(13 years, 9 months ago)
Lords ChamberMy Lords, perhaps I may say immediately that we do not oppose the Bill and, indeed, we support the Government in seeking to bring a resolution to an issue that has been the subject of eight inquiries. I pay particular tribute to the inquiry conducted by the right honourable Lord Penrose which resulted in his magisterial analysis of the history of Equitable Life and the factors contributory to its failure. One recollects that Lord Penrose concluded that the Equitable was largely the author of its own misfortune—substantially through management failures.
The Government have announced a compensation scheme of around £1.5 billion against the losses of policyholders, calculated at some £4.3 billion—thereby compensating some 35 per cent of the losses. The underlying rationale for this compensation is in respect of regulatory failure. Compensation, we are told, has been discounted to strike a fair balance between the interests of policyholders and taxpayers. The Minister has confirmed the Government’s commitment to,
“fair and transparent payments to … policyholders”.
To enable such transparency, will the Minister indicate what discount has been made to reflect the taxpayers’ interest? I ask this because it is not clear what proportion of the overall loss is attributed to regulatory failure. Plainly, on the arithmetic, it is more than 35 per cent; but what is the actual proportion? Is it 40 per cent, 50 per cent, or more? Again, I ask this in the light of Lord Penrose’s conclusion that the principal source of the losses was failure within Equitable Life. Surely, transparency requires that we know the extent to which taxpayers have been protected, vis-à-vis the policyholders’ interests. The relevant money sum would give at least a guide.
Furthermore, and again to enable transparency and a better understanding of how fairness to taxpayers was considered, will the Minister reveal how the discount on the overall loss was calculated? To put it another way, what factors were considered and what weight were they given in the process of calculating the discount?
One of the features of the Government’s balancing exercise is their decision to cover the full costs of losses to holders of the with-profits annuity policies—the WPAs. What is the estimate of the number of such policyholders? It would obviously be useful to understand why other policyholders are unlikely to have the full cost of their losses met. What factors have been taken into account in that decision? Is there a view on what average compensation such policyholders, the non-WPAs, might hope to receive? Given that the ombudsman linked a policyholder’s losses to reliance—I repeat, reliance—on regulatory return data, will there be an obligation on non-WPA policyholders to prove reliance on such data? Alternatively, will reliance simply be presumed? If a policyholder is dissatisfied with the judgment of their entitlement to compensation, will there be an appeals procedure or will the policyholder perhaps have to rely on judicial review remedies? Given the ambition to put in place a fair compensation scheme, it would be interesting, not least to the non-WPAs, whose losses will not be fully covered, to understand better what will guide the content of such a scheme. Perhaps I may put it this way: how has “fairness” been determined in dividing the compensation moneys so that £880 million is earmarked for the non-WPAs?
I appreciate that the independent commission has been put in place to advise on the allocation of payments, but the Government have presumably developed principles, at this stage at least, that they would wish to apply in determining fair allocation. Will the Minister indicate what those principles are? For example, is it a general principle that those suffering from government maladministration can look for compensation? More particularly in the context of the Equitable situation, are there any guiding principles as to which, if any, groups other than the WPAs may receive special treatment? It is of course plain that the very elderly will be especially anxious to hear how they may be treated, but what about, for example, the Equitable “late joiners” who joined the Equitable scheme in 1999 and thereafter? Some clarity on this would be helpful.
I should say that my questions are intended to encourage clarity and are not aimed at criticising the terms of the Bill. We are glad that the Government have moved forward to bring a resolution to this vexed issue. We hope that it will prove successful in operation and we will support this short paving Bill.