(g) Capping costs
85. Some witnesses have suggested a cap on the total
amount of compensation that is available as a way of preventing
the sums involved creeping higher. For instance EMAG proposes
that: "Parliament decides what the aggregate sum of compensation
should be and pays it to the compensation tribunal and lets them
get on with distributing it. That puts a stop to the creeping
additional cost and it also means that the compensation tribunal
has the money to get on with doing it."
Equitable Life has stated: "Obviously, it is the prerogative
of Parliament to consider a cap",
while its Chair, Vanni Treves, added: "If the Government
can make a judgment eventually when the Commission reports, and
if at that stage it says, 'We cannot afford it', or, 'We can only
afford it over a period of time', so be it."
86. Others have highlighted the disadvantages of
imposing a cap, based on reasons of both principle and practicality.
For instance, Tom Winsor stated: "I would not put
a cap on it because the citizen has a contract with the State
and the regulators are emanations of the State. If the contract
is broken, there should be redress and that redress should not
be diminished by the willingness, the inclination, of the person
against whom the redress is determined."
The Board of Equitable Life added: "Unless it is certain
that the amount given exceeds the amount due (plus expenses),
it seems likely that the Commission would either risk paying nothing
to those who were assessed after the funds ran out, or complicate
the process considerably by having to make all the assessments
before deciding that it had only enough funds to pay all policyholders
X% of their losses. (This would also mean no cases would be closed
until very late in the process)."
87. The main advantage of a cap on the total amount
of compensation to be paid would be that it would limit the taxpayer's
liability, particularly in a circumstance where the potential
costs are very high. However, it would pre-empt the findings of
an independent tribunal. It would also make it very difficult
to achieve any speed in the distribution of the money available,
without running the risk that there would be none remaining for
those identified and assessed late in the process.
88. A cap on individual payments is a separate possibility.
Paul Braithwaite of EMAG told us that this would be an issue "for
Parliament to decide".
There is an ethical case to be made for such a cap, but, to ensure
a reasonable retirement income for all those involved without
requiring a hardship test, it would need to be set at a level
well above that of the average Equitable member's investment,
which, as already mentioned, was modest. Thus, although a cap
would ensure that the taxpayer was not liable for paying a very
large amount of compensation to any one individual, it might have
very little impact on reducing the overall cost of compensation.
There is also a risk that such a cap could penalise those who
depend mainly or entirely on Equitable Life for their pension
provision, as against those who have a mix of investments. It
would be reasonable for the compensation tribunal to consider
a cap on compensation, as a way of limiting the impact on the
public purse. We doubt, however, that a cap on the total amount
of compensation to be paid could be applied without causing either
significant unfairness to some of those who might benefit, or
delay to the majority. We would be particularly concerned if a
cap of any kind penalised those with modest investments or those
89. We have not attempted to, nor would it be possible
for us, to deal with all of the issues that a compensation tribunal
is likely to need to address. These include, for example, the
tax status of compensation payments, and whether to treat payments
to the estates of those policyholders who have died in the same
way as payments to policyholders who are still alive. For us,
the important step to be taken is the establishment of an independent
compensation tribunal, with the freedom to take into account whatever
factors it believes are relevant.