Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Regarding the hard-shoulder running pilot on the M42, the best way of dealing with his question would be if he and I went together on the M42 to see it at first hand. He would then understand that the points he has raised have been entirely met. The area where the hard shoulder has been opened for running in periods of congestion, which is most peak periods, is only opened after the cameras which monitor the motorway through a control centre have cleared the hard shoulder as being safe to open, so that there are no vehicles on it. There are also regular refuges in lay-bys along the route, whereby cars that need to leave the motorway, including those that are running on the hard shoulder as a running lane, can do so easily and safely. Because the lay-bys are monitored from a control centre, as soon as cars pull into them, that is immediately noted by the control centre and assistance is offered, either by telephone from a helpline point at the lay-by, or, if necessary, a patrol car is sent out to help. The safety record of the part of the M42 that is subject to this managed motorway running is better than was previously the case there. Therefore, the scheme is a highly positive step forward which has been popular with motorists. It helps to reduce congestion and it has helped to improve safety levels.
Lord Faulkner of Worcester: My Lords, I have commented on my noble friends commitment to the railways, and I have commended him for it. I warmly
15 Jan 2009 : Column 1388
Lord Adonis: My Lords, I take any comments from my noble friend very seriously, and I strongly welcome his comments in respect of the high-speed line. He is absolutely right that the experience of Japan and of our European partners is that for journeys of under about three hours, where there is a reliable and effective rail service, air traffic is substantially displaced. However, that does not meet the argument regarding Heathrow at all, because only a very small proportion of Heathrow flights are to domestic destinations. Only 3 per cent of flights to and from Heathrow go to Manchester or Leeds, so the arguments that I have set out in favour of the expansion of Heathrow are not materially affected by the movement to rail of passengers using existing air traffic to Manchester or Leedsalthough I would welcome any growth that rail could make in its market share as a result of a high-speed line. It would be possible to get a larger modal shift if there were to be substantial cuts in journey times to Scotland, but the traffic implications of that for Heathrow are very small and do not materially affect the judgments which have led us to believe that it is in the public interest that Heathrow should expand.
Lord Howell of Guildford: My Lords, regarding the railway aspects of the Statement, I declare an interest as an adviser to the Japan Central Railway Company and the Shinkansen system, and as one of the rather numerous ex-Secretaries of State for Transport under the Conservatives.
I am sure that the Minister appreciates, but will he ensure that High Speed 1 appreciates, that for this high-speed system to work, the tracks have to be completely and totally dedicatedthat is, no level crossings, no other freight, no other usersand fully security protected? That is the only way that really effective high-speed systems will work, and their construction will produce enormous challenges, as I am sure he recognises. Among the options, will High Speed 1 look at the possibility of magnetic levitationthe maglev systemin line with the Yamanashi project now being developed and built in Japan between Tokyo and Osaka? He has probably seen the project. The amount of money involved is enormous but the speed is amazing and the environmental improvements huge.
Finallythis has already been mentioned by your Lordshipsdoes the Minister accept that the joy of high-speed systems and the way in which they can defeat and eliminate all domestic air travel and, indeed, even air travel to continental links is if they go from city centre to city centre? There is no point in having
15 Jan 2009 : Column 1389
Lord Adonis: My Lords, I was well aware of the noble Lords expertise and experience in this area. When I visited Japan, he was specifically mentioned to me by the chairman of the Japan Central Railway Company. I know that that company has greatly valued the advice provided to it by the noble Lord over a number of years.
I take note of the noble Lords points in respect of the design of high-speed lines, and I think that probably the best response I can give is that it would be extremely worth while if the noble Lord and Sir David Rowlands were to meet at an early date to discuss these issues.
Alas, when you compare different systems, not one single model becomes apparent. I know that some nations developing high-speed lines take it as an article of faith that there should be very few stations on those linesonly in city centres or close to cities. However, that is not the experience of Japan. On the Tokyo to Osaka line, which the noble Lord mentioned, there are frequent stations, and trains alternate. Some run almost non-stop and some stop at a large number of stations. Therefore, the question of whether to have intermediate stations, as, for example, we suggest might be possible for a line serving Heathrow, needs to be considered properly as part of the design work.
Of course, the more stations there are and the more complex the running requirements of the line, the greater the challenge in providing the high level of reliability of service that we wish to see. The Japanese have certainly shown how that can be done, with levels of reliability on their rail system which are truly mind-boggling. I know that Network Rail is keen to see what more it can do to learn from them.
I have to be frank with your Lordships and say that we are not attracted to the maglev system, although I noted the development taking place and the plan of the Japan Central Railway Company to build the maglev between Tokyo and Nagoya as the proposed first leg. However, the operating and building costs of the maglev are very high. By definition, it is not possible to integrate it with the existing high-speed line, and its carbon emissions are also extremely highsignificantly higher than those of conventional high-speed rail lines. All those factors have meant that the Government do not wish to see a maglev proposal considered further.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Chief Secretary to the Treasury.
With permission, Mr Deputy Speaker, I would like to make a Statement in response to the Parliamentary Ombudsmans report into the prudential regulation of the Equitable Life Assurance Society from 1988 to December 2001.
This is the ombudsmans second report and was based on a four-year inquiry, and I would like to thank the ombudsman for her thorough and extensive consideration of all the issues involved. The Government have carefully considered this substantial report over some months, as it has raised complex and important issues.
We agree that there has been maladministration in particular areas and that government action is merited as a result.
As the ombudsmans report sets out, Equitable Life is a mutual life insurance company whose policyholders share in the profits or losses of the business. Equitable had established a business which involved high volumes of policies with guaranteed annuity rates and a well advertised policy of distributing earnings as bonuses without building reserves for the future.
After market conditions changed and the level of liabilities rose significantly relative to its assets, Equitable Life attempted to resolve this through its differential terminal bonus policy. However when this was found unlawful by the House of Lords in 2000 and Equitable Life was unable to find a buyer to cover the additional liability of £1.5 billion, the society closed to new business in December 2000. As a result of these events many policyholders now hold policies worth significantly less than they had originally expected. Lord Penroses forensic report into all the events around Equitable Life concluded that the societys own actions ultimately precipitated its financial difficulties in the summer of 2000. He said:
Principally, the Society was author of its own misfortunes. Regulatory system failures were secondary factors.
In addition he found significant problems with the then regulatory regime, which was reactive and unintrusive. Since then we have introduced major regulatory reforms. But it is also right to look at the role of regulators within the regime that applied at the time. The Parliamentary Ombudsman has looked specifically at this issue, the role of the society and others being, of course, outside her remit. Her extensive report includes 10 findings of maladministration and five findings of injustice as a result.
The Government have considered the report in some detail. We have also considered the report of the parliamentary Select Committee on Public Administration published in December. We agree with the ombudsman that there was maladministration by public bodies in several areas. In particular, the Government agree that Equitable Lifes regulatory returns from 1990 to 1996 in some cases raised questions that should have been resolved by the public bodies but were not. In some cases, we recognise, this may have led to injustice for policyholders, although in several we believe it did not in the context of the different regulatory regime which applied at the time.
The Government also agree that the regulator should not have been satisfied that a reinsurance treaty entered into by Equitable Life justified the credit taken for it
15 Jan 2009 : Column 1391
I am very far from concluding that everyone who has complained to me about the prudential regulation of the Society has suffered a financial loss.
Nevertheless it is clear that people have been affected and have experienced significant distress due to events at Equitable Life. I think that the whole House regrets the mismanagement of the society that caused problems. I apologise to policyholders on behalf of the public bodies and successive Governments responsible for the regulation of Equitable Life between 1990 and 2001 for the maladministration that we believe has taken place.
We also need to consider the fairest way to respond to policyholders now. We have looked in some detail at the ombudsmans proposal for compensation. As the House will be aware, Parliament has recognised over many years that it is not generally appropriate for the taxpayer to pay compensation even when there is regulatory failure. The responsibility to minimise risks and to prevent problems occurring in a particular financial institution lies first and foremost with the people who own and run that institution.
The Financial Services and Markets Act 2000 reaffirmed the long-standing exemption of financial regulators from liability for negligence in the courts. The ombudsmans framework covering maladministration is of course different from the courts approach to negligence. Nevertheless, we believe that the underlying principle remains important; it has informed the approach of successive Governments and we believe that it should be sustained for the future. It would have serious repercussions for the taxpayer, for the relationship between Governments and financial markets, and for the nature of regulation were the taxpayer to provide a remedy for all losses every time the regulator failed to prevent a financial institution getting into trouble.
Nevertheless, we are concerned by the representations that we have received from Members of this House and others, both directly and through debates, that some policyholders have been disproportionately affected by the events at Equitable. It is on that basis that we believe that it is right in this case for the Government to set up an ex gratia payment scheme to help.
To do this in a fair way, there is a series of important issues that we need to take into account. In particular, we need to take account of the role and responsibility of Equitable Life and other parties. As the Public Administration Select Committee said in its report published in December:
The current board of Equitable Life and many others have acknowledged the legitimacy of Lord Penroses conclusion; few people dispute that its former management were primarily to blame.
Even where there was maladministration, there was also a responsibility on the part of the society. Take, for example, the case of the reinsurance treaty. Although the FSA failed to follow up problems with the treaty, it was still the societys decision to enter into the agreement in the first place and it was the society which had primary responsibility to ensure that the treaty operated in the way intended. The Select Committee also said:
The fairness of requiring taxpayers to compensate Equitable Lifes policy holders depends upon making sure that public funds do not pay for loss that is fairly attributable to the poor performance of the stock market or to the mismanagement of Equitable Lifes former directors that could not have been prevented by adequate regulation.
Secondly, as the ombudsman herself has said, the Government also have a responsibility to taxpayers generally to balance competing demands on the public purse. Her report states:
I recognise that the public interest is a relevant consideration and that it is appropriate to consider the potential impact on the public purse of any payment of compensation in this case.
It is important to note that neither the ombudsman nor the Government have been able to estimate the cost of her recommendation, as we do not have detailed information on the relative losses experienced by different groups of policyholders, nor on the factors affecting the losses of different groups.
Thirdly, we also want to focus on those who have been hardest hit. As the ombudsman herself has noted:
The particular circumstances of each complainant vary enormouslyin terms of their age, their involvement with the Society, the amount that they claim to have lost as a result of that involvement, and the degree of reliance that they have now, or had in the past, on income derived from their investments in the Society.
Fourthly, we need to take account of important practical considerations. Neither we nor the ombudsman currently have much of the important information or assessments that we need to implement a payment scheme. The ombudsman, commenting on her own proposals, said that,
We have considered all these points and we intend now to set up a scheme to make ex gratia payments to those who have been disproportionately affected. To do so, we have today asked Equitable Life to make available its detailed policyholder information. We have also asked the former Lord Justice of the Court of Appeal, the right honourable Sir John Chadwick, to look at the information and to advise us on the following points: first, the extent of relative losses suffered by Equitable Life policyholders; secondly, the proportion of those losses that should properly be attributed to the maladministration accepted by the Government and the actions of Equitable Life and others; thirdly, which classes of policyholder have suffered the greatest impact as a result of maladministration accepted by the Government; and, fourthly, the factors arising from this work that the Government might take into account when reaching a final view on determining whether a disproportionate impact has been suffered. Sir Johns terms of reference are published today.
The ombudsman recommended that a payment scheme should be completed two and a half years after the decision to pay out. The parliamentary Select Committee said that it could not assess whether that was viable, and certainly our initial assessment of the ombudsmans approach is that it might have taken significantly longer than that to fully implement.
Many honourable Members have raised concerns about the length of time that policyholders have had to wait for a resolution of this case. Given that many have already retired, we believe that it is important to set up a scheme that can pay out as swiftly as possible, taking account of the difficult practical considerations involved. We have therefore asked Sir John to advise as quickly as he is able, including providing interim updates and conclusions on an ongoing basis, so that work can progress on the practical issues in parallel without waiting unnecessarily for all his work to be concluded. The Government will therefore introduce a fair payment scheme for policyholders who have suffered a disproportionate impact, with the benefit of Sir Johns advice and taking account of the position of the public finances as well as practical considerations.
For the reasons that I have explained, we do not believe that it would be right to set up a compensation scheme in the way that the ombudsman proposed, but we believe that this is the right response. I hope that the House will recognise that there is no easy solution to the problems of Equitable Life and the faults that were found.
The events of Equitable Life have been very difficult and complex, and have caused problems for policyholders across the country. Consideration of these events has already informed substantial regulatory reform since then, as well as wider reviews of corporate governance. Todays response sets out plans for new help for policyholders, which we believe is fair to both policyholders and taxpayers and continues to support a sensible approach for the future. I commend it to the House.
My Lords, that concludes the Statement.
Baroness Noakes: My Lords, I thank the Minister for repeating the Statement that was made in another place, but I have to say that it is difficult to thank him for very much more than that. We should make no mistake about it: this is an inadequate Statement from a Government who have tried for years to avoid responsibility for the failures that occurred in Equitable Life. It falls far short of the ombudsmans recommendation for a compensation scheme; it even falls short of the version being briefed to the press in the past few days; but it does not fall short of our expectations of this Government.
The Statement comes just one day short of eight months since the ombudsman reported last July. To say that the whole story of the Governments response to Equitable Life was a tale of foot dragging would be a massive understatement. Since Lord Penrose reported, the Government have quoted like a mantra his finding which singled out Equitable Life for blame, which the Minister has done again today. Let me remind the House that Lord Penrose also concluded, although
15 Jan 2009 : Column 1394
It took Herculean efforts by my honourable friend in another place, Mr Andrew Tyrie, to get the ombudsman to be allowed to look at the issues of regulatory failure. The Treasury tried to hide behind technicalities about jurisdiction. The terms of reference for the review did not come out until the end of 2004. The Treasury then started its campaign of information overload, which was successful in delaying the reviews completion. Eventually, by last July, it could delay the report no longer.
If there was ever a doubt about the value of the ombudsmans work and the need to give that office wide powers, this case has provided all the evidence that is needed. The ombudsman did a splendid job in very difficult circumstances. As the Minister said, she made 10 determinations of maladministration and five findings of injustice. We wish to place on record our admiration for the work of the ombudsman.
It is all too clear why the Government have tried to avoid dealing with this. The findings of the ombudsman reflect directly on the regulatory competence of the bodies for which the Prime Minister was responsible when he was Chancellor. In particular, half the 10 findings of maladministration were laid at the door of the FSA, a body which was a pet project of the current Prime Minister and did not exist until after 1997.
In todays Statement, the Government have said that it is not generally appropriate for the taxpayer to pay compensation even when there is regulatory failure. We are not talking about ordinary regulatory failure; we are talking about 10 findings of maladministration and five findings of injustice. The Government simply cannot hide behind a version of caveat emptor to avoid accepting the ombudsmans clear findings. We have accepted her findings that there should be a compensation scheme. It is a pity that the Government cannot bring themselves to do so.
According to their Statement, the Government have accepted only three of the findings of maladministration, but they say nothing about the findings of injustice. We have had very little time to look at the command paper referred to in the Statement. But from a brief examination, it looks as if the Government are merely using this as a way of arguing against the ombudsmans findings, even in those few cases where they appear to have accepted them. If the Government think that this has given them the last word on the subject, they will find that they are mistaken.
Next Section | Back to Table of Contents | Lords Hansard Home Page |