Equitable Life (Payments) Bill

Nadhim Zahawi Excerpts

Wednesday 10th November 2010 Commons Chamber

[Frank Dobson (Holborn and St Pancras) (Lab)]

I shall speak very briefly in support of all three amendments in this group—those tabled by my hon. Friends the Members for Leeds North East (Mr Hamilton) and for Nottingham East (Chris Leslie), and even the one that I have tabled.

As drafted, the Bill leaves practically everything to the discretion of the Treasury, which I find objectionable. I remind the Committee of what Winston Churchill said about people at the Treasury—that they were

“like inverted Micawbers, waiting for something to turn down”.

The chance of their coming to any generous conclusion for people who suffered in the Equitable Life scandal is very small. The courts have held that bodies given discretion are not allowed to fetter their own discretion. It is therefore necessary for the House to fetter the discretion of the Treasury.

I strongly support the view that we should not allow a situation in which the most elderly people will be excluded from compensation. In view of the fact that everyone places so much weight on the ombudsman’s contribution, I strongly support the amendment tabled by my hon. Friend the Member for Nottingham East, which suggests that we should give her a further look at what is being proposed. It will be preposterous if, in trying to do what the ombudsman wants, we end up doing something that she thinks is unsatisfactory and inadequate. The reasoning behind the amendment in my name is the same.

I do not wish to say any more, but the House should do its proper job of telling the Treasury what the rules should be when it considers the matter. I am not getting at Ministers; I am getting at the Treasury as an organisation. It does not have a good record, and ethics and decency are not major considerations for it. They never have been, and perhaps they should not be its major considerations, but we should bear them in mind, so that we can bear down upon the Treasury.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

The hon. Member for Leeds North East (Mr Hamilton) made an impassioned and moral argument for amendment 1, to which I shall return later.

I have taken a very keen interest in this issue. It has affected a significant number of people in Stratford-on-Avon, to the extent that I have had hundreds of letters and e-mails about it. Like many other Members, I signed the EMAG pledge before the election, and I believe that backing the Government to get the Bill through is delivering on that pledge.

It is probably worth our spending just a few moments thinking about the economic landscape in which we are operating. We are borrowing about £500 million a day. Every time we go to sleep and wake up in the morning, we notch up another £500 million. To service the debt costs about £120 million a day—that is not to pay it down, but just to stand still. It is against that background that we must try to resolve the tragedy of Equitable Life.

Let me spend a couple of minutes on the timelines of the events. In 1988, Equitable Life stopped selling its guaranteed annuity rate policies and, in 1990, those policies became too expensive to honour because of the falls in interest rates and in inflation. In 1999, after the 1997 election, Equitable cut its bonus paid to 90,000 GAR policyholders. In July 2000, the House of Lords ruled that Equitable Life must meet its obligations to its GAR policyholders, thus leaving it with a £1.5 billion liability.

In February 2001, the Halifax agreed to pay £1 billion for the assets. In July, with-profits policyholders saw the value of their savings slashed by 16%—by almost one fifth. In August, Lord Penrose announced his investigation. In October, the then Economic Secretary to the Treasury told the Treasury Committee that the previous Labour Government might consider compensation for some victims if a grave injustice had occurred.

In January 2002, policyholders backed a compromise package. In March 2004, the Penrose report blamed Equitable Life’s management for the whole affair. Following the report’s publication, the Government ruled out compensation and were accused in this House of abandoning policyholders. In April, the parliamentary ombudsman announced that she would reopen her investigation.

In 2007, the European Parliament called on the UK Government to compensate policyholders. In January 2008, Equitable agreed to pay an undisclosed sum to 407 with-profits annuitants who launched proceedings in 2004. The ombudsman’s report was published in 2008. The previous Government said that they would respond by the autumn. When the deadline was missed, the then Prime Minister said that they would respond before Christmas. However, they did not respond until the new year.

In August 2009, Sir John Chadwick published his first interim report, and in March 2010—more than a year after his appointment—he published his third and final interim report with a promise of a final report in May 2010. That date was subsequently extended to July.

I go through these events in chronological order to demonstrate the pain that the victims of Equitable Life have had to go through. This is a true human tragedy. The hon. Member for Leeds North East talked about the e-mails and letters that he has received from his constituents, and the same is happening in all our constituencies.

The Government’s offer is a very good one. My hon. Friend the Member for Cardiff North (Jonathan Evans) said that, at best, he expected them to offer up to £1 billion. Many colleagues and I voiced our concerns the last time we debated this matter in the Chamber. When one makes a pledge, one must try to honour it.

[Richard Fuller]

Like many of us, my hon. Friend is wrestling with this question of fairness and with the political obligation to find a fair payment scheme that was mentioned in the Public Administration Committee and that many of us have signed up to. Hon. Members from both sides of the Committee are caught between wanting to praise the Minister for the swiftness of his recommendations—we praise him for that—and finding, in these difficult times, £1.5 billion. We often talk about that figure in comparison with the Chadwick number. However, does my hon. Friend not accept that we should view the figure with respect to what the Government themselves have said about policyholders’ relative loss, which Towers Watson estimated at, I think, £4.3 billion? Does £1.5 billion represent meeting our obligation of fairness if it is set against the relative figure of £4.3 billion that the Government themselves have accepted?

[Nadhim Zahawi]

My hon. Friend is quite right: the figure is £4.3 billion. I, too, have wrestled with the problem. In the current economic climate, offering £1.5 billion to the victims is fair and it delivers on the promise that many of us have signed up to. I hope that many colleagues will support the Government to expedite the process and finally get money flowing to the victims, something that we hope will happen by the middle of next year. The figure of £1.5 billion is about four times higher than the £340 million that victims would have received if the coalition Government had accepted the Chadwick report, which is what we feared would happen. I am very comfortable with the sum being offered.

[Stephen Lloyd]

I accept my hon. Friend’s premise that the amount is considerably higher than the previous Government proposed. I also accept that we are in a desperate situation in which we are paying £120 million a day to service a debt. That is outrageous and clearly we must focus on that. However, a way around the challenge is the one that I have presented to the Economic Secretary to the Treasury, which is to urge the Treasury to revisit the matter in five years’ time for the second tranche of the £500 million. By then, the economy will be transformed and we will be in a stronger position. Does my hon. Friend not agree that while the £1.5 billion seems a very generous sum at the minute, a little flexibility from the Treasury means that the further £500 million could be revisited in five years’ time?

[Nadhim Zahawi]

rose—

[The First Deputy Chairman]

Order. Before the hon. Gentleman responds to that intervention, may I remind Members that interventions should be short and that this is not a Second or Third Reading debate? We are speaking to the amendments that are before us and if we focus on them, we will make quicker progress.

[Nadhim Zahawi]

My hon. Friend makes a good point. However, having listed that extraordinary chronology of debacles, it is clear that there could be a problem if we left things open and said, “We might be able to revisit them at some other stage.” We would be opening up other doors, and that may cause further delay. I come from a world of business rather than of politics and I believe that, if we try to put a line under a terrible situation and compensate people, we should do it quickly and completely.

Mr Evans, I take on board your remarks. All I will say is that the Minister should be applauded. There will be no means-testing and the dependants of the deceased policyholders should be included in any compensation. I have had a number of heartrending letters in which relatives have written, saying, “It is too late for us because our loved ones have passed away.”

I understand the passion that the hon. Member for Leeds North East has shown through amendment 1. The problem with the amendment was outlined by my hon. Friend the Member for Cardiff North (Jonathan Evans), who said that it was very difficult to put a quantum on what that number should be. In the current economic climate, I would find it hard to support it if we said, “Oh well, maybe it is £100 million extra from reserves; maybe it’s £100 million that we can bring in from future years.” None the less, the hon. Gentleman made a strong point about the annuitants from 1991 going forward, and I hope that the Minister was listening carefully.

[Mr Fabian Hamilton]

Does the hon. Gentleman not agree that creating an arbitrary date—which is what the cut-off point would be—would lead to a great deal of anger and distress among some of the oldest and most vulnerable policyholders?

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[Nadhim Zahawi]

The hon. Gentleman would be right if the date were purely arbitrary. However, the ombudsman stated that the malpractice occurred in 1991, so the date is not quite as the hon. Gentleman puts it. It has not been plucked out of the air.

[Mr Jim Cunningham (Coventry South) (Lab)]

Leaving aside the economic difficulties that we face, is not the central problem that when we put a cap on something, we have to make it work? Therefore, we have to arrive at a certain formula to make the cap work, because we are largely in the hands of the Treasury, as my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson) said earlier. Unless we get a grip on the Treasury, we will find ourselves in similar situations, and it is my guess that the Treasury has imposed the cap.

[Nadhim Zahawi]

The hon. Gentleman makes an interesting point. What I would say is that, in contrast to the quotation from Winston Churchill earlier, my observation as a new boy to this House over the past six months is that the Treasury has behaved positively. We must remember that we will be administering public money. The Government have no money of their own; rather, we collect money on behalf of the people and then we administer it. It would be foolhardy and perhaps even foolish for us to say, “Let’s have somebody else administer public money.” At the end of the day, people have to have someone who is accountable, and we are accountable, as is the Treasury.

Amendment 7 seeks to ensure that the Treasury takes into account a proper evaluation of the total relative losses when determining payments—that is, the figure should not be £4.3 billion, but could be much higher. I strongly disagree with that. Many EMAG members have written to me, lobbying me to see the matter differently, but I have to say that I disagree. Given the current economic hardship, we all face an incredibly difficult situation, in which we are all having to tighten our belts. To deliver compensation of £1.5 billion at this time is entirely fair.

Amendment 2 is in the name of the hon. Member for Leeds North East and all I would say to him is that I understand the thrust of his argument that we should consider what the ombudsman says about the behaviour and actions of the coalition Government in dealing with the issue. However, I would rather get things done and dusted, and have something delivered to the victims than procrastinate further and wait for longer.

[Mark Durkan (Foyle) (SDLP)]

I can fully appreciate what the hon. Member for Stratford-on-Avon (Nadhim Zahawi) said about the Government’s proposals being clearly better than what was offered by the previous Government. Frankly, that is not a very hard test to pass. The real test for us in this Committee is surely not whether what we have from this Government is better than what we had from the previous Government. It clearly is better. Rather, we as a Committee have to see whether it is as good as what is set out in the parliamentary ombudsman’s findings and recommendations.

[Nadhim Zahawi]

Just to offer some explanation, what the Government have delivered is not just better than what the previous Government were thinking about—or dithering about—trying to deliver. I also believe that there was a point in this Parliament when the coalition Government were seriously considering implementing only what Chadwick had recommended, but we have moved away from that. We have buried that, and we are now in a much better place for the victims of Equitable Life.

[Mark Durkan]

My point still stands: the test is a fairly easy one. The Chadwick report was so grossly inadequate as not to be a credible starting point for any Government. Many of us said that to the previous Government, including the hon. Member for Leeds North East (Mr Hamilton)—very bravely, loudly and consistently—and many of us have said it to this Government as well.

For us as Members of the Houses of Parliament, the test that many people will apply is: what regard do we have to the findings and recommendations of the parliamentary ombudsman? As the hon. Member for Angus (Mr Weir) stressed earlier, the public understand the parliamentary ombudsman to be a creature of Parliament and to have some weight and merit in Parliament’s considerations. However, the previous Government acted pretty dismissively towards the ombudsman. What we have in some of the amendments before us is an attempt to show clearly that this House will give proper weight to what the parliamentary ombudsman is saying.

We all received a letter from the parliamentary ombudsman about some of the Government’s proposals. Given that, is it wrong that we should reference the judgment of the parliamentary ombudsman—as the hon. Member for Nottingham East (Chris Leslie) is suggesting we do with amendment 2—perhaps as a way of moving on from the scandal and confusion that many feel surrounds the fact that the ombudsman was largely ignored by the Government and, in effect, by Parliament for so long?

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[Bob Blackman]

My hon. Friend clearly demonstrates that we are talking about the oldest and most vulnerable people, and that they have been dealt with in a most disgraceful way following this scandal. We have a moral duty to compensate them.

Going back to the points made by my hon. Friend the Member for Cardiff North (Jonathan Evans), it is clear that when the bonuses that were attached early in the process are taken into account, some policyholders might not receive a penny piece in compensation. We need to recognise that, but there is an 18-month gap between the cut-off dates. A large number of the retired people who had taken out annuities could not adjust them once they had purchased them, and they are now trapped in that position. That is why we have a moral duty to compensate them.

[Nadhim Zahawi]

What action would my hon. Friend recommend? My hon. Friend the Member for Cardiff North mentioned the possibility of people being judged to have received too much. Should we take that money away from them? The malpractice took place in 1991, and we should be talking about 1991, not about 1992 or about an open-ended process.

[Bob Blackman]

Clearly, if exorbitant bonuses were attached to certain policies, the policyholders would not be due compensation and they would not receive a penny piece. Remember, we are talking about compensation. We cannot take money off policyholders who have been receiving pensions. Parliament just cannot do that; it would be a retrograde tax and therefore unacceptable. Those who are due compensation should receive it, but those who are not due any would not receive any, and if they have benefited in the meantime, well, that is fine and dandy for them.

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At the spending review, my right hon. Friend the Chancellor announced that about £1.5 billion of funding will be provided for the Equitable Life payment scheme. As hon. Members have said, that is more than four times the figure produced by the Chadwick process, which was set in motion by the Opposition. The funding includes the full cost of losses to policyholders with with-profits annuity policies—approximately £620 million—which will be paid through regular payments. That amount is to cover those with with-profits annuity policies, whose policies started between 1 September 1992 and 31 December 2000. As hon. Members have indicated, those who took out with-profits annuity policies prior to 1992—in fact, not just with-profits annuitants but anyone who took out a policy prior to 1 September 1992—are excluded from the scheme. The Government are committed to implementing the ombudsman’s recommendation to introduce a fair and transparent payment scheme to Equitable Life policyholders for their relative loss as a result of regulatory failure. That is what the ombudsman asked us to do, and that is what we are implementing. The Bill authorises us to make payment under the scheme.

[Nadhim Zahawi]

Is it not precisely the point that, rather than being an open-ended compensation scheme, the scheme relates to malpractice?

[Mr Hoban]

My hon. Friend is absolutely right. Our obligation is to compensate people for regulatory failure by the Government when they were the regulator of Equitable Life. The scheme is not an open-ended compensation scheme. It is very focused, and that was the ombudsman’s recommendation. Her locus in this matter is a consequence of the Government having acted as the regulator for Equitable Life during the period in question.

Let me explain to the Committee and to the hon. Member for Leeds North East (Mr Hamilton), who raised the question, why 1 September 1992 is a logical, not arbitrary, date. The ombudsman indicated in her report that there were problems with the regulatory returns for 1991, and that those could influence policyholder behaviour. However, they could not have come to the attention of policyholders, and prospective policyholders, before they were submitted at the end of June 1992. No policyholder would have been aware of that regulatory failure until the returns had been published. It is unlikely that those returns would have come to anyone’s attention prior to 1 September 1992. I stress that the date is not arbitrary, but a consequence of the ombudsman’s findings and how they impact on what policyholders would have been aware of. Policyholders would not have been aware of the regulatory failure until the autumn of 1992.

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[Nadhim Zahawi]

I will test the Financial Secretary’s arithmetic a little further. Has he worked out what that advantage is over and above the £1.5 billion?

[Mr Hoban]

My hon. Friend makes an interesting point. It is difficult to calculate that because, as he will recognise, the tax status of Equitable Life policyholders varies. Some pay no tax, some pay tax at the 20p rate, some pay tax at the 40p rate, and some may even pay tax at the 50p rate. The value will depend on their tax status, and we do not have sufficient access to taxpayers’ records to be able to match Equitable Life policyholders with their tax records, so we cannot calculate the benefit. However, he will appreciate that it could provide a significant benefit to some policyholders, and I hope that they will recognise that when they receive their payments. We have sought to be as generous as possible in the tax and benefits treatment for that purpose.

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[Nadhim Zahawi]

The mere fact that it is 10 November 2010 and I am standing here delivering a speech on Third Reading is something of which I am incredibly proud. This is a sobering Bill, which is long overdue. I thought in Committee that I heard the shadow Minister apologise, but, sadly, I know from listening to his remarks that he obviously has no remorse. Behind him are the hon. Members for Foyle (Mark Durkan) and for Leeds North East (Mr Hamilton), who have been passionate advocates for the victims of Equitable Life and incredible champions for their cause, and they have had to listen to their Front-Bench spokesman speak with forked tongue. He says, on the one hand, that Labour wants to champion the victims of Equitable Life, many of whom sadly have not survived to see this day, but on the other that it did not promise anything. Labour let the victims down in the previous Parliament and tried to get away with delivering what Chadwick recommended.

The Front-Bench spokesman for the coalition Government is to be commended, because we are debating a figure that is four times the amount that Chadwick recommended. I remind the House of the economic landscape that we have inherited. We are borrowing £500 million a day; every time we go to bed and wake up in the morning, we have been saddled with another £500 million of debt by the previous Government. Just paying the interest on that debt costs £120 million a day—just to stand still. Against that background, and within six months of this Parliament, we have been able to deliver the Third Reading of this Bill for victims of the Equitable Life tragedy.

I want to highlight some of the points that my hon. Friend the Member for Harrow East (Bob Blackman), chairman of the all-party group on justice for Equitable Life policyholders, has made. He has made some forceful points, as have my hon. Friends the Members for Nuneaton (Mr Jones) and for Cardiff North (Jonathan Evans). It is important to remember what we heard from the Minister about the additional money that will come as a result of the tax treatment of the payments. He would be right to say that he had already shared this information with us but that it was hidden in the detail. That important point needs further airing.

I repeat a recommendation that I made in Committee, although I know it would be complex: it would be incredibly helpful for us all if the additional benefit for different tax bands provided by that tax treatment could be calculated. As my hon. Friend the Member for Harrow East rightly reminded us, many hon. Members signed the pledge on Equitable Life before the election. I am proud that I signed it and many of my colleagues and I believe that we have absolutely delivered on it. There is a lot of detail to get through and we will all work very hard to ensure that we deliver for the victims of Equitable Life. I hope that the shadow Minister will reflect on his remarks and feel that he could take some of them back. I hope also that he will be much more considered next time he speaks on this topic.

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[Nadhim Zahawi]

Does my hon. Friend agree that if the previous Government had acted, and acted sooner, more compensation would have been payable to the victims?

[Bob Blackman]

If the Labour Government had acted when they should have done, £1.5 billion would have represented 100% compensation for everyone that had been so badly wronged. However, the dragging of feet over the past 10 years means that we are in the parlous state in which, ever day, people who should be due their compensation are dying and every day that we delay means that, sadly, more people will not receive their compensation.