Equitable Life

Charles Walker Excerpts

Thursday 11th February 2016 Commons Chamber

[Bob Blackman]

I agree wholeheartedly with the hon. Lady. We now know how many victims there are, and what the payouts have been. For with-profit annuitants, 38,135 victims have received £336 million, and those payments will continue over the next few years. However, 890,472 victims have received only 22.4%, and it has been difficult for members of the scheme to understand the basis on which that has been delivered. As has been mentioned, the Government said that they could not afford all that money to pay people out, but people who are in that position will need compensation over several years. They do not need all the money to be put into the scheme upfront; they need it to be spread over a number of years while they are pensioners. As the economy recovers, the Government should supply additional funds, as the Treasury can afford it, to top up the scheme and ensure that those who suffered relative loss receive the full compensation package due.

[Mr Charles Walker (Broxbourne) (Con)]

My hon. Friend mentions the hundreds of thousands of people who are waiting for full compensation. How much additional money does he feel that the Government will have to come up with over that compensation period?

[Bob Blackman]

We must find a further £2.6 billion to meet the commitment that all of us signed up to. Those of us who made that pledge said that we wanted full and fair compensation, and the Chancellor made it clear at the Dispatch Box that that was the figure, although he was only able to come up with £1.5 billion at the time. The shortfall is now £2.6 billion. I could go through a whole list of other things that the Chancellor has found money for but that have perhaps less merit than the plight of those elderly people who invested their money.

I do not expect the Minister suddenly to say, “Don’t worry, we’re going to provide all the money. Here it is”—it would be good if he did—but the Chancellor will be at the Dispatch Box on 16 March to deliver the Budget, and I hope that he will announce further compensation for the pre-1992 trapped annuitants so that they receive full compensation. I also hope he will confirm that none of the money that has already been pledged will be clawed back at the end of the scheme, and that further moneys will be made available as and when that is allowed in the Treasury forecast.

--- Later in debate ---

[The Exchequer Secretary to the Treasury (Damian Hinds)]

This is an extremely important subject, and I congratulate my hon. Friend the Member for Harrow East (Bob Blackman) on securing the debate and bringing it to the Floor of the House today. His tireless work and that of other colleagues has been of great importance to many of our constituents. There are many human stories, and we have heard a number of them today from colleagues across the House. I am grateful to have the opportunity both to set out what this Government have done to address this long-standing issue and to set the record straight on some of the background.

Equitable Life has been a very sorry tale, and we all share sympathy for those affected by it. As the motion notes, this Government have taken action to resolve the long-standing issue, which is something that previous Governments failed to do, as noted by my hon. Friends the Members for Eddisbury (Antoinette Sandbach) and for North Devon (Peter Heaton-Jones).

Although Equitable Life remains a going concern and continues to trade, its problems in the 1990s and at the turn of the century caused a great many of its policyholders to suffer financial and emotional distress. Many different factors contributed to the losses suffered by policyholders. The ombudsman’s 2008 report established the part played by the then Government.

When we came to government, we committed to implement the ombudsman’s recommendation that the Government should make payments to Equitable Life policyholders in recognition of the part that was played by the Government at the time. We took swift action, introducing the Equitable Life (Payments) Bill in 2010, with payments starting to be made to policyholders in June 2011, six months after the Bill received Royal Assent.

[Mr Charles Walker]

My hon. Friend knows that the thrust of this afternoon’s debate is a request for additional money to be made available on top of the money that has already been earmarked for compensation to Equitable Life policyholders. Will the Government be able to find additional money?

[Damian Hinds]

I will have to disappoint my hon. Friend, because the public finances remain in a very difficult state. Although the economy and our public finances have improved compared with where they were, money is still extremely tight.

We established a set of rules for the payments, based on the Government’s full acceptance of the parliamentary ombudsman’s findings. The scheme was based on the assumption that all policyholders considered the incorrect regulatory returns when making their investment and would have decided not to invest in Equitable Life had those returns been correct. Obviously, those are quite conservative assumptions. The Government used the ombudsman’s findings to calculate the resulting individual loss by assessing the Equitable Life returns against those of comparator companies. That led to an assessment of the loss from Government maladministration of £4.1 billion.

Despite the constraints facing the public purse, the 2010 spending review announced that up to £1.5 billion would be made available for payment to eligible policyholders. Out of that sum, following consultation, we decided to pay the with-profits, or trapped, annuitants in full. As a result, this group of policyholders will receive an annual payment for life, and the actuarial assessment of those payments is that the Government will be making payments to this group well into the next decade and probably beyond.

The total cost of those payments is assessed to be around £625 million—though that is dependent on how long policyholders live. Importantly, the £100 million contingency fund, to which my hon. Friend the Member for Harrow East referred, is an accounting provision to provide a safety net in case the annuitants live longer than the central forecast. The remaining £775 million of available funding was distributed pro-rata to other policyholders on the advice of an independent commission, and that resulted in a figure of 22.4 pence in the pound of their relative loss.

Of course I know that that was deeply disappointing to many, but these were difficult decisions that were taken in the light of the position of the public finances. As I said just now in reply to my hon. Friend the Member for Broxbourne (Mr Walker), public finances remain in a very difficult position, and we have to take decisions in the interests of overall fairness to all taxpayers.