Equitable Life Policyholders: Compensation
(Limited Text - Ministerial Extracts only)
Read Full debate
The Economic Secretary to the Treasury (Simon Kirby)
I start by associating myself with the earlier comments about yesterday’s terrible events. I congratulate my hon. Friend the Member for Harrow East (Bob Blackman) and the hon. Member for Leeds North East (Fabian Hamilton) on securing this important debate. It is fair to say that their tireless work on this issue and their involvement in the all-party parliamentary group for justice for equitable life policyholders are of great importance to many of our constituents up and down the country. Hon. Members from across the House have done a great deal for their constituents on this matter. It has been a thoughtful debate, and I have listened carefully to the individual cases that have been mentioned. I am also grateful for the opportunity to set out what the Government have done to address this long-standing issue.
This topic has a long and well-documented history, which I do not propose to go over in my limited time. Instead, I will focus on the action we have taken to make payments to the people affected, and these figures are well known. The ombudsman’s findings assess the loss from Government maladministration to be £4.1 billion, and it is worth noting that that is significantly more than the evaluation commissioned by the then Labour Government. That report, known as the Chadwick report, rejected some of the ombudsman’s findings and concluded that only £340 million should be paid to policyholders.
This Government, in contrast and despite the constraints facing the public purse, have agreed that £1.5 billion will be made available, tax free, for payments to eligible policyholders. We consulted carefully on how that £1.5 billion should be paid out and reached the conclusion that we must pay the with-profits, or trapped, annuitants in full. As a result, that group will receive an annual payment for life, with the total cost of those payments assessed to be around £625 million. The £100 million contingency fund, which is often referred to, is to ensure provision for policyholders who exceed the life expectancy forecast. On the advice of an independent commission, the remaining £775 million of available funding was distributed pro rata to other policyholders, representing a payment of some 22.4% of their relative loss. I recognise that, for many, that was disappointing, but it is about striking the right balance while also taking into account the position of the public finances and fairness to all taxpayers.
The point about affordability was raised explicitly by the ombudsman in her report, in which she stated that it was appropriate to take into account the impact on the public purse when considering the funding of the payments. Indeed, the ombudsman has written to the all-party parliamentary group on Equitable Life about the level of funding and said that the Government’s decisions on affordability cannot be said to be incompatible with her report. I also understand it has been suggested that, as the economy improves, further funding should be made available to the payment scheme.
Robert Neill
I accept that the decision on funding is not incompatible with the ombudsman’s report, but that is not to say that the decision follows the spirit of the ombudsman’s report or that it is right.
Simon Kirby
I repeat that this is about striking the right balance between the position of the public finances and fairness to all taxpayers, and I will cover that point in more detail as I proceed.
I was talking about further funding being made available to the scheme, but with debt at its highest level since the second world war, tackling the deficit and getting debt falling are challenges that call for long-term discipline, which is why we have no plans to reopen the payment scheme or to review its level of funding.
Fabian Hamilton
I thank the Minister for giving way because I realise that time is short. I spoke earlier about Icesave and the £50,000 maximum compensation ceiling. Those who lost money with Icesave and other collapsed banks in 2008 received up to £50,000. Given that most of the investments in Equitable Life totalled around £45,000, will the Minister consider looking at those particular individuals who have suffered most?
Simon Kirby
I was going to cover the issue of Icelandic banks later, as might be expected, but there is a big difference between the two. Those ex gratia payments were different from the Equitable Life scheme in that the Government expected to recover, and indeed did recover, all the money paid to UK depositors as the banks were wound up. It is not fair to compare the two.
I will now address some of the specific issues that have been raised. My hon. Friend the Member for Harrow East said that the payments were not transparent. Transparency is one of the core principles of the scheme, and the methodology of calculation was published in full along with a simplified explanation for the layperson. I am also aware that Her Majesty’s Treasury has met EMAG to discuss the matter and found there to be no errors.
My hon. Friend sensibly asked why the Government cannot commit to paying Equitable Life policyholders in full when the economy has fully recovered and the debt starts shrinking, and it is right that the Government balance the needs of affected policyholders against those of taxpayers, and of public service users more generally. The Government have to tackle a debt of nearly £1.7 trillion, or almost £62,000 for every household in this country, which is a salient point. He also said that the cost of paying the pre-1992 annuitants would be less than £100 million. No assessment has been made of the pre-92 losses, but the Government recognised the hardship faced by the group so paid lump sums of up to £10,000, at a cost of around £50 million. That was new money over and above the original £1.5 billion.
Several hon. Members, including the hon. Member for Bootle (Peter Dowd), mentioned the failure of regulation and the need to stand behind any failure in a financial services group. It is fair to say that this Government, and the coalition Government before us, have fundamentally reformed financial regulation, including, importantly, through the expansion of the financial services compensation scheme.
The hon. Member for Leeds North East, who has moved places and is confusing me only very slightly, said it was unfair that we excluded pre-92 policyholders. I have every sympathy with the position such policyholders find themselves in during retirement, but the policies commenced before any maladministration could have affected investment decisions. Pre-92 policyholders have instead been affected by falling comparative annuity rates in the light of the issues at Equitable Life. I have already referred to the ex gratia payments of £5,000, or £10,000 for those in receipt of pension credit, that were made in December 2013.
The hon. and learned Member for Edinburgh South West (Joanna Cherry) said that the Government have not done enough—a point also made by others. I sympathise with the plight of her constituents. I am glad she recognises that the coalition Government did more to address the issue than any Government who preceded them. She asked about the Chancellor of the Exchequer; he was clear in his spring Budget that the scheme is closed and no more money is forthcoming.
My hon. Friend the Member for Stafford (Jeremy Lefroy) made some eloquent points about regulation. I agree that trust is vital, and I am proud of the reforms made to the regulatory system. Many people say we have too many regulations; I always think that financial services are there for everyone so it is important that we provide an appropriate level of protection for everyone, big or small.
The hon. Member for Ellesmere Port and Neston (Justin Madders) suggested that the Government had ignored the ombudsman’s recommendations. The ombudsman’s report was the foundation of the payment scheme. As I said, the ombudsman subsequently wrote to the all-party group. Whether or not we agree about the term “incompatible”, the ombudsman said that the Government’s decisions on affordability and eligibility cannot be said to be incompatible with her report. The hon. Gentleman also mentioned the 2010 manifesto. It is worth saying that payments were fair to both the taxpayer and policyholders, with the most vulnerable groups receiving 100% of their losses. The whole scheme is based on the ombudsman’s report.
Sir Desmond Swayne
I hate to interrupt the Minister’s flow, but I wish to take him back to my intervention on my hon. Friend the Member for Harrow East (Bob Blackman) about the regulator’s failure to identify problems. My hon. Friend said in response that the Treasury itself was aware of Equitable Life’s problems long before they emerged; does the Minister know whether that is true?
Simon Kirby
It is fair to say that there were a lot of issues and that a lot of things were done that we would do differently today. All that was taken into account in the vast number of reports and inquiries, and is now represented in a fair and equitable scheme for payments.
Connaught was mentioned by the hon. and learned Member for Edinburgh South West. As I understand it, I will be meeting her in the very near future to discuss that issue, and I am very pleased to do so. The matter is currently being investigated by the Financial Conduct Authority.
I thank the hon. Member for Strangford (Jim Shannon) for his understanding. He made a very thoughtful contribution in which he mentioned children. I say to him that we must be careful to strike the right balance and that we do not saddle our children and grandchildren with unfair levels of debt. It is about making sure that those people affected receive a fair amount.
The hon. Member for Angus (Mike Weir) set out cases in which constituents have a reduced annuity in their retirement. I have a great deal of sympathy with them, as I know the difficulties that a reduced income in retirement causes. The Government recognised that, which is why annuitants should receive 100% of their losses.
I will, if I may, finish with some figures, because I need to clear up the confusion. To date, the Government have paid out £1.12 billion. They will be paying out another £355 million, totalling £1.47 billion, leaving a balance, for those who can add up, of £25 million. We intend to provide a safety net to ensure that payments to the most vulnerable are maintained as they live longer—let us hope that they all live longer—and so I do not recognise the £140 million figure that was cited.
In conclusion, I appreciate that some policyholders who have carefully invested for their retirement are now not receiving the income they expected, but we have done more than any other Government to resolve the Government’s part in the Equitable Life issue. We have committed £1.5 billion. We have paid out the £1.12 billion, with more to come, and we have struck the right balance, which is fair to the British taxpayer and supportive to those most vulnerable policyholders.