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The constitutional issue is as follows. We have an ombudsman, and that office is not a Government quango. It is a parliamentary institution-it was set up by Parliament and it reports to Parliament on our behalf. The authority of the ombudsman is clearly at stake. Those of us who have tabled this motion have done so to ask the Government to implement the ombudsman's recommendations; that is essentially the basis of it. The Government have so far declined to do so, either in spirit or in substance.
We need to remember just how important this issue of the authority of the ombudsman is. Many people do not attach great respect to this House-we can understand why that has been the case in recent months. The ombudsman is a parliamentary institution that is central to our constitution. It says, "Whatever you think about your MP or other MPs, there is a body you can go to that is independent of Government. If you have been wronged through maladministration in Government or a quango, this independent authority will investigate the matter without partiality and will help you to achieve justice through compensation, where necessary." If the authority of the ombudsman is defied by the Government in this major case, we will lose the credibility of a major institution of the country. That is what is at stake.
Mr. Oliver Letwin (West Dorset) (Con): I declare an indirect personal interest.
Does the hon. Gentleman agree that this goes beyond the argument he is making, in that there is literally no point in having an ombudsman unless Governments make it a principle that they will obey what the ombudsman recommends?
Dr. Cable: The right hon. Gentleman is right; as this is such an important case-it is the biggest that the ombudsman has taken on-if the ombudsman's authority is simply flouted, that makes the ombudsman redundant. I might go further than him by asking the following: if the institutions of Parliament are flouted, what is the purpose of Parliament? That is a fundamental question.
Lembit Öpik (Montgomeryshire) (LD): Does my hon. Friend agree that the general public, including the 1,000 or so people in Montgomeryshire who lost money through Equitable Life, simply do not understand how this Government can resist what seems like an act of natural justice-following the guidance of the ombudsman? My constituents do not follow Parliament closely, but they feel that they are being treated unjustly on a matter that could be easily corrected in just the way that my hon. Friend has outlined.
Dr. Cable:
Well, it can be and, indeed, it should be. Let me try to anticipate the Government's concerns. In addition to the two broad principles that I have sketched out-the human concerns and the constitutional concerns-a third issue arises: money and finance. There is common ground on the fact that that must be relevant when we are talking about large amounts of compensation, but we have crossed a bridge in the sense that the ombudsman has accepted that the public purse is a factor that must be borne in mind in compensation awards and the Government have accepted, through their ex gratia payments proposal, that there has to be compensation. The principle that there is an issue to address has been accepted on both sides. We are now united on the broad principle that finance is a factor,
but that the Government agree that there must be public expenditure. We are arguing about how that mechanism will be introduced.
Let us consider where the debate has reached in the past year. Our view, in moving this motion, is that the principles under which the ombudsman's findings must be implemented must include, as she said, an "independent" process, which means a tribunal-like process independent of the Government and independent of the Treasury. The Government's view is that compensation should be decided through a process led by, determined by and ultimately decided by the Government-the Treasury. That is now the fundamental distinction. In a way, that explains the heart of the constitutional problem: if the Government decide how we remedy a fault of theirs, wherein lies the independence of the ombudsman? That independence simply disappears.
Mr. David Heath (Somerton and Frome) (LD): Does not the fault with the Government's position extend rather further than that? Not only have they ignored the findings of the ombudsman and refused to accept them, but they have engaged in an exercise of foot-dragging, procrastination and temporising. They have done everything possible to prevent this matter from being dealt with properly and to prevent these people from getting the justice that they deserve. Is that not the indictment against the Government in this case?
Dr. Cable: Indeed, and I now propose to take my hon. Friend through this nine-year journey, the end of which we hope we are finally approaching. Let me turn to one aspect of this tension between the two approaches to resolving the compensation-the Government-led versus the tribunal-led. I note that the Government amendment contains the remarkable phrase that their scheme
"is administratively quicker and simpler to deliver".
The idea that after 10 years the Government are invoking speed as the basis for their case would have Sir Humphrey gasping with admiration at the Treasury's abilities in this matter.
Steve Webb (Northavon) (LD): Just before my hon. Friend starts his nine-year journey, may I ask whether he also accepts that there is a second difference between our position and that of the Government? This is not simply about how much cash the Government are going to give as opposed to how much we think they should give, because the Government, by partially rejecting the ombudsman's finding, have excluded some categories of loss and some categories of policyholder altogether. Therefore, even if they suddenly decided to become more generous in cash terms, they would already have excluded a set of people whom the ombudsman rightly thinks, as do we, have suffered injustice.
Dr. Cable: My colleague is right. Of course, following the judicial review, some of those categories are now included; I understood the statement that the Minister made yesterday to say that the Government have accepted that specific change. So, there is wider coverage than there was before, but we remain with the fundamental division.
Greg Mulholland (Leeds, North-West) (LD):
My hon. Friend has discussed the cost of compensation, but does he agree that it is high time that the Government
told this House and the taxpayer how much has been spent on evading justice over the past 10 years? It is time for the Minister to tell this House that figure today, which I suspect is very large.
Dr. Cable: I had not thought of that angle, but it is a good one. I am sure that if we were to add together the legal fees and the opportunity cost of Treasury officials' time, we would be talking about many millions.
Dr. Andrew Murrison (Westbury) (Con): Does the hon. Gentleman accept the principle that justice can be means-tested? It seems that the tribunal will have to grapple with that. If that principle is accepted, what on earth will the Government say to those who do not make the cut?
Dr. Cable: Well, indeed; I believe that the hon. Gentleman is referring to the concept of disproportional effects, which the Government have introduced. None of us fully understands what it means. I do not think that the arbitrator whom the Government have appointed understands what it means either because, as far as we can tell, in his initial report he has not tried to engage with that extremely difficult issue, which many of us thought was introduced simply to evade the issue of compensation.
Mr. Brian Binley (Northampton, South) (Con): Does the hon. Gentleman agree with the many constituents of mine who are horrified that this Government have denied them justice by refusing to set a timetable for payment and, specifically, by not defining what "disproportionality of suffering" actually means? Does he further agree that the Minister should set people's minds at rest on those two issues today? If he does not do so, would we be right to say that the Government are deliberately waiting for more of these people to die?
Dr. Cable: That is a very emotive way of putting it but, in essence, the hon. Gentleman is right. That is the fact of the matter because, as I said in my introduction, every day that passes another 15 of those people die; it is a sadness that many of them will never see justice.
Patrick Hall (Bedford) (Lab) rose-
Dr. Cable: I am sure that hon. Members are anxious to hear me get on with the history, but I shall take one further intervention now.
Patrick Hall: It is important that, at this stage, the hon. Gentleman makes it clear what he understands the compensation to refer to. I am one of the signatories of early-day motion 1423, which refers to the compensation recommended by the ombudsman. Does he agree that the ombudsman was talking about the relative loss arising from the acknowledged maladministration and not that element of loss arising from the vagaries of the market?
Dr. Cable: Yes, that is right; it has been clear from the beginning that we are talking about relative losses. It is clear that nobody-neither the action group nor anybody else-is suggesting that wider definition.
Let me return briefly to the beginning of these events. I do so not simply for the sake of it, but because a large number of hon. Members were not in this place when the original crisis broke. Having checked this, I believe
that only one member of the Government Treasury team, the Financial Secretary, and one member of the Conservative Front-Bench team, the hon. Member for Runnymede and Weybridge (Mr. Hammond), were Members at that time. We have been around this for a long time and a lot of people have come into the story at different stages, so it is worth remembering where it started.
Equitable Life collapsed, in effect, in 2000. The first debate in this House, which was introduced by the hon. Member for Croydon, South (Richard Ottaway), was held at the end of that year. It is worth returning to that debate, because many of the arguments that we are rehearsing today were set out clearly and well on that occasion. In particular, the whole principle of compensation was discussed at that time, because it was clear to those of us who had been following events at Equitable Life that there was an issue of maladministration to address. The company had been declaring large bonuses far in excess of its profits or underlying resources for some years, such that the actuary responsible for it was subsequently fired by his professional body. The company had a guarantee of annuities that assumed a continuing high level of inflation, which was described at the time as mathematically brilliant but economically illiterate. The question was raised, even then, as to how it could possibly have been that the Government Actuary's Department and the Department of Trade and Industry, which were overseeing the matter, did not spot the problem.
So, there was a prima facie case of maladministration. I recall asking the Minister at the time whether, if there had been maladministration, there would be compensation. I asked that question because the Prime Minister made his political reputation-a long time ago-as an Opposition spokesman arguing the case for the Barlow Clowes investors, who were compensated after maladministration. The answer I received from the Minister was that once the ombudsman had made a recommendation, we could proceed to compensation. We have been waiting ever since for that debate to be resolved.
Norman Lamb (North Norfolk) (LD): Does my hon. Friend recall the Penrose report, which gave a clear indication of maladministration that, at the time, was entirely rejected by the Government?
Dr. Cable: Yes, and that was the second step in the process. We had several years before Penrose finally reported in 2004. Lord Penrose described the delays, even at that stage-remember, this was five years ago-as "iniquitous and unfair". Indeed, he found a combination of failures of policy, which are not examples of maladministration, and of maladministration and recommended that the matter be passed to the ombudsman, which is what happened. The matter was referred to the ombudsman, and my hon. Friend the Member for North Norfolk (Norman Lamb) and I participated on behalf of our constituents. Let us remember that the reference to the ombudsman was made on our behalf as Members of Parliament-there were 898 separate complaints, submitted by large numbers of Members on their constituents' behalf. That is why the ombudsman became involved. It was not an official process; it was a process that we initiated on behalf of our constituents.
The ombudsman pursued her inquiry and finished her work in February 2007. It was July 2008 before that work was formally presented to Parliament, as a result of innumerable questions posed by the Treasury under a process that is described as Maxwellisation. For those not familiar with the jargon, Maxwellisation refers, I think, to one of your predecessors, Mr. Speaker, as Member for Buckingham, although he is perhaps more famous-or infamous-for other things. That Maxwellisation cost a lot of time.
We received the ombudsman's report in July 2008 and its key findings-it is worth summarising them briefly-contained 10 determinations of maladministration: one by the Department of Trade and Industry, four by the Government Actuary and five by the Financial Services Authority. The ombudsman recommended remedies-that is, compensation. It is worth remembering that, despite what has sometimes been implied by the Government, this was not a case of a difficult lady plucking some proposals for compensation out of the air. The recommendations rested on a solid body of reasoning that had been set out well in advance called "Principles for Remedy", which explained exactly the conditions under which compensation should be awarded and the process that needs to be gone through.
The ombudsman was engaging in a meticulous process of reasoning that led to the conclusion that if there is injustice as well as hardship, a compensation process should be initiated. She described in some detail what should happen. At the risk of boring hon. Members, it is worth reading some of the key sections of her recommendations, because that is what the subsequent two years have been about. She stated:
"My second-and central-recommendation is that the Government should establish and fund a compensation scheme, with a view to assessing the individual cases of those who have been affected by the events covered in this report and providing appropriate compensation."
She described how that should be done and her key recommendation was that the process
"should be independent and constituted along the lines of a tribunal or adjudication panel".
Independence of Government was central to the recommended process.
We were then given the Government's response. We had a response in the House from the then Chief Secretary, who is now Secretary of State for Work and Pensions, which people responded to very well because she made what seemed to be a full apology and suggested that the Government would put in process a compensation exercise. We were taken aback by the fact that the Government then issued a written response-as opposed to an oral response to the House-in the form of Command Paper 7538, which took us in a different direction. Several key elements have caused a great many problems to this day. The process was to be run by the Treasury, rather than independently, and payments were limited to post-1999 cases. That has now been remedied, but the limited degree of compensation excluded 90 per cent. of what the ombudsman had recommended. The document introduced the concept of disproportionate effects through means-testing, which we have already discussed, and sought to apportion blame between different actors, although of course the ombudsman was solely
concerned with Government maladministration. Subsequently, the Government rejected the idea of interim payments, which might have speeded up payments to suffering individuals.
Over the past year-this brings us fairly close to where we are today-we have had a succession of responses to the Government's response. One has come from the ombudsman, and we have had two reports from the Select Committee-I notice that the Chair is here and might well contribute to the discussion. We have also had the judicial review. It is worth reflecting a little on what the ombudsman had to say about how the Government responded to her report.
Peter Bottomley (Worthing, West) (Con): Will the hon. Gentleman refresh the House's memory on the time scale the ombudsman had in mind and on how much of that time is gone? While I am intervening, may I put it on the record that although I am an Equitable policyholder I would give any compensation, were I to get any, to some good cause?
Dr. Cable: I cannot find the exact phrase in the few seconds that I have been given, but it was very clear that the process should be expeditious and humane. That is where we are in terms of the ombudsman's approach. She also said:
"It is clear to me from the Government's response to my report and from the further evidence given to the Select Committee on behalf of the Government...that, whatever the outcome of the work to be done by Sir John Chadwick, a full remedy will not be forthcoming for the injustice resulting from the maladministration I found had occurred in the prudential regulation of Equitable Life."
In other words, she had already concluded that the Government mechanism did not allow justice to be delivered through compensation and that the process was fundamentally wrong.
Annette Brooke (Mid-Dorset and North Poole) (LD): It is interesting to note that the Government use the word "expeditiously" in their amendment. Perhaps timeliness is now very belatedly being addressed. Does my hon. Friend agree that Sir John Chadwick's remit does not offer us the opportunity to be assured that there will be full transparency and fairness?
Dr. Cable: Indeed. Since the Government have declared themselves to be racing us in order to get there faster than the proponents of this motion, speed is no longer the issue. They have told us that they will speed up, at long last, but fairness will become the issue. The issue will be whether the Government accept Sir John Chadwick's findings when they appear. We will come to that.
Let me finish my reference to the ombudsman's response. Following the official response, the ombudsman has been involved in a very tart correspondence with the Chief Secretary. It is worth quoting one or two of the exchanges. The Chief Secretary spoke in this House on 21 July in reply to an urgent question. In response, the ombudsman wrote a letter that has subsequently been published. She stated:
"I noted what you said in the House on 21 July, and did not recognise it as a true representation of my position. That said, this is not the first time that the Government has misrepresented my position in order to defend its own and I suspect it will not be the last."
We should be under no illusions about what the ombudsman thinks about the way in which the Government are handling the matter.
This is not just about the ombudsman. We have had two excellent reports from the Select Committee on Public Administration-"Justice delayed" and "Justice denied"-which are well summed up by the phrase that the Government's position was
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