Chris Leslie
Main Page: Chris Leslie (The Independent Group for Change - Nottingham East)Department Debates - View all Chris Leslie's debates with the HM Treasury
Equitable Life (Payments) Bill
Chris Leslie Excerpts(13 years, 7 months ago)
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Jonathan Evans
I am grateful to my hon. Friend for that contribution. He approaches the issue with significant expertise, so he will know that, if we are to achieve justice, it is not just a question of treating all those pre-1992 policyholders in the same way as everybody after 1992. One would go back and assess the pre-1992 annuitants’ asset share to see whether they were paid 105%, 110%, 120% or 140% of asset share; and one would correct that, so that the pre-1992 and post-1992 annuitants were dealt with in a balanced way. The danger with the proposed approach is that there will not be that balance. It is already clear, from the question asked by my hon. Friend the Member for Bedford (Richard Fuller), that we do not have a basis for the figure of £200 million; it is a wet finger in the air in order to assess the situation.
The second factor that causes me significant concern is the lack of available actuarial information. I share all the concerns about the Chadwick process, and, although Sir John might have made an observation about the pre-1992 annuitants, he did not compute their liabilities. The danger, therefore, of being seduced by the strong arguments of the hon. Member for Leeds North East, is that we would enter into an open-ended commitment and have great difficulty realising its objective. During the debate, however, he has made a good case on behalf of those annuitants who go back to 1991. We should remember the judgment made by the ombudsman and her terms of reference. Most of the inquiries started looking at the period from 1999 onwards, but most of the condemnation about regulatory failure goes back to events prior to 1991. It is important that the Committee should take that factor into account when invited to say whether compensation should be granted going back very many years before that.
Chris Leslie (Nottingham East) (Lab/Co-op)
I should like to speak to amendment 2, which is grouped with amendment 1, tabled by my hon. Friend the Member for Leeds North East (Mr Hamilton) and amendment 7, tabled by my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson).
In wishing you a happy birthday, Mr Evans, let me say that I do not have any registrable financial interests in the matter under debate. However, I want to place on record that 18 months ago, some while before I was returned to the House, I was occasionally commissioned to give advice and training on parliamentary and public policy matters, and on one occasion, I undertook a day’s work for a company whose clients included the former chief executive of Equitable Life; by then, of course, its fund had been closed for many years. I thought it important to disclose that encounter for the avoidance of any doubt. Although I had a day’s work indirectly related to Equitable Life some time before coming into Parliament, I have not had any financial or policy discussions on the matter subsequently.
I have held this brief for a couple of weeks, and it has been an extremely steep learning curve of reviewing history and policy that dates back well over 25 years, as my hon. Friend the Member for Leeds North East said. I was struck by the opening words of the House of Commons Library background note to the Bill:
“Describing the Equitable Life (Payments) Bill as the tip of an iceberg would be harsh on icebergs: at least they have 10% or so of their bulk above the water line. The Bill is but a tiny atoll below which lies the immense bulk of the Equitable Life tragedy.”
In general, I intend to be as supportive as I can of the Bill, as it is a positive step forward in the attempts to rectify a long and sorry saga. The amendment simply seeks to encourage the parliamentary ombudsman to
“report to Parliament on the implications for payments…of the findings of the Independent Commission on Equitable Life Payments, no later than one month after the publication of such findings.”
I do not want to go through the entire background that has brought us to this Committee stage today. By my count, eight separate inquiries, and possibly more, have done that, and there are conflicting and sometimes contradictory findings and accounts of what happened in the past and who should be responsible for rectifying the situation for policyholders. However, we know that in the spending review the Government accepted the ombudsman’s approach to maladministration and, more relevantly to this debate, to the framework for a compensation package. The Government say that they want to honour the interpretation of the ombudsman’s second report in full. That is their choice. There are clearly arguments in favour of that approach, as well as against it.
The Minister now places great emphasis—although it could be argued that he did so to a lesser degree before the general election, when there were a lot of loud campaigns on signing up to the EMAG pledge—on it being appropriate to consider the potential impact on the public purse of any payments of compensation in this case, as the ombudsman has said. The Treasury has concluded that it will initially focus on total relative loss as the basis for its payments and will cover those losses in full for post-1992 with-profits annuitants, to the tune of some £620 million. Some 37,000 individuals will be involved in that. That means that that group of with-profits annuitants will receive compensation equivalent to that which they would have gained had they invested in companies other than Equitable Life. However, because of the cap of about £1.5 billion that the Treasury is placing on the total payouts, the other 1 million or so policyholders, including annuitants with older policies—I presume, although I may be wrong about that—will have to have their compensation for relative loss adjusted to fit within the envelope available.
The Independent Commission on Equitable Life Payments, which is chaired by Brian Pomeroy, has been set up by the Minister to advise on the allocation of compensation to policyholders other than those with-profits annuitants, who will be getting 100% compensation. I am conscious of the words of Sir John Chadwick when I think through the technical challenge of administering a compensation payment scheme; it is important that its design and delivery are clear and efficient. I hope that we are not on the brink of a further failure that compounds the problems of the majority of policyholders by opting for a compensation scheme that could be so complex and opaque that it might risk grinding to a halt. We need a scheme that works in practice.
If the Minister is opting for the ombudsman’s approach—as I say, that is the Government’s choice—there are questions that need to be answered, and I would be grateful if he could reflect on those when he makes his comments. First, exactly how will the apportionment of the relative loss figures for other policyholders not receiving 100% compensation be calculated under the ombudsman’s approach, if we will not be following the Chadwick methodology given the Government’s acceptance of all 10 findings by the ombudsman?
Secondly, will the other policyholders—the vast majority—be classified into broad categories or subject to individual assessment of their cases? Will there be any burden of proof requirement on the other policyholders in the assessment of their relative loss, or is it likely that the compensation scheme will have some assumed automaticity in all cases? I ask that only because the ombudsman’s findings of loss are very specifically linked to a policyholder’s reliance on the regulatory return data. She said:
“I find that injustice was sustained by any policyholder who relied on information contained in the society’s returns between 1990 and 1996.”
I am trying to get a sense of precisely how that process will work.
Thirdly, how will the payment scheme take into account all the other maladministration factors for other policyholders that Sir John Chadwick’s methodology would not have covered, if we are following a classification scheme?
Whatever compensation scheme the independent commission eventually alights upon, it is an important starting point to establish that it is consistent with the Minister's intentions—in other words, that it encompasses all the parliamentary ombudsman’s conclusions. I gather that there are moves afoot by the Public Administration Committee to interpret whether the ombudsman’s model aligns with the payment scheme that eventually emerges. That might be a good idea, but perhaps it is a little circuitous. It would be far better, in my view, to give the ombudsman directly the right and the opportunity to say publicly whether the payment scheme is indeed in keeping with the spirit of her own findings. She could then say whether the total relative loss figures are accurate and whether the compensation scheme is fair, particularly given the controversy over the dates and whether some people will or will not be included in the 100% compensation for with-profits annuitants. The purpose of our amendment is simply to give voice to the ombudsman so that she can confirm her view.
It is worth noting at this stage that, far from granting the wishes of the Equitable Life policyholders regarding everything they wanted, the main pressure group formed to speak for their interests, EMAG, is angry and perplexed at the nature of the compensation scheme envisaged by Ministers and the constraints placed on the independent payments commission. EMAG says on its website:
“The independent Commission’s recently torn up terms of reference have not at this date”—
this was a week after the announcement in the spending review—
“yet been replaced.”
It says that the Minister’s letter of 20 October to the commission’s chairman
“makes clear that retrospectively the remit will now totally exclude”
the full class of with-profits annuitants. My hon. Friend the Member for Leeds North East alluded to that point. EMAG continues:
“So its remit now is to divvy up £775m between 600,000 and to suggest the prioritisation. This surely cannot be what the Parliamentary Ombudsman had in mind as the role for the independent Commission?”
Given this question mark over the parliamentary ombudsman’s intentions, we felt it important to table the amendment to try to give voice to that.
There is doubt about whether the compensation arrangements are as much in alignment with the ombudsman’s approach as the Financial Secretary would like to argue, and I hope that our amendment will give the ombudsman a chance swiftly to comment on the calibre of the scheme and clarify once and for all whether it fits with her approach. We believe that that can be done quickly, and there seems to us to be no reason why it could not happen within one month of the publication of the scheme’s proposals. There would not be any reason to delay payments, and it would aid transparency and confirm whether the Government’s arrangements via the commission’s payment scheme were the same as those envisaged by the ombudsman. Although amendment 2 may be a belt-and-braces approach, at this stage of the saga we need some cast-iron assurances all round.
Chris Leslie
I beg to move amendment 3, page 1, line 7, at end insert—
‘(2B) The design and administration of any scheme of payments to which this section applies shall be independent of government.’.
The First Deputy Chairman
With this it will be convenient to discuss the following:
Amendment 4, page 1, line 7, at end insert—
‘(2C) The Treasury shall publish details of the independent appeals procedure for policyholders as defined in subsection (2) above to use in the event of dispute over the compensation payment decision in their case, no later than three months after commencement of this Act.’.
Government amendment 6.
New clause 1—Distribution of payments—
‘(1) An independent payments commission shall be established comprising three members appointed by the Secretary of State.
(2) The independent payments commission shall design a distribution scheme for payments made arising from this Act.
(3) In designing a distribution scheme under subsection (2) the independent payments commission shall consult with interested parties, including the Equitable Life Assurance Society and representatives of policyholders.
(4) The Treasury may make provision by order made by statutory instrument for payments to be made in line with the distribution scheme designed by the independent payments commission.
(5) A statutory instrument containing an order under subsection (4) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.’.
Chris Leslie
I shall speak to amendments 3 and 4, which stand in my name and the names of my hon. Friends. Amendment 3 would enshrine in the Bill the fact that the design and administration of any payments scheme should be independent of Government. It is pretty straightforward and simple—in fact, it would be difficult for it to be more straightforward and simple—but we think it important to try to encourage the Government to enshrine in the Bill the Minister’s pronouncements so far that the design of the compensation scheme should be independent of Government. That is an extremely important point, especially as it was part of the conclusions drawn by the parliamentary ombudsman herself.
The Minister has asked the independent commission, chaired by Brian Pomeroy, to report by the end of January, but there is too much wiggle room for the Minister then to take those recommendations and bring the design and the administration of the subsequent payments scheme in-house within the Treasury. I see no clear reason why the Bill does not contain clarity on the next steps forward, particularly in relation to the daunting task of creating a payments scheme to cover upwards of 1 million policyholders not falling into the 100% compensated with-profit annuitant category.
Many other policyholders are still sceptical of the Government’s intentions and EMAG, which is the body representing many of those policyholders, is voicing its discontent with those who, before the election, signed up to their pledge to create “fair and transparent” payment schemes, which they now attack as akin to asking 1 million people—to quote the words of EMAG’s Paul Braithwaite—to
“share a pack of Smarties”.
Obviously, EMAG is making its point in its own particular way, but clearly there is some doubt and some cynicism about the approach that the Minister is taking. I am sure, having heard what he has had to say before, that he indeed wants a level of independence in the payments scheme as far as possible, but I do not understand why that commitment has not been included in the legislation. That would seem to me to be the best way forward.
Amendment 4 seeks to tackle the issue of any appeals procedure that might be necessary for policyholders in the compensation scheme. We suggest that no later than three months after the commencement of the Bill the Treasury be required to spell out quite how that appeals procedure would operate for the policyholders who are not content with the judgments made in the compensation scheme that eventually ensues. Several hon. Members argued for an appeals procedure on Second Reading on 14 September—my hon. Friend the Member for Ynys Môn (Albert Owen) among them—and it was also raised by my right hon. Friend the Member for East Ham (Stephen Timms).
In that debate, the Minister stated that he had raised the issue with his officials but that there were clear problems. He said he would pursue it, so the purpose of the amendment is to find out whether he has had the opportunity to do so and what the appeals process will look like. I certainly expect that there will be complexity, not just in the payment scheme but in any subsequent individual appeals adjudication, and that could be quite difficult to imagine at this stage. However, it needs clarification given the route that the Minister has chosen, moving away from the ex gratia model in the Chadwick methodology and instead accepting the ombudsman’s approach to compensation.
I was glad that the Minister said there were components of the Chadwick methodology that he favoured bringing into any compensation scheme—specifically that there would be no burden of proof on individual policyholders to show that they had been misled by the regulatory returns. That would certainly make the scheme simpler. Will the Minister take this opportunity to tell us whether the independent payments commission will eventually metamorphose into an authority for administering the payments? If so, will it be asked to design an appeals system, or is it the Treasury’s intention to undertake that part of the design?
Perhaps the Minister could say whether he sees any parallels with the appeals system set up when the former Department of Trade and Industry introduced an appeals mechanism in respect of the ill-health complaints about what was then known as vibration white finger. He will remember that a series of complex compensation payments were made in those cases, but an appeals system was set up that had a route into a judicial process and eventually to the High Court. If some policyholders might become involved in a judicial process, it would be useful to have clarity about whether the same will happen.
Will the Minister also confirm not only, as I think he said, that the administrative costs of operating the compensation programme will be separate from the compensation fund, but that any appeals costs will also be separate from the compensation fund? I am sure that the Committee will welcome any clarification of the Government’s intentions, and in the meantime we felt that the amendment was a reasonable device to ensure that those answers are forthcoming.
Bob Blackman
I shall speak to new clause 1, which I tabled, but I made a long speech on the earlier group of amendments and I do not want to repeat all the points I made then.
We need to make the whole process clear, transparent and independent of Government so that the money that has been set aside to compensate the victims of this scandal is seen to be distributed so that they receive their due compensation in a manner that is independent of the Treasury. The dead hand of Treasury officials should not mean that the scheme is designed in a particular way. I do not necessarily need to press the new clause, but I seek assurances from the Minister that we have a full, independent, transparent way to compensate the victims, who have been so badly treated over the past 10 years.
Mr Hoban
My right hon. Friend makes an important point. I would expect the payments commission to design a payments scheme that would be sufficiently comprehensive to ensure that all groups of policyholders were covered by it, so any appeal would be on the basis only of any data used to calculate the losses, rather than an appeal in principle against the design of the scheme. I will bear in mind the point that my right hon. Friend makes and encourage the commission, when it takes representations from people, to think as widely as possible about the different groups of policyholders that need to be taken into account.
Chris Leslie
The Minister is being extremely helpful and at least setting out a sense of what the architecture of that appeals system will be. He said that it would be subject to parliamentary scrutiny. Can he say for the record that the relevant statutory instrument will be subject to the affirmative procedure?
Mr Hoban
In that situation, there would be two aspects: first, the design that the payment scheme had applied; and secondly, the data that were available to the policyholder. The scheme will be designed in such a way that it does not breach the cap, so it would be possible to appeal only if the data were incorrect. The data that will be used to calculate the compensation will come from a database supplied by Equitable Life, and I hope that its data are of a high standard, so that those situations do not occur.
From the details given today, the Government have been considering very carefully the design of the appeals procedure, and we will publish details of the procedure, along with other aspects of the scheme, ahead of the time that amendment 4 proposes. So in light of that we believe that the amendment is not necessary.
Let me turn to amendment 6, which is in my name. The delivery of the Equitable Life payments scheme is an important matter, and since we took office we have made huge strides towards finding a resolution to the Equitable Life issue. However, we are aware that, for many policyholders, the issue will continue until they finally receive the money. As such, it is important that we find the right delivery partner to help us do that. Having given the matter careful consideration and looked at a range of options, our preferred option is to use NS&I, to deliver the scheme.
Officials have held many meetings with NS&I to find out not only whether it is capable of carrying out that important task, but the processes by which delivery could be carried out. There are many factors that make NS&I an appropriate delivery partner for the scheme. One of the most obvious and important is capability. As part of its everyday functions, NS&I makes millions of payments to customers every month. It has processes and infrastructure in place and experience of carrying out the functions that the scheme will require.
The need for value for money in the delivery of the scheme is also important. We are all aware that, in a climate where we have had to make difficult decisions about where to make cuts, the Government must look for ways of making the cost of delivering the scheme reasonable. Using NS&I will allow us to draw upon existing Government relationships and contracts, and I am satisfied that NS&I can provide a good delivery mechanism by which we can start making payments in line with our stated ambition of the middle of next year.
Chris Leslie
I am grateful to the Minister for the information about National Savings & Investment being the preferred vehicle. In theory, there is a separation between policy, in terms of the scheme design, and operations, in terms of the administration but blurred edges can sometimes appear between the two. Will the independent commission hold the ring in any disputes about the mechanism, timing and administration of the scheme? Who will be the final arbiter of any disputes that arise from the process? Presumably, it will be the independent commission.
Mr Hoban
The hon. Gentleman makes an important point, and it is vital that we are able to operationalise, as it were, the scheme design. That is why I have encouraged the payments commission to engage with NS&I to ensure that the scheme that the commission designs can be delivered. That is an important part of the process, and I expect the commission to do that during the course of its work. I think that addresses the hon. Gentleman’s point.
Let me turn finally to new clause 1 and the status of the independent commission. I have already spoken about the importance of the work of the commission, and I am not sure that the new clause, which would give it statutory footing, would add value to its work.
Mr Hoban
I can give the hon. Gentleman that assurance. We could not use NS&I if we did not include this power in the Bill. Its purpose is to enable NS&I to act as a delivery partner, not to give the Treasury some way of reaching back into the payments scheme. I reassure him, and others, that the power is there merely to deliver the outcome of the scheme.
The role of the payments commission will be key. It will advise on the distribution of payments to those other than WPAs, and I will take its advice extremely seriously. The new clause would introduce a requirement for the commission to consult key bodies in the development of its advice, but let me tell my hon. Friend the Member for Harrow East (Bob Blackman) that it would need no statutory encouragement to do so. The commission has already met Equitable Life and EMAG, and it has published a discussion paper asking for more views on the guiding principles for determining fairness in allocating and prioritising the funding. I do not believe that an amendment to the Bill would make it any more consultative and thorough in its task. My hon. Friend is aware that I have made the commitment to go along to the all-party group with the chairman of the commission to engage with parliamentarians on this matter. That is a very clear sign of the way in which we want to engage, or the commission wants to engage, with stakeholders to come up with the best design for the scheme. I encourage people to read and engage with the commission’s discussion paper, too.
The new clause would also introduce a statutory duty for the Government to lay the design of the scheme before Parliament in the form of a statutory instrument in order to allow full scrutiny. I entirely understand the thinking behind this, and transparency has been at the heart of our approach to developing the payments scheme. However, as I have said, I will publish and lay before Parliament a document setting out the scheme design in detail, which may then be debated as Parliament chooses. Again, I do not think that a statutory requirement will make my commitment to full transparency any stronger. The Government therefore resist the new clause.
Furthermore, including provision in the Bill as to the status and operation of the independent commission would pose a very serious risk to the timetable of the commission. The commission is already in operation and has been since July, and it is due to report at the end of January. Notwithstanding the speed with which the House is dealing with the Bill, it will still take several weeks for it to finish its passage through this House and the other place. If the commission had to be reformed after the Bill received Royal Assent, to restart its deliberations so as to comply with the provisions of the new clause, there would be a real risk of delay to its advice. This would, in turn, delay the making of payments to policyholders—something that I am sure none of us would want to happen. In the light of this, and given the comfort that I hope I have provided on the operation of the commission, I invite the hon. Member to withdraw his amendment.
Chris Leslie
I am grateful to the Minister for setting out the information about the preferred vehicle for the payment scheme. Although we would have preferred to see some of the issues regarding the design of the scheme independently set out and enshrined in the Bill for the avoidance of doubt, I accept his commitment in making these points on the record. Similarly, in respect of the appeals mechanism, this debate has given us the opportunity to shed a little light on to how he envisages that arrangement playing out.
I hope that the Minister’s commitment to allowing further parliamentary scrutiny will not involve merely tabling a negative resolution on the Order Paper so that Members have to beg the indulgence of those on the Treasury Bench to find time to debate it. Given the amount of interest in these matters across the House, the affirmative procedure would be preferable, as that would allow us to consider them in detail. With that, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Chris Leslie
I beg to move amendment 5, page 1, line 7, at end insert—
‘(2D) The Treasury shall lay before Parliament details of the timings and planned dates for payments of compensation to which this section applies, no later than three months after commencement of this Act.’.
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
With this it will be convenient to discuss amendment 8, in page 1, line 7, at end insert—
‘(2A) After determining the total amount of the payments that the Treasury is to authorise under subsection (2) and the persons to whom those payments are to be made, the Treasury must secure—
(a) that each of those persons is paid the full amount due to that person in a single payment, and
(b) that the single payment is made as soon as practicable.’.
Chris Leslie
The amendment is intended to draw out more information specifically about the timing of the compensation payment scheme that the Financial Secretary envisages. In particular, we wish to ensure that the Treasury will lay before Parliament details of the timing and planned dates for payments no later than three months after the commencement of the Act.
We know that this long saga has involved many raised hopes, which have often been dashed. Although there were very good reasons for the last Government’s detailed consideration of complex issues, I accept in hindsight that decisions could and should have been taken more quickly and handled better. There were sound reasons why Ministers took a different approach to that of the Government today, but we are where we are, as the saying goes, and I wish to the ask the Financial Secretary a few questions about how the matter will progress from here onwards.
I am aware that table 3 in the spending review document, on page 12, sets out the phasing of the total finance set aside as being £520 million in 2011-12, £315 million in 2012-13, £210 million in 2013-14 and finally £100 million in 2014-15. As the explanatory notes to the Bill state, that comes to a total of £1.1 billion that has been set aside for this spending review period. Clearly there is a discrepancy with the £1.5 billion figure that we have been talking about, which presumably goes beyond the spending review period. I have a number of questions for the Financial Secretary, and I hope that he will expand upon the details.
First, on what basis have those figures been arrived at? Do they represent the expected phasing of payments, or are administrative costs included, for example, distorting the apparently higher first-year figure set out in the spending review document? I presume that the administration costs have to be set out somewhere in the budgetary figures. If so, will the Financial Secretary clarify his intentions? I do not want policyholders to labour under the misapprehension that they will necessarily receive the bulk of their compensation up front, as those figures might suggest.
At what stage will the timing and phasing of payments become clear? Does the Financial Secretary expect that the independent commission will set out those details early on, and will there be any opportunity to enshrine the timing of those arrangements in law, perhaps through regulations, even though they will be designed independently of Ministers? In other words, will the commission come back to Parliament and say, “This is how we are going proceed”?
There have been reports that three tranches of payments are expected over a four-year period. Can the Financial Secretary clarify whether that expectation is broadly reasonable for the policyholders involved? The Government are clearly about to hand over many of the arrangements to the independent commission and to National Savings & Investment, but it is still important that we know the broad parameters that they will use. That is the purpose of the amendment—we are seeking a public commitment and transparency about the timing of the payments.
Bob Blackman
I rise to support amendment 8. I do not want to go over all the ground that we covered in debating the previous amendments, but the purpose of the amendment is precisely what we talked about earlier. Hon. Members intervened to say, “Let’s get this done. Let’s get it over with and ensure that policyholders are properly compensated as quickly as possible.”
It is clear that trapped annuitants will receive their compensation in staged payments over the life of their pensions. However, we get into complex territory again when discussing the other policyholders and the difference between with-profits and other annuities. As I understand it—I hope that the Financial Secretary will clarify this—tranches will be paid out over the life of the comprehensive spending review period. The third tranche will be paid only in 2013, which still leaves some £500 million to be paid out in the next comprehensive spending review period. As we understand it, this will be a long-drawn out affair, so perhaps we can have further clarification on the issue.
Mr Hoban
Let me deal with amendments 5 and 8. We have stated that our ambition is to commence payments in the middle of next year. As the Committee is aware, we have made great progress on this issue. Within six months of coming to office, we have published Sir John’s report and the supporting material; we have provided the first bottom-up estimate of losses suffered by policyholders; we have set aside £1.5 billion for the payment schemes; we have announced that we will cover the full losses of eligible with-profits annuitants; and we have established the Independent Commission on Equitable Life Payments to advise us on the fair allocation of payments among policyholders. Such progress shows how seriously we take this matter and how quickly we want to find a resolution. Our ambition is to commence payments in the middle of next year, and our track record of getting things done quickly on Equitable Life shows that we are capable of doing so.
Let me set out the process that we are following to ensure that payments are made as quickly as possible. In line with our commitment to independence, we have set up the independent commission to advise us on how we can fairly allocate the funds among policyholders, with the exception of the with-profits annuitants and their estates, and on any priority groups or classes of person who should be paid earlier.
Such an approach will help to inform the sequencing of payments. To ensure that the payments can begin as soon as practicable, we have set a challenging timetable for the commission and it will report at the end of January 2011. Between the end of January and the dates that payments commence, we will be laying the advice of the independent commission over the operational technicalities of the scheme to ensure that the end-to-end process operates well. We will then publish a scheme design document that sets out the end-to-end process of the scheme in the spring. We will also finalise the arrangements with the delivery agent. That will help to ensure that when the scheme goes live, we can get payments to policyholders efficiently.
I hope that I have reassured hon. Members that this Government are committed to making payments to policyholders as soon as it is practicable and that we are taking all possible steps to achieve that. As a result, amendment 5 is unnecessary. I have addressed the points raised by the hon. Member for Nottingham East (Chris Leslie) about the sequencing of payments. We are seeking advice from the new payments commission on how that sequencing will take place and how it will fit within the envelope of public spending that is set out in the comprehensive spending review.
Let me turn to amendment 8, standing in the name of the right hon. Member for Holborn and St Pancras (Frank Dobson), to which my hon. Friend the Member for Harrow East (Bob Blackman) spoke. The amendment deals with the issue of how payments should be made. I recognise the fact that policyholders have waited far too long for a resolution to the matter. That is why at the spending review we set out how we envisage the scheme working. I want to set out that vision again. Those policyholders who do not have a with-profits annuitants policy will receive their payments in one lump sum to give them the closure that they need quickly. As it happens, amendment 8, tabled by the right hon. Gentleman and my hon. Friend, would mean that with-profits annuitants would not receive their payments in the way that we envisage. One of the reasons why we have been able to increase the amount available to policyholders is so that we can spread the amounts going to with-profits annuitants over the remainder of their lives. If my hon. Friend’s amendment were accepted, it would stop that process and mean that their payments would come out of the £1 billion set aside at the time of the CSR. I therefore suggest that the amendment would not help policyholders to receive quite as much money as we believe they should.
Owing to logistical constraints associated with such a large and complex scheme and to affordability constraints, we cannot make all lump sum payments immediately. They will be paid out over the first three years of the spending review period. That is why I have asked the commission on payments to advise me on whether there are any classes of policyholders whose payments should be prioritised, to ensure that those in most urgent need of redress are paid first.
Chris Leslie
This may be a naive question, but box 2.7 in the spending review says:
“The Government expects the total amount of funding for the scheme to be in the region of £1.5 billion.”
That is the envelope that we have been debating, and that figure matters quite a lot, especially for those other policyholders. However, the same box says that
“£1 billion will be allocated to the Payments Scheme in this Spending Review period, which will cover…the initial costs of the first three years of WPA”—
with-profits annuitants—
“regular payments, and all payments to other policyholders.”
Can the Minister explain the difference between the £1 billion and the £1.5 billion, and say how the timings will be affected? Presumably the other £500 million will arrive after the spending review period, but I am a bit confused on that point.
Mr Hoban
The hon. Gentleman makes an important point, which gives me the opportunity to clarify the make-up of the £1.5 billion. The figure includes the full cost of the losses to with-profits annuitants—approximately £620 million—which will be made through regular payments. However, taking into account the pressures on the public purse, the Treasury could allocate only £1 billion over the first three years of the spending review. That will cover two things: the first three years of payments to with-profits annuitants, and lump-sum payments to all other policyholders and to the estates of deceased with-profits annuitants.
It is important to start to pay off with-profits annuitants’ losses quickly, alongside the lump-sum payments to other policyholders. About £225 million of the £1 billion is for with-profits annuitants and their estates, leaving approximately £775 million for lump-sum payments to non-with-profits annuitants. The Towers Watson estimate of £620 million for with-profits annuity losses leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards. Those who are quicker at mental arithmetic than me will have worked out that the total comes to about £1.4 billion. The balance is a contingency, because the payments to with-profits annuitants are based on their longevity. We hope that they live long and healthy lives, and that buffer is set aside to cover this need. That is how the maths works out.
Chris Leslie
The Minister has put on record some helpful information about the timing of the payment arrangements, and I do not think that it would add a great deal if we were to press the amendment to the vote. I therefore beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 7, page 1, line 7, at end insert—
“In determining the amount of the payments that it is appropriate for the Treasury to authorise under subsection (2), the Treasury must have regard to such matters relating to the adverse effects of that maladministration on those persons and the proper calculation of their resulting losses as have been determined by the Parliamentary Commissioner for Administration to be relevant to and appropriate for that calculation.”.—(Frank Dobson.)
Question put, That the amendment be made.
Question negatived.
Amendment made: 6, page 1, line 20, at end insert—
“( ) The functions of the Director of Savings include anything the Director is appointed by the Treasury to do in connection with payments to which this section applies.”.—(Mr Hoban.)
Question put forthwith (Standing Order No. 68), That the clause, as amended, stand part of the Bill.
Question agreed to.
Clause 1, as amended, accordingly ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
The Deputy Speaker resumed the Chair.
Bill, as amended, reported.
Bill, as amended in the Committee, considered.
Third Reading
Chris Leslie
The short debate that we have had has covered a set of specific issues, largely arising from the Government’s conclusions in the spending review about how to compensate those suffering injustice following maladministration by insurance and financial regulators in the case of Equitable Life. I am glad that we have had the opportunity to talk about the independence of the payment scheme. We have been able to hold the Government’s feet to the fire on whether it will match the ombudsman’s model. I am glad that the Minister said that he would welcome further comments from her on the design of the compensation scheme. It will be interesting to see whether she endorses it as being the fair and transparent scheme that many Members have pledged to deliver.
We have also discussed the appeals procedure and the timing of payments. In response to the second ombudsman’s report, the former Chief Secretary to the Treasury, my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), offered an apology for the past failings of the regulators. That is an important point, which is separate from the question of whether the regulators can be held fully or only partly responsible for the losses incurred by the maverick actions of Equitable Life’s management during the 1980s and early 1990s. I am sorry that, at least during this debate, Ministers have not also expressed regret, clearly and on the record, for the part that their party played during the 1980s in failing adequately to establish a regulatory system to prevent the vast bulk of the Equitable Life problems from arising in the first place. I know that it was a long time ago and that none of the current Ministers were in any way responsible, but I think it would have been a helpful gesture to draw a line under the failings that had occurred in the past. After all, Lord Penrose concluded in his inquiry report that Ministers in the late 1980s
“did not regard the subject”
of updating life insurance regulation
“as a high priority for legislation.”
He noted that
“the Government's objective was to deregulate, to reduce regulatory burdens on business, to avoid interference in private companies, and to let market forces prevail.”
Mr Hoban
I appreciate that the hon. Gentleman is new to this topic, but we have already clearly expressed our apologies. Unlike the last Government, we immediately accepted all the ombudsman’s findings of failure. The hon. Gentleman’s party did not even have the courage to do that.
Chris Leslie
I am glad that the Minister has been able to reiterate points that he did not make in his Third Reading speech. I do not necessarily want to reopen the box entirely, but it is important for both parties to recognise that mistakes have been made, and that things should and could have been done better by those on both sides. In particular, however, I think it is important not to gain the impression that failings did not occur on the watch of the Minister’s party. Lord Penrose found that Conservative Ministers
“argued against reform in the… 1990s”,
and that the United Kingdom “led the resistance” to Europe-wide attempts to update the third life directive. Those who argue that Labour alone fell short in respect of reacting to the Equitable Life debacle should realise that the ideological approach pursued by the Conservatives was absolutely central to causing the mess in the first place.
As Members know, the last Government would have chosen a different route to compensation. We were anxious that a poorly designed compensation scheme might entail a person-by-person review aimed at disentangling individual losses one by one, examining more than 30 million investment decisions by 1.5 million people over 20 years. That would have been a mammoth administrative task. Moreover, the ombudsman had implied that individuals would need to prove that they had relied on the regulatory returns and had been misled as a result. The last Government did not believe that such an approach could be feasible.
It was for those reasons that Sir John Chadwick was asked to explore a more realistic and reliable payment scheme methodology. He concluded that the Treasury should deal with the issue by grouping cases into about 20 broad categories of policyholders who were in similar circumstances. The payment scheme would then deduce the relative loss in each category in comparison with the outcomes of a basket of other policies that had not suffered from the same regulatory failings. The Government have clearly embarked on a different course, although they have taken up some of Chadwick’s pragmatic suggestions about the automaticity of compensation. We genuinely hope that that will work.
We are pleased that this short paving Bill is before the House, because we feel strongly that the matter should be resolved. The Committee stage gave us an opportunity to question the Government on several aspects of their approach, and I am glad that we have had an opportunity to draw them out further today.
Let me end by simply raising a question mark over the words of Ministers before May, when the general election took place, in comparison with their actions today. Many hundreds of thousands of Equitable Life policyholders—possibly as many as 1 million—were led to believe that in signing the EMAG pledge, Ministers were supporting a particular outcome that may not now arrive. Most Conservative Members signed that pledge. They pledged to their constituents that
“if I am elected to Parliament at the next general election, I will support and vote for proper compensation for victims of the Equitable Life scandal and I will support and vote to set up a swift, simple, transparent and fair payment scheme—independent of government—as recommended by the Parliamentary Ombudsman.”
As the payment decisions are made in the next few years and the cheques finally start to arrive, EMAG members and policyholders who are not in line to receive 100% compensation for their full relative losses will have to draw their own conclusions as to whether the Government have fulfilled their promises. So far the signs are that many policyholders do not feel that those Members who signed the pledge are keeping their word. They feel that the scheme will fall short of proper compensation and a fair payment scheme.
Chris Leslie
I will give way first to the hon. Member for Cardiff North (Jonathan Evans) as he has attended the entire debate.
Jonathan Evans
The hon. Gentleman seems to be suggesting that £1.5 billion does not amount to proper compensation. I came to watch the earlier debate when the Minister was the right hon. Member for East Ham (Stephen Timms), and he was standing by the Chadwick figure, but the hon. Member for Nottingham East (Chris Leslie) now seems to be saying that four times more than the position the Labour party were defending back then is not proper compensation.
Chris Leslie
The difference between the hon. Gentleman and me is that I did not sign the EMAG pledge. I always felt, as did many of my colleagues, that there were real and practical difficulties in raising constituents’ hopes in the way that the hon. Gentleman perhaps did. That is a matter for him and his constituents. It is up to him to convince them that the result of these deliberations has been to put in place full and fair compensation in accordance with the pledge. I am simply making the point that this is a matter of honour for those hon. Members who signed the pledge.
Mrs Main
I rise to gently chide the hon. Gentleman. We have had discussions with EMAG representatives, and I do not think they were under any illusions that they were necessarily going to get back every single penny that was lost. I have talked to my local representatives, and I think they are realistic enough to realise that we have done the best we possibly can. I am not happy with the situation for the pre-1992 annuities, but even so, what we are giving them is 100 times better than previously. They look to us to deliver that, but they are realistic enough to know that, in these hard times we cannot give them everything. I think for the hon. Gentleman to say, “I didn’t sign the pledge” is just copping out.
Chris Leslie
I disagree about the pledge, and I did not sign it for particular reasons, but my point is simply that the hon. Lady signed the pledge before the general election and it committed her to a number of things, one of which was somehow to fulfil the aspirations of those policyholders who interpreted the pledge in a particular way. I, too, have met EMAG representatives and they are not as happy and understanding as the hon. Lady suggests.
Chris Leslie
Well, if the hon. Lady understands something different, I will give way to her again.
Chris Leslie
The difference is that I did not raise people’s hopes for electoral purposes—because I wanted to harvest their support—only to dash them after the general election. We are very used to Conservative Members making pledges on a whole series of things—not least student finance, which is quite pertinent right now—and then breaking their promises. I am not saying that Members are necessarily in breach of their pledge. All I am saying is that it is for them to honour it, in accordance with their consciences and what their constituents will say to them as to whether the compensation outcome amounts to a fair payment scheme and proper compensation.
Chris Leslie
Having clearly touched a nerve, it will be interesting to hear from other Members as well.
Margot James (Stourbridge) (Con)
There is a key point for the victims of this scandal in my constituency of Stourbridge. Most of those whom I have met understand that the commitments that were given always had the proviso of the state of the public finances. That is a very relevant point.
I wish so much that we could have offered people more, but given the difference between Chadwick’s recommendations, which were the baseline, and the £1.5 billion, as well as the state of the public finances, many people who have suffered in this scandal will feel that they have been treated reasonably, although I accept the hon. Gentleman’s assessment that the EMAG pressure group is still battling for more. That is its role as a pressure group.
Chris Leslie
A reasonable point from the hon. Lady. All I am saying is that the pledge that some Members signed did not say explicitly, “As resources allow.” [Interruption.] No, it does not say that in the pledge. The pledge simply says that they will have a fair and transparent payments scheme. I doubt very much that the vast majority of those other policyholders who will not be getting the 100%—clearly it will be welcomed by those with-profits annuitants, who are receiving 100% of their relative losses—but may be receiving, I am told, between 15 and 20% of their relative losses will feel that hon. Members who raised their hopes are actually fulfilling them.
Jonathan Evans
I appreciate that the hon. Gentleman is new to his role, but I would have hoped that he had read the ombudsman’s report before representing the Opposition at the Dispatch Box. He would have seen that the ombudsman says that the compensation figure must take account of the effect on the public purse.
Chris Leslie
I completely accept that that is what it says in the detail of the ombudsman’s report, but it does not say that in the pledge that the hon. Gentleman signed. In an electoral context, he raised the hopes of many of his constituents. He may be able to face them and say, “Absolutely, I am fulfilling what I promised.” If he feels that and they are happy with it, they will re-elect him, and everybody will be happy and ride off into the sunset, but I have a feeling that some policyholders will continue to be discontented with the Government’s position. It certainly did not say, either in the manifestos or in the pledge that he signed, perhaps scribbled in a little addendum, “Oh, by the way, we are going to give you only a fraction of the £4.5 billion to £6 billion that you understand as the relative losses.” That is simply not there. I am not claiming, because I did not sign that pledge, to have raised those hopes, but Members on the Government Benches did.
Sir Alan Beith
Is it the hon. Gentleman’s position that he did not promise anything, he was not going to give anything, Chadwick was the maximum and he might as well vote against the Bill?
Chris Leslie
Liberal Democrats need to learn that people should not make promises they cannot keep. There is a suggestion that Liberal Democrats in particular have been growing used to making promises that they cannot keep, so the right hon. Gentleman should pause for a moment because his political arguments are haemorrhaging on a number of fronts. That is because some Members raised a series of aspirations before the election, making suggestions and promises, and there are some who will feel that he is now falling short of that. That is the only point that I seek to make. I am not claiming perfection for my behaviour, nor am I claiming in any way that I could fulfil all the hopes of the policyholders, but my point is that Members on the Government Benches did, and they should be hoist on their own petard for signing that EMAG pledge.
Charlie Elphicke
I thank the hon. Gentleman for giving way. I know him to be a generous Member of the House. With his customary generosity, will he acknowledge that the amount is nevertheless three times that which the previous Government said they would have given as compensation?
Chris Leslie
We will not know that, because Chadwick’s report was published after the general election. We had a series of steps that would have then been taken, but history went in a different direction because the spending review and the Budget were undertaken by a different party, not by our party in government. I am not saying that there are magic solutions to this issue. These are complex matters and there are technical reasons for both the methodologies that are being used in the compensation and the timings and the discussions around them. It is important to bear in mind the wider needs of the public purse. We have consistently said that and now the Government have come round to that point of view. I understand why they did.
Mr Hoban
The previous Government took six months to dither over what they would do about the ombudsman’s report, whereas we accepted her recommendations straight away—there had been maladministration, there should be compensation for relative loss, and affordability was a key part of her recommendations. We accepted that quickly, whereas his right hon. and hon. Friends sat on their hands.
Chris Leslie
I disagree with that. The hon. Gentleman certainly did not say before the general election that this would be £1.5 billion—[Interruption.] Oh, did he? Where did he say before the general election that this would be £1.5 billion? I shall give way to him if he can give a reference for that. Answer came there none—proof in point that after the general election a different set of expectations was set out by the Government than those that might have been an interpretation of the Minister’s words before the election.
Chris Leslie
I have given way to the hon. Member for St Albans (Mrs Main) several times, so I shall give way to the hon. Member for Bournemouth West (Conor Burns).
Conor Burns
Will the shadow Minister at least concede that one of the biggest groups of victims—some were in my constituency—were those who died while waiting for his Government to make any progress? This Government should at least be congratulated on getting on and doing something, because in this context something is definitely better than the nothing that was offered by the Opposition.
Chris Leslie
I am not going to claim that everything in the garden was rosy in the period that elapsed between the findings of the various commissions. Suffice it to say that Penrose spent some two and half years on his inquiry and the ombudsman spent nearly four years on hers. This was not simply a Government issue. There were very complex issues in which a set of decisions had to be resolved. There are perfectly good and sound reasons for some of the time that it took to come to conclusions on these questions. Things could certainly have been handled better; I have already said that this evening.
Mr Marcus Jones
Will the hon. Gentleman explain the inactivity on the matter while his party was in government, particularly during the demise of the Icelandic banking industry, when his Government bailed out many investors who were affected by that at the drop of a hat?
Madam Deputy Speaker (Dawn Primarolo)
Order. Before the hon. Member for Nottingham East (Chris Leslie) answers, may I remind the House that this is Third Reading and that it is timed, which means that it will conclude at three minutes past 5? Members who have sat through the debate this afternoon and who wish to speak on Third Reading might not get the opportunity to do so. I shall call Mr Leslie back to the Dispatch Box to respond to the intervention, but perhaps everybody in the Chamber could bear my point in mind.
Chris Leslie
Indeed, Madam Deputy Speaker. It is certainly incumbent on us all to be brief as far as we can. I have set out the position as I see it. I know that Government Members will disagree, but I do not wish to impugn their intentions. I was simply seeking to point out that they are held to a pledge that not all Members are held to and that they will be judged on that.
We are not minded to oppose the legislation this evening. This is a necessary paving Bill, but we accept that the devil will be in the detail and we await the further scrutiny of the measures that will come subsequently.