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"shabby, constitutionally dubious and procedurally improper".
We now come to the last stage of the process, the judicial review that concluded recently. The action group for the policyholders deserves an enormous amount of credit not just for briefing Members but for keeping alive an issue that could easily have died if it had not been driven so forcefully and with such conviction. The group took the judicial review option, at their own expense, to challenge the legality of the Government's response to the ombudsman's report.
The key point in this takes us back to the fundamentals of why we have an ombudsman. The purpose of the ombudsman was to remove the need for judicial reviews of Government decisions, or the need for people to spend large amounts of their own money challenging Government rulings in court. The review should never have been necessary, but it was sought by the action group, and it is worth reflecting on its key findings.
The judicial review concluded that the Government's position "lacked cogency", and that the Government unlawfully rejected the finding that maladministration caused injustice. It specifically instructed the Government to assess claims going back to 1990-quite a major advance in concrete terms. However, as the Chief Secretary pointed out in his statement yesterday, the review concluded that the matter had to go back to Parliament, so that the question of how the compensation process would work could be resolved.
It is therefore up to us, as Members of Parliament, to decide how the compensation process happens. Should it happen in the way that the Government have suggested, through Sir John Chadwick's inquiry, or does it need an independent tribunal process? I am sure that the Government agree that, for practical reasons, there is no need to go back to square one. Sir John Chadwick has done a lot of work, so surely we do not want to put that in the bin and start doing something else.
Of course we do not want to do that. The practical position is that the very useful work done by Sir John Chadwick forms the platform on which we can build a resolution to the problem. That work need not be ditched, because it can now be taken over by an independent process. It can be continued with absolute confidence that the findings that are reached will be honoured, because those findings are impartial and independent.
In contrast, we have no confidence at all that the Government will not simply disregard a conclusion produced by Sir John Chadwick that is inconvenient to them. The evidence for that is the fact that, for the past nine years, the Government have continually dragged their feet on every action that would have brought justice for our constituents.
Mr. Speaker: I must tell the House that I have selected the amendment in the name of the Prime Minister. I call the Chief Secretary to the Treasury to move it.
1.12 pm
The Chief Secretary to the Treasury (Mr. Liam Byrne): I beg to move an amendment, to leave out from "Life" to the end of the Question and add:
"also notes the Public Administration Select Committee's Sixth Report Justice denied? The Government's response to the Ombudsman's report on Equitable Life; recognises the vital role the Ombudsman plays in public life; reaffirms the duty of Parliament to support the office of the Ombudsman; recognises the Government's determination to introduce an ex gratia payment scheme that is administratively quicker and simpler to deliver than that envisaged by the Ombudsman; further welcomes the Government's decision announced to the House on 20 October 2009 to widen the ex gratia payment scheme to include trapped annuitants who took out policies after mid-1991; urges Sir John Chadwick to report as quickly and expeditiously as possible; and recognises the impact and significant distress that maladministration and injustice have caused in respect of Equitable Life.'."
I start by genuinely welcoming the speech made by the hon. Member for Twickenham (Dr. Cable), and the fact that he has triggered this debate. This is a very proper subject for today's Opposition day debate, and I want to set out a number of responses to some of the points that he made. First, however, I want to echo the apology on behalf of this and previous Governments made by my predecessor, my right hon. Friend the Member for Pontefract and Castleford (Yvette Cooper), who is now Secretary of State for Work and Pensions.
I have made two statements already since the House returned earlier this month, as I want to keep right hon. and hon. Members up to date with the Government's work to clear up the problems of Equitable Life's past. However, today is the first opportunity for a debate since the judgment in the judicial review brought by the Equitable Life members action group-EMAG-was handed down last week.
I promised the House last Monday that I would reflect on the court judgment as quickly as I could. I did that, and I updated the House on the matter yesterday. I should like to elaborate on that statement this afternoon, and try to address the three points that I think are now uppermost in the minds of both Equitable Life policyholders and hon. Members-the scope of the proposed ex gratia scheme, the speed with which we can act, and the fairness of the approach that we propose.
Before I go into that, perhaps I should first say a word about the role of the parliamentary ombudsman. In preparing for this debate, I looked back over the comments that I have made in the House on this subject. I think that I underplayed and under-celebrated the role of the ombudsman in public life. This afternoon, I want to put on record my gratitude to her for her work, and I have made sure that that is underlined in the Government amendment.
It was only right for the Government to make sure that our response to the ombudsman's report on Equitable Life was based on a thorough examination of what she said. It is true that we did not wholly agree with her conclusions, but we did agree on many things. Indeed, in nine out of 10 of her findings we agreed wholly or in part with the charge of maladministration, and in five areas we believed that injustice followed.
Mr. Letwin:
I am grateful to the Chief Secretary for giving way at this early stage, but is it the Government's view that they should decide whether they agree with a judgment handed down by a court? If the Government
do not consider that appropriate, is that the right attitude to adopt when an ombudsman makes a decision or recommendation?
Mr. Byrne: I think that the two things are quite different, and I shall explain why in a moment.
As I was saying, we agreed with the charge of maladministration in nine out of the 10 findings, and thought that injustice followed in five areas. To address that injustice, we proposed that an ex gratia payment scheme should be put in place.
Mr. Jim Cunningham (Coventry, South) (Lab): How many people have received ex gratia payments? What is the difference between the Government's position, as expressed in their amendment, and the Opposition's, as expressed in their motion? A number of people in my constituency are extremely concerned about the delays in receiving compensation. I get regular letters and I have raised the matter myself, and I really want to know what the fundamental difference is, as there is a lot of hardship out there.
Mr. Byrne: My hon. Friend is absolutely right, and I am grateful to him for that point. I shall say something in a moment about how many people I think are now within the scope of the ex gratia scheme, but I hope that he will allow me to take a short run-up to that.
The starting point for the debate about scope is the fact that the ombudsman acknowledged-I think in her evidence to the Public Administration Committee-that the Government could have chosen not to make any payments at all. She also recognised that the Government have a responsibility to balance competing demands on the public purse, a point that was underlined by the court last week.
That said, however, there is clearly a moral and ethical case for the Government to provide an ex gratia payment scheme from the public purse. The question then becomes, "What is the rational basis for the operation of that scheme?" Having considered that question carefully, we concluded that the right approach was to look at where we agreed with the ombudsman in thinking that injustice had arisen. We decided that that should be the foundation of the ex gratia scheme that we put in place.
We lacked the information about Equitable Life policyholders needed to understand exactly who would be embraced by such a scheme. That is why we asked Sir John Chadwick for his advice on the fastest and fairest way forward. That approach was then challenged in judicial review proceedings by the Equitable Life members action group. The hearing took place in July, and the judgment was handed down last week.
It is an important ruling. I think that it takes us one step closer to a swift resolution and the provision of support for those who are suffering. The court recognised that the Government's basis for a payment scheme was lawful, and it accepted that the Government were entitled to seek Sir John Chadwick's advice in establishing the scheme.
We very much welcome that confirmation of the legal basis of our approach, but the hon. Member for Twickenham was right to go on to say that the court also concluded that in two areas we focused too narrowly on the question of regulatory compliance. Having considered that judgment very carefully, and because I
am ambitious for a speedy resolution to the matter, we took the view that the scope of the ex gratia scheme should be widened. Therefore, we have asked Sir John Chadwick to consider injustice arising in the period from mid-1991.
What will be of interest to many right hon. and hon. Members is that that decision ensures that a number of the policyholders who are often called "trapped annuitants" are now likely to fall within the scope of the ex gratia scheme. The fact that the scheme has been widened means that something like up to 1 million people could be covered.
Anne Milton (Guildford) (Con): Can the Chief Secretary clarify what he means by "speedily"? My constituents watching the debate on television will want clarification. We have had too many of those words. They are still waiting.
Mr. Byrne: I shall deal with that question immediately. Speed, as the House has urged, is now of the essence. My goal, with the benefit of Sir John's advice, is to deliver an ex gratia scheme that is administratively quicker and fairer than the approach proposed by the ombudsman, and in a way that puts less of a burden on policyholders.
Anne Milton: I thank the right hon. Gentleman for giving way a second time. I would like a time scale. I would like a date-one month, two months, three months? "Speedily" is not good enough.
Mr. Byrne: I shall answer the question directly, but I want to make one or two points first.
Mr. Mike Weir (Angus) (SNP): Can the Chief Secretary answer me on a matter of principle? The Government have gone for an ex gratia scheme, but I do not understand why, if other people have lost out owing to maladministration, they should be excluded from compensation. The Government have, in effect, entered into a means-testing arrangement for policyholders in Equitable Life.
Mr. Byrne: That is an important point, which was acknowledged both in the Bradley judgment and again in the court last week. There is no legal obligation on Government to compensate people for a regulatory failure that, in large part, was caused by a failure of regulators in the early 1990s, extending up to 1998. Also, as Lord Penrose says, the company itself was the architect of the failure. Although there is no legal obligation on the Government to provide compensation for such regulatory failure, there clearly is an ethical and a moral demand for Government to provide some kind of ex gratia payment scheme. The question then becomes what is the rational basis for that scheme. The Government's conclusion has been that the only rational basis for the scheme is where we agree that injustice was caused through maladministration.
Mr. Byrne:
Dates will come in a moment. When the ombudsman reported in July 2008, she suggested that a scheme could be established within six months and that, once established, such a scheme could conduct its work
over the course of a further two years-in other words, taking us to December 2010. But we concluded that the approach that was recommended could be better. Indeed, when Sir John Chadwick, who is an independent judge of some repute, looked at the question, he described the ombudsman's approach as
"at best unsatisfactory and more likely impossible".
The reason for this is that the approach that was proposed by the ombudsman and that has been rehearsed again by the hon. Member for Twickenham and is recommended in his early-day motion entails a case-by-case review by a tribunal or another body of the evidence of loss from individual policyholders.
If we believe, as the hon. Gentleman says, that there are up to 1 million policyholders, and if we had to consider each of their investment decisions in the period that we are talking about, we would have to review something like 30 million different investment decisions. The approach proposed by the ombudsman puts the burden on the individual policyholder to show how regulatory failure created a loss. Then the policyholder would need to show what kind of relative loss they had suffered, which would require them to say something about a counterfactual.
What we have asked Sir John to do is to undertake a better way of securing ex gratia payments for policyholders. The approach that Sir John proposes is to look at different classes of policyholders and understand what the relative losses may be, in order to make sure that a much swifter and policy-based compensation payment can be made. That will be faster than a case-by-case review of 30 million investment decisions.
Lorely Burt (Solihull) (LD): I understand what the Minister says about the amount of time and effort that needs to be put into the compensation scheme, but echoing the hon. Member for Guildford (Anne Milton), may I ask him to confirm that the compensation scheme will be in place in the lifetime of his Government-before the general election?
Mr. Byrne: I shall come to that point directly, but I shall take another intervention first.
Susan Kramer (Richmond Park) (LD): I think the Minister is going to receive another letter from the ombudsman for again misrepresenting what she said in her report about a process that she recommended could be completed within two years as a mechanism for compensation. Does the right hon. Gentleman accept that the term "disproportionate", as he describes it, applies simply to the different impacts on different classes of policyholders if, for example, somebody had policy type A rather than policy type B? It is not a means-testing measure, and that point is crucial.
Mr. Byrne: There are two points there, as the hon. Lady said. First, on the question of relative loss, it will be important to look at what policyholders would have made if they had put their investments into a different organisation, rather than a trade-off between different policies. All parties will have to come to a view about how what will ultimately be a fixed pot of money is shared between policyholders. That is one of the questions that Sir John has to consider, and it rightly should be a matter for further debate in the House.
Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I can see the strength of my right hon. Friend's argument for a different mechanism from that proposed by the ombudsman, but a problem is that we are still a long way from getting that mechanism set up. The difficulty is that people are rightly asking why these leisurely discussions and reports are going on. Out there, people are dying. Out there, people are not getting any money. Why have not steps been taken already to set up the mechanism so that people can be paid out now? My right hon. Friend needs to give us definite indications of dates when payments can be made or when a mechanism can be set up if he is to persuade many of us to support him in the Lobby later today.
Mr. Byrne: I am grateful to my hon. Friend for that point. It allows me to say that work is well in hand. Sir John has already set out his approach and he is already a long way through the work. It is worth the House reflecting on the scale of the task that Sir John is working through. He has to consider information on 2 million policies and information dating back to around 1990 on payments and investments for over 20 main types of policy. That demands a review of several hundred specific policy products. It requires that data be checked by both his actuaries and those of Equitable Life.
Sir John then has to give advice on how to assess the relative losses of the varied classes of policyholder. The only way to do this is to assess the performance of the rest of the industry at the time, a process that will demand some pretty difficult actuarial calculations and the testing of a number of assumptions, not least how to make payments most easily and what their tax treatment should be. We have asked Sir John to finalise the design of his scheme by spring 2010.
Dr. Cable: We all understand that the Minister has a perfectly legitimate role in protecting the Treasury, but his argument seems to be that the Government's route is designed to protect the policyholders by getting them resolution more quickly than the ombudsman would. Why, then, does he think the policyholders have invested a substantial amount of money in order to pursue a legal action to follow the ombudsman route, rather than the one that he is recommending?
Mr. Byrne: I cannot second-guess what was in the minds of EMAG, but I think there were two concerns in particular, both of which it was legitimate to test. The first was the legal basis for the Government's approach, which the court was happy to confirm. The second, rightly, was for policyholders to test the scope of the ex gratia scheme.
Patrick Hall: The ombudsman used the expression "relative loss", which has been used before in the debate. My right hon. Friend has also referred to that, but the Government's favoured position is based not on relative loss, but on disproportionate loss. I have not seen a definition of that. Could he cast some light on the distinction between relative loss and disproportionate loss?
Mr. Byrne: That is one of the questions on which we have asked Sir John Chadwick to advise. When the next stage of the report is finished, which I hope will be in the next week or two, that may be something that I could lay before the House so that we could test some of the conclusions in debate.
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