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Lord Higgins: My Lords, I think someone agrees with me. Whether the Minister read it out or not, it is clearly not a good reason for delaying the publication of the report. The FSA may have been consulted on these matters, but nothing will happen as far as the board of Equitable Life is concerned. Therefore, the argument that the Government could not publish earlier because they had to make sure that there were not disastrous consequences in the market simply does not stand up. They still have not taken the action that would be necessary to prevent any disasters in the market. I am not suggesting for one moment that that is so, but it is certainly not a reason for delaying the publication of this report.
The crucial question is: has there been a regulatory failure on the Government's part? I make no party point whatever; it is abundantly clear that this has been going on for very many years under both Conservative and Labour governments.
The Government put enormous stress in their Statement on the regulatory framework which existed at the time; they seek to suggest that that was where the problem lay, not in some failure of regulation. But if one looks at the reporteven in the time available, I think it is apparentit is clear that there was regulatory failure even within the context of the very light-handed approach on which the Government are relying to say we must not take any action on this. For example, paragraph 83 on page 745 states:
The question is where we go now. I shall not touch on the reinsurance contractthat is subject to legal inquiries, and I understand why. It is also difficult, looking forward, to take into account the fact that there are many different policyholders in different positions. Some are without guarantees, and some are not; some have with-profit payments, and some do not. Some are late joiners. Indeed, it was extraordinary how the society went on advertising for people to take out policies when, despite what the Minister said, it must have known how dangerous the situation was. If we are to deal with all those issues, there are very real problems.
There was no mention in the Statement about the Parliamentary Ombudsman, although there was reference to the Financial Services Ombudsman. The former Parliamentary Ombudsman was very clear about what the problems were. This was stated in the report he made to Parliament way back in 2001. He said:
FinallyI am anxious not to delay the House longer than I needmy right honourable friend Mr Letwin, in another place, is putting forward what he believes is a sensible and constructive way forward. It is not a party issue, but we think there is a case for widespread consultation between the Government, the Opposition and all related parties to see in what way suitable remedies could be applied if it is shown that there has been a regulatory failure, particularly whether there was negligence on the part of the regulators. I do not have time to go into the details of the report but I will refer to them on another occasion if the Minister wishes. To some extent, that issue was reflected in the point made earlier that there was also a failure to do anything about the obvious conflict of interest on the part of the chief executive, who was also established as the accountant in charge of these matters in the society.
I hope we can proceed on those matters in a constructive spirit, because there are serious problems to be addressed. I certainly hope we can have a debate at an early date once we have had a chance to look at this enormous piece of work carried out by Lord Penrose.
Lord Newby: My Lords, I, too, thank the Minister for repeating the Statement in your Lordships' House. However, having received the report some 80 minutes before the Statement was due to be made, and despite having once done a speed-reading course, I think that being expected to look through a report, with no executive summary, at a rate of eight pages a minute, simply is not sensible. When next we have an equivalent report, I urge the Government to give the opposition spokesmen time to look at it in a sensible way.
Given that it is frankly impossible to draw very much out of the body of the report this afternoon, will the Minister facilitate a debate on the report in your Lordships' House in Government time? It raises a number of issues, not just in relation to this specific case, but more widely, on the regulation of the financial services industry. I think that everyone would agree that the Penrose report has major implications not only for Equitable Life policyholders but for future confidence in the private pension sector and in the life insurance business generally.
We note that the report finds that the principal cause of the problem was that the society was the author of its own misfortune. All noble Lords will have been appalled at some of the action taken by senior management of Equitable Life over the years and will welcome the fact that the Serious Fraud Office is looking into those matters. However, it seems that more weight was given to that part of the report than to the failures in the regulatory system. Do the Government agree with Lord Penrose when he says:
Flipping through the report, I believe that Lord Penrose raised a whole range of issues with regard to regulatory failure, only one of which I have had time to dig out. The actuarial profession is revered, yet actuaries seem to come out of this report almost uniformly badly. Penrose says:
The Statement makes a number of comments about how the Barlow Clowes case was not directly analogous to this case. It says that in the case of Barlow Clowes, maladministration was determined, whereas in this case maladministration has not been determined. Of course maladministration has not been determined, because in the case of Barlow Clowes, that word simply
The Government say very boldly that Lord Penrose does not recommend compensation, the implication being that none is due. However, it was simply outside his terms of reference. As the noble Lord, Lord Higgins, pointed out, the Government are developing an unsatisfactory habit of initiating inquiries with limited terms of reference and then, when the report is in line with those terms of reference, claiming that they have been exonerated on broader issues, which the inquiry was forbidden to consider. That happened with Hutton, and the Government are now doing the same with Penrose. It is very difficult to believe that the Government's response to Penrose is not really just a whitewash that seeks to distort the findings of Lord Penrose by putting all the blame on the management of Equitable, blame-worthy though it was, in order to shift the blame, and therefore any issue of compensation, from the Government. It is the view of these Benches that that is a most unsatisfactory approach, and we shall seek to pursue the issue further in the House and elsewhere.
Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords for their reception of what was, I admit, a long Statement27 minutes. I have beaten that, I am sorry to say, on more than one occasion.
The noble Lord, Lord Higgins, started by criticising the timing of the announcement made today. Of course, it was not made in the House of Lords but in the House of Commons. The Government cannot really be held responsible for the timing of Statements in both Houses; they cannot ensure that Statements, which are certainly important, do not conflict with all other important business. Parliament could not be made to work that way.
Both the noble Lords, Lord Higgins and Lord Newby, made a plea for further debate, and I am sure that the usual channels will take that into account. They both made what seemed to me a strange attack on the terms of reference. I read out the terms of reference, which were:
I certainly do not agree with the noble Lord, Lord Newby, that issues of compensation were outside the terms of reference; if we are talking about regulation, we are talking about compensation. Lord Penrose did not in fact say that issues of compensation were outside his terms of reference; he said that they were better determined by the courts. In some cases, some of the things that he said should be determined outside should be determined in the context of criminal prosecution.
Yes, there has been a delay in publication; there was a delay in production of the report, and it was issued to Treasury officials on 23 December. However, it was not only the FSA that had to be involved; the Serious Fraud Office, the DTI regulatory system and a whole number of people had to be consulted about the likely implications of the report. That was why the Statement that the Financial Secretary to the Treasury made was able to make a number of announcements about positive action. If there had not been a significant delay, she would not have been able to do that, and the House would have been the poorer for it.
The noble Lord, Lord Higgins, claimed that the regulatory failure occurred under both Conservative and Labour governments. If he reads the report carefully, he will see that the bulk of the complaints about the regulatory system are made about the 1980s and the earlier part of the 1990s. When Lord Penrose refers to the reforms introduced by this Government with the Financial Services and Markets Act 2000, and in other ways, he is of the view that the reforms addressed the deficiencies in the regulatory system that had existed before and were, alongside the primary responsibility of the society, among the causes of the problems that we are debating today.
The noble Lord also asked me about the Parliamentary Ombudsman and the issue of whether she should take the issue up again. That is a matter for her; she is independent, and it is not for the Government to suggest what issues she should take up. He asked, too, about negligence by regulatory authorities; it will be noticed, however, that Lord Penrose does not use the word "negligence".
The noble Lord, Lord Newby, in the context of compensation, asked about the differences between Equitable Life and Barlow Clowes. I believed that I had made it clear, and that the Financial Secretary made it clear in the Statement, that there were three major differences. First, Barlow Clowes had ceased trading, whereas Equitable Life is still solvent. Secondly, with Barlow Clowes there was maladministration, which is not Lord Penrose's finding. Thirdly, there is a financial services compensation scheme which, in the appropriate circumstances, would compensate policyholders up to 90 per cent of their original entitlement. In all those respects, which are very major respects, there is a great difference between Barlow Clowes and Equitable Life.
I am very sorry, given the respect that I have for him, that at the end of his remarks the noble Lord, Lord Newby, should have used the word "whitewash". If this were not the House of Lords, that might well attract headlines. However, it is not applicable either to Lord Penrose's report or to the Government's reaction to it.
Lord Barnett: My Lords, I can be very brief, as I am not a lawyerI am only an accountant. However, I declare a past interest as a substantial holder of an annuity in Equitable Life, although, happily, I was able to leave it before the trouble started.
I have a simple question for my noble friend. The question of compensation has been mentioned; surely, he would acceptand I hope that he can give an assurancethat if we started to use taxpayers' money to compensate when a private company's management and directors made serious errors, that would be a very serious way forward. I hope that he will resist it.
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