Equitable Life (Payments) Bill

Nigel Evans Excerpts

Wednesday 10th November 2010 Commons Chamber

[Mr Fabian Hamilton (Leeds North East) (Lab)]

I beg to move amendment 1, page 1, line 7, at end insert—

‘(2A) Payments authorised by the Treasury under this section to with-profits annuitants shall be made without regard to the date on which such policies were taken out.’.

[The First Deputy Chairman of Ways and Means (Mr Nigel Evans)]

With this it will be convenient to discuss the following:

Amendment 2, page 1, line 7, at end insert—

‘(2A) The Parliamentary Commissioner for Administration shall report to Parliament on the implications for payments to which this section applies of the findings of the Independent Commission on Equitable Life Payments, no later than one month after the publication of such findings.’.

Amendment 7, page 1, line 7, at end insert—

‘(2A) 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.’.

[Mr Hamilton]

I tabled my amendment because, although I am well aware that the Bill is an enabling measure, I feel strongly that a group of Equitable Life policyholders has been unfairly excluded from the compensation scheme that the Government have put in place. You will be pleased to know, Mr Evans, that I will not rehearse the entire history of the Equitable Life saga, because I do not think that we have the time this afternoon. However, to put my amendment into context, it might help right hon. and hon. Members if I remind them of some of the background to the case that I am about to put for the with-profits annuitants who took out their policies before 1992, for whom the Government’s proposed scheme will not offer any compensation at all—in stark contrast to the post-1992 with-profits annuitants for whom 100% compensation is now proposed.

Founded in 1762 as a mutual insurance company based on the ideas of James Dodson, a fellow of the Royal Society and a man well ahead of his time, Equitable Life started selling pensions as early as 1913, but it was not until 1957 that the society started to sell its infamous guaranteed annuity rate, or GAR, pensions, which gave a clear and unambiguous return on capital invested depending on the age at which the policyholder decided to start taking the annuity. That was to carry on until 1988, at which point the society realised that its rates were so good and so far ahead of the rest of the market that they were unsustainable.

In December 2000, Equitable Life was forced to close to new business. By that time, it had more than 1.5 million members. In the last Parliament, the Select Committee on Public Administration said in its introduction to its December 2008 report:

“Over the last eight years many of those members and their families have suffered great anxiety as policy values were cut and pension payments reduced. Many are no longer alive, and will be unable to benefit personally from any compensation. We share both a deep sense of frustration and continuing outrage that the situation has remained unresolved for so long.”

In June 2009, following many complaints from constituents over the past few years I introduced an Adjournment debate in Westminster Hall on Equitable Life. In it, I was critical of the then Labour Government —my own party’s Government—and although I loyally and strongly supported almost all the previous Government’s policies, I felt that we were wrong on this issue and should have done far more to implement the parliamentary ombudsman’s full and damning report of July 2008 entitled “Equitable Life: a decade of regulatory failure”. Needless to say, that did not make me very popular with my colleagues on the Front Bench at the time. My right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne), the then Chief Secretary to the Treasury, tried his best at the end of the last Parliament to implement what I believe to have been a flawed exercise to bring in some sort of compensation scheme by employing Sir John Chadwick to design a system, but that took so long that it was overtaken by the general election in May.

The new coalition Government decided initially to continue the Chadwick process, to the disappointment of the Equitable Members Action Group. However, I must thank my right hon. Friend for his courtesy and the help that he tried to give me when he was Chief Secretary. He clearly understood the moral imperative that Parliament and the Government had to Equitable’s policyholders, but his hands were tied and no compensation scheme was forthcoming under the previous Government. That was a great shame.

When Sir John Chadwick finally published his long-awaited report on 22 July, his recommendation on the total compensation to Equitable policyholders was for just £400 million to £500 million, or about £400 to £500 per person, out of the estimated total losses of approximately £4.8 billion, as calculated by the actuaries Towers Watson almost two years ago. I am reluctant to give praise to the Government parties, but I was delighted when the Chancellor of the Exchequer, in his speech to the House on the comprehensive spending review on 20 October, scrapped the Chadwick report and proposed a compensation package amounting to £1.5 billion. That figure was a threefold increase on Sir John Chadwick’s initial proposal but was still insufficient to make up for the losses incurred by Equitable policyholders. More importantly, however, the Government accepted at long last the report of the Parliamentary and Health Service Ombudsman in full. Again, I must reluctantly give credit to the Government for having done something that I wish my Government had done long ago.

Any delight that surviving Equitable policyholders and I felt at the Chancellor’s announcement was soon clouded by the details of the proposed compensation package. All the 37,000 post-1992 with-profits annuitants will eventually receive 100% compensation for their losses since then, but none of the estimated 10,000 pre-1992 with-profits annuitants will receive any compensation. Let me explain how my amendment goes to the heart of this issue.

--- Later in debate ---

[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.

--- Later in debate ---

[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.