Equitable Life - Public Administration Committee Contents

Examination of Witnesses (Questions 73-136)

Mr Mark Hoban MP and Giles Thomson.

14 October 2010

Q73 Chair: For the record, could you identify yourselves, please?

Mr Hoban: Mark Hoban, Financial Secretary to the Treasury.

Giles Thomson: Giles Thomson, Head of the Equitable Life Team in the Treasury.

Chair: We have had two very interesting sessions already this morning. Robert Halfon?

Q74 Robert Halfon: Good morning. EMAG have said that the calculation of the external relative loss is the only part worth salvaging, but they consider it a significant underestimate, because of a number of factors: the exit penalty fees, the first 18 months of losses, provisions for those already invested in July 1991. How far do you think these factors should be taken into account and have you done so?

Mr Hoban: Taking those points, but first of all let me just say that Towers Watson, who the actuaries we appointed to deal with this, have prepared the first bottom-up estimate for the calculation of losses. They have gone through the transactions of 1.5 million policyholders, 2 million policies and 30 million premium transactions, and that has enabled them to produce what I hope and believe is a robust estimate of the losses suffered by Equitable Life's policyholders. It has not been a straightforward process. These records go over a long period of time, and there are some judgments that you need to make to reach those conclusions.

In respect of the first part, the 18 months' data, there are two points here. I think the first point is the one that Sir John makes in his report: that it was likely that the impact of the first finding of maladministration by the Ombudsman wouldn't have occurred until late 1992. The other issue is a more pragmatic one, concerning the quality of data that is available to identify individual premium transactions prior to late 1992. Equitable Life have provided information to help form this assessment. The information was hard to access and may not be correct, and is there a real challenge in getting the quality of data that you need to really provide an accurate assessment of the losses incurred in that period. So I think there is a reason of principle and a reason of pragmatism why the calculation of losses starts in late 1992.

On the exit penalty, people who left Equitable Life early would have received their share of the assets of Equitable Life at that point. The judgment that Towers Watson reached is it would be consistent to compare that with the similar calculation for the comparator life companies. If you leave a life company on a contractual basis you get two things; you get your share of the underlying assets plus an element that reflects smoothing of investment values. To get a consistent basis you ought to look at the underlying share of assets you got when you left Equitable Life and the underlying share of assets you would have got in the comparator life companies so there is an element of consistency there.

In terms of the third point about people invested up until July 1991, there are two points here. I think that Sir John, in his calculation of internal relative loss, does take into account those people who have been investors up until that point. I believe that is the basis of which there are a number of criticisms. Secondly, the Ombudsman's Report does cover a period from 1991 onwards, and the basis of the compensation should be those people who had invested in that time scale; so the premiums of anyone who invested prior to 1991 and who made premium payments post 1992 would fall under the calculation of relative loss. Of course those people who invested prior to 1991--and it is accepted that Equitable Life did over-bonus in that early period--would have probably done quite well from the strategy Equitable Life followed in that period.

Q75 Robert Halfon: Do you think that the work that Towers Watson has done will have any impact of the quantum of the £4.4 billion to £4.8 billion figure for the relative loss already published?

Mr Hoban: What they set out in their letter in July was a number of areas where further refinements were needed to be made to enable us to publish a revised loss figure next Wednesday as part of the spending review. For example, they need to get investment data from the end of 2007 to the end of 2009 to update their estimates. They have worked quite hard over the summer to ensure that we can produce a single estimate of losses next week.

Chair: I will just say our time is quite limited. If we could have shorter answers it would be very helpful.

Q76 Paul Flynn: Under the Coalition Government, 1,500 people have died--

Chair: Wait a minute, we are asking about the quantum of relative loss, are you on that subject?

Paul Flynn: No I am not, but if the answers are going to take as long as this I am only going to get one question in. The question is a very brief one.

Chair: We will come back to you. Any further questions on the quantum of relative loss?

Q77 Robert Halfon: Will Parliament be given the opportunity to debate the quantum you plan to announce as part of the spending review?

Mr Hoban: The announcement will be made next week. We have got the Committee stage of the Equitable Life (Payments) Bill later this year. I am sure that there will be plenty of opportunities to discuss that.

Q78 Mr Walker: Does the quantum of relevant annoyance count as a quantum question?

Chair: I am sure you will be able to express it later on. Shall we move on to the Ombudsman's Report and the Chadwick Report? Bluntly, the problem seems to be that the Chadwick Report has terms of reference that are not consistent with the Ombudsman's recommendations.

Mr Hoban: Yes, the previous Government drew up the terms of reference for Sir John and they had accepted a certain number of the Ombudsman's findings. Their decision to accept or reject had been tested by the court and some of their objections were deemed to be unreasonable, some were deemed to be reasonable. That does set the terms of Sir John's Report. What I would say is that the calculation of aggregate external loss is independent of the findings that the previous Government accepted or didn't accept.

Q79 Kevin Brennan: Why didn't you amend them?

Chair: Just a minute Mr Brennan. We have just heard from Sir John Chadwick that had he had different terms of reference in line with the Ombudsman's Report he might well have reached different conclusions. Given that you, I, and I think probably most people on this Committee were elected on a pledge to implement the findings of the Ombudsman, how is it acceptable to continue to base the work of the Government on a report produced by Sir John Chadwick that is not consistent with the findings of the Ombudsman?

Mr Hoban: Well I think there are elements of Sir John's work that would enable us to move to the next stage. The choice I was faced with, Chairman, was whether I effectively ripped up Sir John's terms and started from scratch, or whether we allowed Sir John to complete his work based on the existing terms of reference. I judged that in order to reach a speedy resolution, recognising the amount of time that had been spent on this by the previous Government, the best thing to do was to complete Sir John's work and identify those elements that we could use.

Q80 Chair: So, how long do you think it will take to get to actual payments of compensation from now?

Mark Hoban: We announced in July when we published Sir John's Report that we aimed to make the first payments towards the end of the first half of next year.

Q81 Chair: So, there are many months to go before payment is actually made. Sir John has told us that he could do some work on revised terms of reference, building on his existing work, that might take some months but would be consistent with the findings of the Ombudsman. Would that not be a good way to proceed?

Mark Hoban: I think that would delay justice for policyholders. One of the things I am very struck by in the representations I have received from colleagues and policyholders is that speed is important, because between now and the first payments being made one of the important steps is that the Independent Commission on Equitable Life Payments will design the payments scheme. I think that if Sir John did some more work, it would put back the date of payment by some months.

Q82 Chair: So you have investigated this possibility?

Mark Hoban: Yes. When I took on this responsibility, I was very conscious of how we could resolve this as quickly as possible and in as fair a way as possible.

Q83 Chair: But you have asked Sir John how long it would take to revise his terms of reference and amend his findings?

Mark Hoban: I came to the conclusion that I needed to find the shortest possible timetable.

Q84 Chair: But you have asked him how long it would take?

Mark Hoban: No, I haven't. When I started to go through this I asked: how do we get from the position I inherited in May 2010 to the speediest possible outcome, trying to take into account some of the concerns that people had about Sir John's work and the need for an independent payments commission, and I felt the quickest way to do it was to follow the programme that I outlined in July.

Q85 Chair: But if it turned out that he could do some concurrent work while a mechanism of payment was being worked out, that would seem a practical way forward, would it not?

Mark Hoban: I also point out to the Committee that we needed to decide how much we could afford to pay in the context of the spending review, which reports next week. I just think that, in terms of the other aspects of how this fits into broader spending commitments, if we didn't proceed on the timetable I set out the risk would be that we would not have a satisfactory outcome for the spending review.

Q86 Kevin Brennan: Are you not worried that people might find it surprising that, given the commitment you made in opposition, and in the coalition agreement, on Equitable Life, you didn't even talk to Sir John Chadwick about the possibility of his being able to deliver a report fairly swiftly based on the principles that you had set out as the way you would deal with this problem, namely on the basis of the recommendations of the Ombudsman?

Mark Hoban: I think there are elements of Sir John's work that enable us to deal with some of the outstanding questions identified in the report.

Q87 Kevin Brennan: You have said that already, but my question is: did it ever cross your mind for one second that it might be a good idea to speak to Sir John after the election and ask him whether or not the terms of reference could be quickly revised to fit in with the commitments you gave, and that that would enable you to deliver according to your timetable?

Mark Hoban: I did consider that, but I also looked at the timetable that the Government has set in terms of other aspects of public policy, for example the spending review next week. The Ombudsman did say that any compensation should be seen in the light of the effect upon the public purse, and it struck me that if we were to reach a satisfactory conclusion we had to reach an assessment of the loss and how much we could afford by the time of the spending review.

Q88 Kevin Brennan: It is accepted all round that the public purse comes into play, but the point is that the basis on which you were saying you would determine your conclusion was the Ombudsman's recommendations, and yet you have a report that is based on completely separate terms of reference to those which both the Ombudsman and Sir John Chadwick have accepted. How is that in any way compatible with delivering what you said you would deliver?

Mark Hoban: Because I believe that the assessment of external relative loss is broadly consistent with the Ombudsman's findings.

Q89 Kevin Brennan: Let's say that in the end you come up with £1 billion. Do you think that would be an acceptable sum of money to pay out to pensioners, given there are 1.5 million of them and that would deliver to them probably £600 or £700 each?

Chair: Can we come back to affordability later, please?

Kevin Brennan: It could be a very short answer.

Chair: Very quickly.

Mark Hoban: What we will publish next week is a distribution of losses. For example, I can tell you today that just over a quarter of policyholders suffered no loss at all.

Q90 Kevin Brennan: So that is out of the 1.5 million?

Mark Hoban: Yes; and about 40% of policyholders lost between £1 and £1,000. We will need to take the decision in the context of affordability and it is for the independent payments scheme and the commission that we set up to deal with it.

Q91 Kevin Brennan: So, you will wipe out the small ones and just pay the 40%?

Mark Hoban: It is a matter for the independent payments commission to decide. One of the commitments we gave was that the design of the scheme would be independent of the Treasury; the Treasury would determine compensation as part of the spending round, but we would pass over to an independent commission the design of the scheme. That was something EMAG and we were keen to do, and the independent commission has already met to start work on this.

Q92 Mr Walker: I am not sure I am allowed to ask this question, but do you think this has been slightly mishandled by party managers? We did raise expectations in the run-up to the general election and when you were an Opposition spokesman you made some outstanding speeches, no doubt endorsed by the Whips' Office. Expectation was raised enormously and that has been somewhat dashed over the past few months. Are you concerned by that?

Mark Hoban: We have always been clear, from the date when we accepted the Ombudsman's Report in July 2008, that any outcome would have to be affordable and we would have to consider the impact on the public purse.

Q93 Chair: But that is not the issue here. The issue here is the terms of reference of Sir John's Report.

Mark Hoban: Mr Jenkin, I am trying to respond to Mr Walker's question.

Chair: I am just illuminating this point. The terms of reference of Sir John's Report do not seem to be consistent with the commitments that you and I made when we were in opposition, or indeed with the coalition agreement.

Mr Walker: When we were in opposition we talked about the Ombudsman, not about Sir John.

Mark Hoban: There are a number of steps in Sir John's work that identify losses at different stages, from the aggregate Stage 2 relative loss down to the final number that he proposes. I think that if you look at the way in which the external rate of loss was calculated that approximates to the Ombudsman's suggestion about relative loss.

Q94 Chair: But it would be comforting to know that that was consistent with terms of reference which themselves were consistent with the Parliamentary Ombudsman's Report. We don't know, do we?

Mark Hoban: The methodology that Sir John identified to calculate external relative loss is, I think, consistent with the Ombudsman's Report. It becomes more challenging, as I said in my letter to the Committee, when you move down to Sir John's calculation of internal relative loss. That is where the discrepancy between Sir John's terms of reference and the Ombudsman's really bites. It doesn't bite at the first stage, when you calculate external relative loss.

Q95 Paul Flynn: Mark Hoban, as the Opposition spokesman, said in April: "Today we make a firm pledge to compensate policyholders. They have waited long enough for justice." You laid on the emotion by suggesting that 15 policyholders would die every day while they waited for justice. Since you came into office another 2,500 have died. By the time the compensation is paid, according to your calculation, about 7,000 more will have died waiting for compensation. Aren't you ashamed of yourself?

Mark Hoban: First, our estimate is that 16,000 policyholders have died in this period—not just the period since the election. That is why I have tried to complete this process as quickly as possible to ensure justice is done as quickly as possible. People say we should have started again with Sir John; we should recommence the whole process. I want this to be resolved quickly so that policyholders will get justice quickly.

Q96 Paul Flynn: To my constituents who write to me, you were the great hope. They believed in your rhetoric that there would be justice and it would be swift. When you made your announcement, they were told that justice would be slow, there would be another delay, and the amount they could expect to get would be derisory. Is that right?

Mark Hoban: I have tried to make sure the process is as quick and as swift as possible, and that was our commitment. I believe that we are going as quickly as we can. If we had gone back to revisit Sir John's terms of reference I believe that would have added a further delay to the process. I want this over as quickly as possible.

Q97 Paul Flynn: This Committee has looked at this. One of the things it has been very careful to avoid is building up false expectations. In the past the Committee took the line that no government would pay out on the scale that was expected. You quite irresponsibly built up on that false expectation and played on the hopes of pensioners that they would get swift, adequate compensation. Can you say now that they are not going to get it, it will not be quick and it will not be adequate?

Mark Hoban: I think it is quick. We had years of delay with the previous Government. This Government has moved quickly and decisively in the course of the past few months to develop a solution to the problem. We have been very clear in opposition and in government that the recommendation made by the Ombudsman with the public purse caveat is absolutely right.

Q98 Paul Flynn: You criticise the previous Government for not accepting in full the Ombudsman's Report. Can we now be clear: do you accept everything that the Ombudsman suggested in her Report? Yes or no?

Mark Hoban: If we accept Sir John's aggregate external relative loss calculation, that takes into account all losses suffered by policyholders regardless of whether or not you accept individual findings of maladministration.

Q99 Paul Flynn: Do you accept the Ombudsman's Report in full—yes or no?

Mark Hoban: I have no problem about accepting those recommendations. The previous Government chose to reject some of those. Its views were guided by a court.

Chair: So, there is no finding of the Ombudsman that the Government now rejects.

Paul Flynn: Okay.

Chair: That is very useful.

Q100 Greg Mulholland: There is a crucial point that I think we need to clarify. There was some disagreement between Sir John and the Ombudsman on this point. It was clear that the Ombudsman believed the Government had effectively accepted all 10 of the findings of the Ombudsman's Report, and believed that was basically in the coalition agreement, yet Sir John clearly said he had not heard a minister say publicly that all 10 were accepted. Are you today saying that the Government—not you, Mark, but the Government—accept all 10 of those findings? I think that is a fundamental question.

Mark Hoban: Yes. When the Ombudsman published her report in July 2008, we accepted her findings and recommendations in opposition, that there should be a compensation scheme that should be subject to the public purse. But, to go back to the calculation of external relative loss, that is not dependent upon the individual findings of maladministration. Sir John's calculation of internal relative loss certainly is dependent upon the findings accepted by the previous Government, but the external relative loss figure is not.

Q101 Nick de Bois: If you accept the Ombudsman's findings in full—it is good to have that clarity—but you acknowledge that Sir John's terms of reference influenced his advice, which we have already discussed, I struggle to understand how far you can use that advice as a building block. I would also like to understand, if you persist in using it as a building block, what the other building blocks are. I am unaware that we have made any public reference to what the other building blocks are.

Mark Hoban: If you look at the methodology Sir John developed to identify the losses and the Towers Watson letter, you will see there a series of steps that take you from an absolute loss figure, relative loss, relative loss capped by absolute loss, all the way down to an internal relative loss figure.

Q102 Nick de Bois: But they are very subjective.

Mark Hoban: As you get further down that chain of calculations you certainly do increase the amount of subjectivity, but the starting point—external relative loss—is based on how an investment made in Equitable Life compares with an investment made in a comparable life company. Yes, there are some judgments around that. We talk about the MVA and how you deal with the starting date, but I think that is a very hard calculation. The element of subjectivity around that is very limited, whereas you are talking about far more subjectivity the further down the chain you get. For example, to calculate internal relative loss the actuaries had to recreate what the returns of Equitable Life would have been in that period. Clearly, that is a very subjective process. If the Government were to accept Sir John's final figure and approach, I think it would be right to say there is a mismatch between accepted findings and what the Ombudsman herself said were her findings. If you deal with just the external relative loss figure, I think that number is independent of the findings you accept or don't accept.

Q103 Nick de Bois: Do you accept the 80%/20% point?

Mark Hoban: I think that is a judgment. What Sir John and in fact EMAG said was that some people would have continued to invest with Equitable Life even if they had known what the problems were. I don't know what the right proportion is.

Q104 Nick de Bois: Can you clarify? Where did they say that? I have not seen that.

Mark Hoban: It was in one of EMAG's earlier submissions to Sir John prior to their withdrawal from the process. But I think that is where the problem is. I said in my statement in July that the further you go down Sir John's path the more subjective and judgmental it is. That is why I think there has been so much criticism of those later stages of his thought processes, but the starting point, the calculation of external relative loss, is something I think people can broadly support.

Q105 Nick de Bois: What about other building blocks?

Mark Hoban: It is trying to work through some of these judgments that Sir John has made. If you just accept or reject his report, you have to think very carefully about the judgments he has made and the conclusions he has reached. He made some very thoughtful comments about whether relative loss should be capped by absolute loss, so there are some judgments that need to be made and that is one of the building blocks in this process.

Q106 Nick de Bois: So, his is the only building block?

Mark Hoban: No, I don't agree with that. We have gone through a challenge process; we have taken representations from a range of groups. I have met Equitable Life, EMAG and ELTA to get their views. They put forward alternative views about some of the calculations, interest rates and market-value judgments. All those strands help to bring together a picture of what figure for external relative loss the Government should accept.

Q107 Charlie Elphicke: You say that you accept the Ombudsman's recommendations in full, and yet it looks as though you are trying to substitute the Chadwick judgment for that of the Ombudsman. What would you say to that?

Mark Hoban: I don't agree with that. I said that there is a series of steps in Sir John's approach, some of which are very dependent on whether you accept some, all or none of the Ombudsman's findings, and some of which don't depend on that. In her report the Ombudsman took the debate to a certain point. She clearly recognised that more work needed to be done following her report to get to a compensation scheme, so I think some aspects of Sir John's work are helpful in doing that, but there are other aspects that have been widely criticised for being very judgmental and subjective.

Q108 Charlie Elphicke: But the Ombudsman set out details of the quantum and a review of the remedy that should be applied, all of which is then junked by Chadwick. How is it consistent with saying that you are accepting the Ombudsman's recommendations?

Mark Hoban: Because the Ombudsman's Report did not set out a detailed blueprint for how to implement a compensation scheme, and that is why the Ombudsman suggested in her report that independent tribunals should be set up to take it forward. To calculate relative loss you need a comparator company as a benchmark. The Ombudsman didn't set out what those comparators would be; Sir John's Report does set that out.

Q109 Charlie Elphicke: Towers Watson set it out too, and it is a very large figure.

Mark Hoban: But there is a process you need to go through to take the Ombudsman's Report on to a workable compensation scheme. The Ombudsman recognised that, and she proposed a tribunal, which the previous Government rejected. More work needs to be done beyond this to come up with a workable scheme.

Q110 Charlie Elphicke: Finally, referring to the 80% reduction, do you think it is at all appropriate to have this concept of contributory negligence—it's all the fault of the policyholders? That has really upset people in EMAG.

Mark Hoban: Some people would have and did invest in Equitable Life once some of the problems were exposed. Some people joined Equitable Life quite late. I think the Government failed to regulate Equitable Life properly, in the same way management failed to run it properly. I am not going to judge the decisions made by individual policyholders.

Q111 Chair: You have been very helpful in clarifying that there is no difference between you and the Ombudsman in principle. Before we leave the remit of Sir John's Report and its conflict with the Ombudsman's findings, do you not see a real political difficulty--we are really dealing with a political difficulty--of resting so much of your proposed compensation scheme on a report that the Ombudsman, Sir John and you accept is not consistent with that report? Don't you have to find some way to use the good work that Sir John has clearly done, but to ask him to adjust it to reflect the findings of the Ombudsman? I don't think it's the quantity of compensation that is the Ombudsman's difficulty; it is about the reason you are ameliorating the liability on the Government. If you are using the Chadwick Report as the pretext for reducing the payment down to 20% of the £4.8 billion, that doesn't look like the justice that the Ombudsman expected the Government to deliver.

Mark Hoban: I had a choice when I came into office. I could have decided to scrap the whole Chadwick process.

Q112 Chair: But it is not about scrapping the whole Chadwick process.

Mark Hoban: Or I could have amended it.

Chair: Just a minute; I am chairing this meeting. It is not about scrapping the whole of Chadwick; it is about bringing Chadwick's work into line with the findings of the Ombudsman. It is not about junking the whole thing.

Mark Hoban: Mr Jenkin--to take on board the point made by Mr Flynn about the impact of delaying justice--if we had reworked Sir John's terms of reference, that would have taken longer and fewer people would have lived to see justice. This has been going on for far too long. If we had rewritten Sir John's terms of reference it would have been seen as another excuse for delay.

Q113 Chair: You don't know how long it would take him; you haven't discussed it with him.

Mark Hoban: I judged that the quickest way to do it was to accept Sir John's work as it stood, identify those elements that would help us take forward the Ombudsman's recommendations and move to a scheme that would pay out as quickly as possible. That was a judgment I reached. I felt that was the best way to bring this matter to a satisfactory close.

Chair: Let us move on to measuring compensation. Have we done that?

Q114 Kevin Brennan: You tell us in your written evidence that the figure for relative loss, which is Step 2 of the Chadwick advice, is one on which there is broad consensus, but you are silent about the recommendation that this figure should be capped at the level of absolute loss, which is Step 1 of the calculation. Do you see a similar consensus around that figure? Do you think there should be a cap of the sort suggested by Chadwick, and if so, why?

Mark Hoban: The Government will announce next week the loss figure that it accepts. Sir John in his report makes an argument about why relative loss should be capped at absolute loss. The Ombudsman reaches a different conclusion about the calculation of relative loss. We have yet to conclude on that point.

Q115 Kevin Brennan: Do you think a cap is fair to policyholders?

Mark Hoban: Clearly, there are two ways you can calculate relative loss conceptually. The Ombudsman takes one view and Sir John takes another and that is something we are weighing up in looking at our findings next week.

Q116 Kevin Brennan: How far do you think that, as the Ombudsman recommends, lost opportunities should be included as part of the injustice to be remedied, and also justifiable outrage?

Mark Hoban: The Ombudsman in her report says that relative loss should take into account lost opportunity, and that is the basis of the difference between relative loss and relative loss capped by absolute loss. Sir John makes an argument that people should not be compensated for gains that they would have made elsewhere; they should be compensated for losses that they made with Equitable Life.

Q117 Kevin Brennan: When you came to look at this problem did you genuinely at any point actively consider and discuss with your officials the possibility of talking to Sir John about amending his terms of reference and discussing with him how great a delay, if any, that would cause to compensation?

Mark Hoban: We have already dealt with that.

Q118 Kevin Brennan: No, you haven't. Did you talk to officials about it and did you actively consider it in any submission from officials?

Mark Hoban: I actively considered it.

Q119 Kevin Brennan: And you decided not even to talk to him?

Mark Hoban: What I tried to work through was how we could get to a point where we could pay compensation as quickly as possible.

Q120 Kevin Brennan: Not only did you decide not to do it; you decided not even to ask him about the possibility. Is that correct?

Mark Hoban: My driving force--

Kevin Brennan: I know what your driving force was, but I am asking you: did you decide not to even actively consult him?

Mark Hoban: That was the judgment I took.

Q121 Chair: So, you did not discuss it with Sir John?

Mark Hoban: No; that was the judgment I took.

Q122 Mr Walker: When you discuss this matter in the Treasury with officials and the Chancellor, what range of numbers are on the table as a total package of compensation that Parliament is perhaps not aware of yet?

Mark Hoban: We will publish the final numbers with Towers Watson next week as part of the spending review.

Q123 Mr Walker: That is Towers Watson's numbers, but what are the Government's numbers? What numbers are you comfortable with?

Mark Hoban: Towers Watson are the actuaries we have appointed to help us calculate loss figures. There is a separate process around affordability that takes place with the Treasury as part of the spending review.

Q124 Mr Walker: What is your sense of fairness? How do you define fairness as a Treasury Minister? The Government have purloined the word "fair"; we use it at every opportunity. I am not quite sure what "fair" means because it seems to be an elastic concept at the moment. What is the Treasury's definition of "fair"?

Mark Hoban: It is a very philosophical point. What we have said is that we need a scheme that is fair to both policyholders and taxpayers. We need to take into account the losses suffered by policyholders but also the cost of using resources here as opposed to other areas of public policy. There is a judgment to be reached about where the balance is struck.

Q125 Mr Walker: That will be a judgment that the Government makes or will ask Parliament to make?

Mark Hoban: It is a judgment that the Government will make as part of the spending review.

Q126 Chair: Do you think the spending review has been more of a deadline than the need to pay out to policyholders quickly? Obviously, there is a coincidence of interest in swiftness, but is the spending review the driving force here?

Mark Hoban: If we go back to the Ombudsman's Report, she said that it had to be considered in the context of the impact on the public purse and the opportunity cost of using money to compensate policyholders compared with other aspects of public policy. I think it is right that, when you are setting a spending total for the lifetime of this Parliament, the amount you can afford to pay in terms of Equitable Life is part of that process. I think it was the right way to go.

Q127 Nick de Bois: Who is driving this? Will the final amount be a decision for ministers or are Treasury officials driving it? Is the discussion really post-event? Was a figure pencilled in as part of the CSR and a limit set by the Treasury, period, so it will end up as a post-rationalising exercise when the figure is declared?

Mark Hoban: First, it is ministers who will decide, not officials, as you would expect, and that is why we are here. It is for parliamentarians to make these decisions. That will be decided as part of the spending review process.

Q128 Nick de Bois: And it has not been decided yet?

Mark Hoban: No, not as far as I am aware.

Q129 Chair: It is going to be decided in the next few days, regardless of the outcome of this report?

Mark Hoban: Indeed; it will be decided in line with the spending review, which was the commitment I made to the House in July of this year.

Q130 Mr Walker: The figure for Equitable Life has not been decided yet as far as you are aware?

Mark Hoban: Yes.

Q131 Mr Walker: There is a possibility it could have been decided. Will you, the Chancellor or the Prime Minister decide the figure? Will you wait to be notified what that figure is, because you did say "Not as far as I am aware"? Who is deciding the figure?

Mark Hoban: As I set out in the debate on the Second Reading of the Equitable Life (Payments) Bill, I will put forward a bid to the Chancellor, and the Chancellor and Chief Secretary will decide on affordability looking at all the other calls upon public money as part of the spending review.

Q132 Mr Walker: But "not as far as I am aware" means they could already have decided that figure.

Mark Hoban: I have not been notified of the figure.

Q133 Chair: I find it difficult to believe that if everything has to be done and dusted by next Wednesday there is not already a figure pencilled in.

Mark Hoban: I am telling you what I understand the situation to be, Mr Jenkin.

Q134 Kevin Brennan: Does that mean the Treasury is one of the few departments that has not yet settled with the Star Chamber?

Mark Hoban: The administrative costs of the Treasury have been settled as part of the Star Chamber prior to the spending review process.

Q135 Charlie Elphicke: Obviously, in the spending round you have referred to putting in a bid. How much is that bid?

Mark Hoban: As part of the spending review we will announce the loss figure that we accept and recommend.

Chair: Are there any further questions for the minister?

Mr Walker: Many, but I think we should let him get back to finding this figure.

Q136 Charlie Elphicke: An issue that keeps coming up with Equitable Life victims and also a lot of parliamentarians is whether, given the stress on the public finances, it would be possible to have a compensation scheme which paid out over a number of years, to assist with affordability and to maximise the available potential compensation? What is your view of that?

Mark Hoban: I think there are some attractions to that. We are trying to set this in the context of the spending review for the entire Parliament. There are some downsides to spreading the cost. There is a higher administrative cost. A number of these people have suffered losses that have already crystallised; some have losses that will play out over time, so the losses of with-profits annuitants who receive regular annual payments continue to emerge. We need to think about it very carefully. I am conscious that for a number of policyholders finality and closure is very important, and settling it as quickly as possible and paying a single sum would help that. Others may feel that it would be better for payments to be made on an annual basis if that helps to improve compensation, but that is a decision we need to think about and make in the Treasury, and that is one of the reasons why I cannot say we have pencilled in a number. There is still discussion about what the number should be and how it should be paid.

Chair: Financial Secretary, I think you have sensed the anxiety of the Committee, but you are faced with some very difficult challenges. Thank you very much for appearing before us this morning.

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