.
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