I beg to move,
That this House congratulates the Government on providing a scheme to compensate victims of the Equitable Life scandal; welcomes the Government’s acceptance of the Parliamentary Ombudsman’s findings in full; notes that the Parliamentary Ombudsman recommended that policyholders should be put back in the position they would have been in had maladministration not occurred; further notes that most victims have only received partial compensation compared to the confirmed losses; and calls on the Government to make a commitment to provide full compensation during the lifetime of the next Parliament as the economy and public finances continue to recover.
In the run-up to the 2010 general election, the Conservative party discouraged candidates from signing any pledges, with one or two notable exceptions, the most notable being that of seeking justice for Equitable Life policyholders. Having done some research, I was very proud and pleased to sign that pledge. After I was successfully elected, I was immediately elevated to become co-chairman of the all-party group on Equitable Life policyholders. I am pleased to be able to report that we now have more than 200 members. That demonstrates what an important issue this is for people in this House and beyond.
It is important that we look at what is different about Equitable Life policyholders compared with those in other such schemes. With the advent of private pensions and the encouragement of individuals to save for their future retirement, Equitable Life developed an almost Ponzi-like scheme whereby its representatives went out and sold policies for which they promised bonuses and pensions that were beyond belief, and people were convinced to sign up for them. When that was reported to the regulator and the Treasury, they took no action whatsoever. This was all very well while money was coming into the pot, but eventually the amount coming in would be less than that going out, and therefore the scheme would collapse. The scheme therefore became too big to fail, because had it failed, the Government of the day, of whichever party, would have had to pick up the full cost of compensation to the policyholders.
The whole scandal was covered up during the scheme’s entire period of 20 years. A position was reached of a cosy relationship between the company, the regulator and the Government whereby they would not unveil the situation. The Equitable Members Action Group had to drag the Government through the courts. Eventually, in 2004, we had the publication of the Penrose report, which made recommendations about the position of Equitable Life. That was not good enough, because it did not do anything to compensate the people who had suffered. Then the parliamentary ombudsman made clear recommendations that the policyholders needed to be moved from the position where they had suffered a relative loss back to the position they would have been in had maladministration not occurred. That was very important. Equally, the ombudsman accepted that it would be appropriate to consider the potential impact on the public purse of any payment of compensation.
I am delighted that almost the first legislative step by the coalition Government was to put in place a scheme to compensate the individuals who had suffered a relative loss. We had argued in this Chamber for justice for those policyholders. There are various types of policyholders who have received different types of compensation. The first—
May I specify the types first, and then I will take interventions?
The first set of policyholders were those who took out their policies and had an annuity in place pre-1 September 1992. They were specifically excluded from the compensation scheme. I will come on to what happened to them subsequently. Secondly, there were the with-profits annuitants, who were given compensation of 100% of their relative loss—quite right too. Then there were the normal policyholders, who received an element of compensation. Unfortunately, when the legislation was set up, the public finances were in a scandalous state, and there was little money to allocate. I am delighted that the Treasury nevertheless chose to allocate sufficient funding to provide some £1.5 billion in compensation. There was £620 million to compensate the 37,000 with-profits annuitants, but, with the contingency fund of £100 million that was put in place, plus the costs of administering the scheme, that left only some £775 million to be spread between the 945,000 other policyholders, who therefore got only 22.4% of the compensation that they were due. As a result, those individuals have not been put back into the position that they should have been in had they not suffered the relative loss.
My hon. Friend is making an extremely good and most important speech. I agree that the coalition Government deserve considerable credit for having tackled this early on in their term in office. Since, sadly, I cannot be here for the Minister’s speech, will my hon. Friend pursue the issue of the speed at which these payments are being made? Many of my constituents have had to wait a considerable length of time. I would be most grateful for his and the Minister’s reassurance that everything is being done to make these payments as rapidly as possible.
It is fair to say that the all-party group and EMAG have been on the backs of the Treasury Ministers responsible. The current Minister is in her place. Her predecessor, my right hon. Friend the Member for Bromsgrove (Sajid Javid), was very helpful in making sure that the scheme was speeded up and that people got the compensation due to them. Most importantly, he decided that he would not close the scheme, which could have been done under the legislation, until we had traced every one of the policyholders due for compensation.
May I commend my hon. Friend on all his work on this issue over several years? Is not the crucial point in the motion that, with the public finances improving, the compensation already paid should not be considered the last word on the matter, and there should be more room to give proper compensation to people who need it? As I am sitting next to my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), may I ask whether my hon. Friend understands the frustration of many people that the Government seem to have plenty of money to spray on things such as overseas aid and aid to India, which might be better spent on such compensation to people in this country?
The clear issue is that when the assessment was made of the amount of compensation due to policyholders—this point is crucial—it was decided that £4.3 billion should be paid in compensation. Clearly, £1.5 billion has been allocated, although it has not all been spent, as my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) mentioned, meaning that a compensation bill of £2.8 billion is still outstanding.
The Prime Minister quite rightly said at the Conservative party conference that as the economy recovers and we fix this country’s problems, tax rates will come down, but I would say that there is a still a bill to be paid to the people who saved for their retirement. Therefore, as the economy recovers and the public purse allows, we should compensate policyholders who have suffered a relative loss, as we committed to do at the last general election.
May I congratulate my hon. Friend and the co-sponsors of the motion on bringing this matter before the House? I am a past and, I think, a continuing policyholder of Equitable Life; given yesterday’s debate, I suppose that is a matter of deep interest to the world. I am concerned that the amount of compensation to be paid to individual policyholders is relatively small. Does my hon. Gentleman agree that there is now a duty on the Government to get rid of these fairly small claims as quickly as possible? Many of my affected constituents are in their 70s and 80s, and they need satisfaction as soon as possible.
I completely concur with my hon. and learned Friend.
I should say that the Chancellor made a key and very brave move to compensate the pre-1992 trapped annuitants with a one-off payment of £5,000, which was doubled to £10,000 for those on pension credit. That was very welcome, but we are talking about the most vulnerable people trapped by the scheme, and my view is that they should receive total compensation. The estimate for total compensation for that element alone is £115 million, which I consider a drop in the ocean compared with the total pension bill due.
May I congratulate my hon. Friend on bringing the motion before the House? As we are rapidly approaching that time in the political cycle called the Budget, I suggest that this is a golden opportunity for our Treasury team and the coalition Government to show that they have a big heart and meet the demands we are all making on behalf of our oldest and most vulnerable constituents?
I am sure that my hon. Friend the Economic Secretary is listening, but she will clearly not announce the Budget measures today. After this debate, however, I will seek a clear commitment from the political parties about what they will do if elected to government on 7 May. Although it would be welcome if the Chancellor stood up at the Dispatch Box and agreed a full compensation package, the key issue is that if he cannot do so in this Budget, Members and people outside the House will want to know what the political parties would do to compensate those who have suffered.
I congratulate the hon. Gentleman on getting this matter on to the Floor of the House. He is in danger of being canonised by the many thousands of people in Northern Ireland who are watching this debate closely because of how unfairly they have been affected. I hope that those on the Treasury Bench are listening to the points that Members have raised.
There have been announcements this week about the bonuses to be paid to bankers in banks controlled by the public purse, and some bankers have taken the personal decision to refuse bonuses if they so wish. At least they have the choice. The people who have suffered under Equitable Life have not got a choice. I hope that Treasury Ministers are listening, and recognise that if they want the future support of Opposition Members, they should address this issue before the end of this term.
I will call the hon. Gentleman my honourable Friend because he has been stalwart in defending the rights of the people of Northern Ireland who have suffered in this scheme.
The key point is that, according to the published figures, the Treasury had a surplus of £8.8 billion in January, which was remarkable given that we were expecting £6.5 billion. Some proportion of the additional £2 billion surplus could be put towards compensation for policyholders who have suffered.
My hon. Friend rightly mentions the surplus in January. We are coming to the end of the financial year, and many Departments may have an underspend in their allocated budgets. Would it not be a good idea to divert some of that underspend to the victims of Equitable Life?
Does the hon. Gentleman agree that people have been pushed into an extremely difficult position, and that some of them are extremely close to poverty as a result of the amount they have lost? In many cases, they are not at an age at which there is anything they can do to replace the funds they have lost. They face a very uncertain future, as they have for many years, but there is absolutely nothing they can do to make a difference.
I do not normally agree with the right hon. Member for Holborn and St Pancras (Frank Dobson), but he has said:
“They were not like the people who put their savings into outfits offering dubious and extraordinary returns, such as those who decided to chance their savings with the Icelandic banks. The Equitable policyholders are in their current position through absolutely no fault of their own.”—[Official Report, 14 September 2010; Vol. 515, c. 781.]
He went on to say that those at fault were Equitable Life, the Government and the regulator.
Like other hon. Members, I congratulate the hon. Gentleman on securing this debate and on keeping this very important issue live. He must be aware that there will never be a right time in the Government finances to put this matter right. The Treasury may have made a small budgetary surplus over and above what it expected in January, but the fact is that the Treasury debt is still huge. It is as simple as that.
The only way round this problem is to say that there will never be a financially right time, only a morally right time. That time is now, given the long lag, which has been characterised by denials and evasions. They also occurred in the contaminated blood scandal, which was perhaps even worse. The only way to deal with this is to pay the £115 million that the hon. Gentleman rightly mentioned, and to have a clear statement about future year-by-year reductions in the outstanding £2.8 billion, which the Equitable Life policyholders have wholly earned and wholly deserve. They should be awarded the whole amount, because that is the only way in which this dreadful ill can be rectified.
I thank the hon. Gentleman for that intervention. It is a great shame that my hon. Friend the Member for Leeds North East (Fabian Hamilton) was almost the sole individual on the Labour Benches during the Labour Government who promoted a compensation scheme. I commend him for his efforts to get his Government to introduce one. I wish that other Labour Members had promoted such schemes.
I will make a couple of points and then give way for the final time.
We are clear about what we want the Government to do. Irrespective of which political party wins the general election, we want full compensation for the pre-1992 trapped annuitants. As I have said, it would cost £115 million to compensate those individuals. Those are the most vulnerable individuals because they retired a long time ago and many of them are very frail. It would cost a relatively small amount of public money to give them proper compensation. I am afraid that the longer we delay, the fewer of them will be around, because they are dying off almost daily.
Secondly, as the hon. Member for Coventry North West (Mr Robinson) said, we should commit to a graduated full compensation package so that the policy holders are compensated as the public finances continue to recover. Individuals who took out pension policies some time ago are not necessarily reaching retirement age. Topping up their pensions over four or five years would therefore enable them to retire in the way that they expected.
May I state that I have a close financial interest in this matter? I remind the hon. Gentleman that it was discussed at great length by the Public Administration Committee in the last Parliament. Does he have a formula, which is what we were looking for, that suggests who is responsible for losses made? Can we have a scheme that is consistent for all pension schemes that get in trouble, such as the Allied Steel and Wire scheme, which has still not been resolved? If he has such a formula, perhaps it could be agreed to between the parties now, so that what is national responsibility, personal responsibility and company responsibility is accepted and we have a resilient formula that can be used for Equitable Life, Allied Steel and Wire and all those that go broke in the future.
I note the hon. Gentleman’s intervention. The key point is that the Equitable Life policy holders have been through the courts and through the parliamentary ombudsman, and the matter has been found in their favour. Maladministration clearly took place and a key decision was taken to put those policy holders back into the position that they would have been in had that maladministration not taken place. Clearly, other pension schemes are in trouble. There are a lot of pension schemes in trouble because the previous Prime Minister, when he was Chancellor of the Exchequer, raided private pension funds and thought that that was a golden opportunity. We must take that into account. That is not the case with Equitable Life policy holders, which makes this a different matter. We have to be careful about broadening out this subject to other pension schemes.
Does the hon. Gentleman agree that expectations have been raised and promises have been made? All that these people did was to invest in what they thought was a trusted company. They have done nothing wrong and they cannot for the life of them understand why it is taking so long to settle the matter.
These people have battled and struggled through the courts and through a long process to get justice. There are many of us, certainly on the Government Benches but also on the Opposition Benches, who say that all these people did was invest for the future and trust what they were told. They took a risk to a certain extent that the market would be appropriate, but they did not expect the level of maladministration that took place or the way in which they would be treated.
My hon. Friend has made an eloquent case. He referred to the great disappointment that is felt by so many people who believe that they deserve compensation for what happened. He has not mentioned this, but does he agree that there is also considerable anger among people who feel let down? Is it not somewhat ironic and very uncomfortable that the Government who have started to do something about it are taking so much of the blame?
I have commended the Government for the action that they have taken to set up the scheme. At the time of the legislation, we tabled a cross-party amendment to ensure that the trapped pre-1992 annuitants would be compensated, but the Government resisted it. I am delighted that the Government saw sense after the lobbying that took place and provided a degree of compensation. The Government should be commended for ensuring that there is a compensation scheme. However, we have an independent assessment of the total amount of compensation that is due—it was not done by EMAG or by the Government, but is independent—and £2.8 billion is still due.
The hon. Gentleman is being extraordinarily generous in giving way. There is a unanimous feeling in the House that justice needs to be done for these people. We know how much is outstanding and there is a big difference between what people are due under the existing compensation scheme and what they are actually due. Surely what we need is not a five-year plan to pay the money back, but a one-off payment that is made as soon as possible. Many of these people will die before they get their just reward.
Order. I appreciate that the hon. Member for Harrow East (Bob Blackman) has taken a lot of interventions and I have allowed him a lot more time than is normally the case in this sort of debate. I also appreciate that there will be further interventions and I am not suggesting that he concludes his speech immediately. However, I make a plea for very short interventions, because people who say that they are not going to make a speech, but that they would like to intervene, take up the time of people who sit here all afternoon with patience and politeness, waiting to make a speech. I will not be tolerant of long interventions, but I am tolerant of the hon. Gentleman, who is being very generous in taking so many interventions.
Thank you, Madam Deputy Speaker. I was going to draw my remarks to a close after that last intervention.
The issue before us is one of justice and fairness. Everyone believes in ensuring that the policyholders receive proper compensation for the injustice that they have suffered. These are people who did the right thing: they invested for their future. They expected a reasonable return on their investment and to be protected by the regulator and the Treasury. The fact is that they were badly let down.
This is the opportunity for all three major political parties and the smaller parties to give a commitment on what they would do if they were elected as the Government on 7 May for the 945,000 people out there who are still waiting for 77.6% of the compensation that they are due and for the trapped pre-1992 annuitants who deserve full compensation, which at £115 million would be a drop in the ocean, and who are the frailest in our society. If parties give them that commitment, they will give them their votes; if parties deny them that commitment, they may withdraw their votes.
Given the interest in this debate and the short time available, I shall impose a time limit on Back-Bench speeches of eight minutes. That is quite a long time limit and I make a further plea for short interventions, if there must be any.
It is a privilege to have secured the debate with my co-chair of the all-party group for justice for Equitable Life policyholders, the hon. Member for Harrow East (Bob Blackman).
I am sad that after so many years of debating this issue, we are once again back in the Chamber talking about the continuing losses suffered by hundreds of thousands of Equitable Life policyholders. As has been said, they invested in the world’s oldest life assurance company in the belief that they would be able to have a comfortable old age. Instead, after a lifetime of saving, many of them find themselves destitute, and they are certainly much poorer through no fault of their own. How have we arrived at that point, 15 years after Equitable Life closed its doors to new investors and five years after the current Government promised to ensure that losses incurred by Equitable policyholders would be compensated? If Members permit me, I will go back over some of the history of this sorry tale, to give the House and the public some answers.
My first involvement in the Equitable saga was to speak in an Adjournment debate that I secured in Westminster Hall on 24 June 2009. In that debate, I spoke about the serious issues facing all our constituents since the crash of Equitable Life, following its inability to meet its obligations and the promises that it had made to investors over the decades.
I may have been present at that debate. I congratulate my hon. Friend on his role in leading the campaign with other hon. Members. Like me and other Members, he will have had the experience of trying to update constituents on the issue but getting back a reply saying, “Unfortunately, my father”—or wife, or husband—“has now died”. That illustrates how important it is to take action now. Although I would like to hear pledges for after the election, as the hon. Member for Harrow East (Bob Blackman) said, we also need action now, ideally in the Budget. After an election, it takes time for things to happen. People need payment and good compensation—
Order. We must have short interventions. Long interventions are simply not fair, because everybody must have a chance to speak on behalf of their constituents. Members must be polite to each other and make short interventions.
Thank you, Madam Deputy Speaker. Of course, I agree wholeheartedly with my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz).
Equitable Life was established in 1762 and started selling pensions as early as 1913, but it was not until 1957 that the society started selling its now infamous guaranteed annuity rate pensions, which promised a clear and unambiguous return on capital invested. That carried on until 1988, when it realised that its rates were so good and so far ahead of the rest of the market that they were totally unsustainable. In December 2000, Equitable Life was forced to close to new business, but by that time it had more than 1.5 million members.
In July 2008, as the hon. Member for Harrow East mentioned, the parliamentary ombudsman published her first report on Equitable, entitled “Equitable Life: a decade of regulatory failure”. On 11 December that year, the Public Administration Committee produced a report entitled “Justice delayed”, in which it stated:
“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.”
That is already seven years ago.
On 5 May 2009, Ann Abraham, the parliamentary ombudsman, published a second report, “Injustice unremedied: the Government’s response on Equitable Life”, in which she stated:
“I was deeply disappointed that the Government chose to reject many of the findings that I had made, when I was acting independently on behalf of Parliament and after a detailed and exhaustive investigation.”
There was certainly no shortage of reports, just a shortage of justice for those who, through no fault of their own, had suffered huge losses in their life savings, which they had accrued over many years of hard work.
How could Equitable Life have maintained a rate of return and a guaranteed annuity rate way beyond any competitor in the market? Ann Abraham addressed that question in her initial report of 2008, which took four years to complete. Her answers went to the heart of the anger expressed by investors through the Equitable Members Action Group. At the core of the problem was the fact that Equitable Life simply could not meet the obligations that it had made, because it had no provision for guarantees against low interest rates on policies issued before 1988. It therefore declared bonuses out of all proportion to its profits and assets.
Following a ruling of the House of Lords in 2000, the society stopped taking new business in December of that year, which effectively spelled the end for Equitable. More than 1 million policyholders then found that they faced cuts in their bonuses and annuities, which caused a huge loss of the income on which many small investors had totally depended. After all, the average investment for the 500,000 individual policyholders was just £45,000, which, according to EMAG, would have yielded no more than £300 a month even at its height.
In its December 2008 report, one of the Public Administration Committee’s many recommendations stated:
“We…strongly support the Ombudsman’s recommendation for the creation of a compensation scheme to pay for the loss that has been suffered by Equitable Life’s members as a result of maladministration.”
I am grateful to my hon. Friend, the co-chair of the all-party group, for his wonderful speech and for all the work that he has done. One of the people who lost out was Leonard Stuckey, in my constituency, who has run the EMAG group in Edinburgh South. Does my hon. Friend think that 22.4p in the pound is the right level of compensation, given what the parliamentary report that he has just mentioned said?
I thank my hon. Friend. There are hundreds of thousands of people like his constituent. We all have constituents who have suffered losses, for whom 22.4p in the pound is a start but, as many Members have said, simply not enough. I will say something about that in my remaining time.
The hon. Gentleman, like my hon. Friend the Member for Harrow East (Bob Blackman), is making a powerful speech. This is an issue of basic justice, but given the parliamentary cycle, it is inevitably also a political issue. I support my hon. Friend’s suggestion that all political parties put on record before the election their position on compensation, so that those caught up in the scandal know what impact their votes might have on this sorry saga.
I thank the hon. Gentleman, and I agree. With the election coming up, we need to put a clear choice to the electors and to the hundreds of thousands of pensioners and policyholders who have suffered through the collapse of Equitable to ensure that they know where we all stand as political parties and as individuals. I am not the only Labour Member who has stood up for the rights of Equitable members—I believe that more than 40 Labour Members are members of EMAG, and many more believe that justice should be served.
The Public Administration Committee’s report of 2008 went on to state:
“Where regulators have been shown to fail so thoroughly, compensation should be a duty, not a matter of choice.”
Unfortunately, despite pleas from many Labour Members, the then Labour Government failed to introduce any ex gratia compensation scheme and refused to follow the parliamentary ombudsman’s recommendations. Reacting to the Government’s lack of response to the ombudsman’s report, the then Conservative Opposition stated their determination to introduce the Equitable Life (Payments) Bill early in the new Parliament following the 2010 general election. That Bill offered 100% compensation to all with-profits annuitants who had taken out their annuities after 1 September 1992, and 22.4% compensation to every other policyholder. Many right hon. and hon. Members of all parties felt that that was inherently unfair, as that date was somewhat arbitrary and, as has been mentioned, the relatively small group of with-profits annuitants from before that date was the oldest and most vulnerable group. Many of them would not even live to enjoy the compensation or the £5,000 ex gratia payment to that group that the Chancellor announced recently.
I tabled an amendment to the Bill, which read:
“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 debate on the amendment took just over two hours and was lost, by 76 votes in favour to 301 against, but it set out strongly the case for the pre-1992 with-profits annuitants.
The Bill received Royal Assent early in 2011, and the compensation scheme was set in motion. At first it was slow, but it began to pick up over subsequent years. As of 31 January this year, more than £1 billion has been paid to 896,367 policyholders, although more than 142,000 policyholders still have to be paid but cannot be traced. Some 37,764 post-1992 with-profits annuitants, or their estates, have been issued payments by the scheme, and those initial and subsequent payments total £271.4 million.
In conclusion, I must give credit to this Government for having introduced a compensation scheme from which the majority of Equitable policyholders have received 22.4p in the pound—a lot better than nothing. However, when we examine the compensation paid to Icesave investors, for example, following the collapse of the Icelandic banks in 2008, for which every investor received up to £50,000 of their losses in full, the Equitable scheme looks rather less generous.
Equitable policyholders have been patient. They understand that the recession meant austerity and that there was a huge shortage of money available for many parts of government and the state. What they cannot understand, however, is why, as the economy grows, they are denied any further payments against their very real losses. I have heard, as have all Members of the House, heartbreaking stories from individuals, some of whom have lost everything including their homes, all because of Equitable’s failure and the company’s “catastrophic” regulation.
As I have said in previous speeches on Equitable Life in the House, this is fundamentally a moral issue. When the Government are supposed to protect the life savings of individuals who have been encouraged to provide for themselves—as was the case with Equitable—they have a duty to ensure that losses incurred, such as those at Equitable, are adequately compensated. In my view that obligation should come above pet projects such as High Speed 2 and Trident renewal, or else the whole fabric of trust in the state will be damaged—I believe that that is exactly that has happened in this case. We have a moral duty and should not be afraid to carry it out.
I congratulate my hon. Friend the Member for Harrow East (Bob Blackman) on securing this debate. I was pleased to support his application for a debate in Back-Bench time because of the importance of this issue to a large number of my constituents who, as Equitable Life policyholders, have suffered loss. They remain gravely concerned that, although in many cases they have been partially compensated for their loss, they have not been fully compensated or compensated at a level that they believe to be just. It is important to restate, as many hon. Members have done, that these are responsible individuals who invested and saved in good faith and with a reasonable expectation of a fair return. They have not in any sense behaved irresponsibly, and did not seek to make investment decisions that had an expectation of an element of risk. They found themselves suffering significant losses, many of which have resulted in hardship, through no fault of their own.
I wish to raise two points in addition to the excellent points raised by my hon. Friend and others. First is the issue of accountability. Regulatory failure was identified in the ombudsman’s report, and that single fact informs us all in this debate that there was maladministration. How is that regulatory failure to be dealt with, and how will future regulatory failure be prevented, if those who are responsible for that failure—ultimately in this case, the Government of the day—can evade liability for that failure? This is, of course, a matter of justice, as my hon. Friend the Member for Richmond Park (Zac Goldsmith) said, but it is also a matter of good governance and accountability, because when institutions for which the Government are responsible fail, the Government must accept responsibility.
The Government were, of course, obliged to step in when bailing out other financial institutions, because a risk to the economy would have arisen had they not done so. Nevertheless, for individual policyholders of Equitable Life there seems to be an unfairness, because while those who may have been depositors or shareholders in banks will receive compensation and redress, those who have saved in good faith but relied on the effective regulation of the vehicle in which they were investing are not receiving full compensation, and that cannot be right.
My second point is about reasonable expectation. It is not as if these policyholders have been told that they do not have a case; it is not as if we are coming to the House to plead, once again, on the issue of principle. The issue of principle has been addressed and settled. The ombudsman has said that there was maladministration, and the Government have accepted the issue of principle because of the level of compensation they provided.
We have the ombudsman’s report and the Conservative party manifesto that pledged compensation. I recognise that this Government set up the compensation scheme, and that they had to address the fiscal environment responsibly. Nevertheless, it remains a continuing source of concern that such a small proportion of many of my constituents’ losses have been addressed, and that they have complete uncertainty about whether there will be further compensation in future. Nobody turns around to my constituents and says, “We will not do this any more”, and they are left with the uncomfortable sense that it would be very convenient if they simply went away or, in many cases, actually died. Thousands of policyholders have died in the wait for compensation, and we have no finality to the situation. Given the reasonable expectation that was set up, the manifesto promise and the ombudsman’s report, it is entirely reasonable to ask on behalf of our constituents whether we can have a timetabled scheme to say, “We will bring closure to this matter.”
I am happy to stand up and say that that closure may not be for 100% of the losses accrued. Many of my constituents might disagree with that, but we must have regard to the fact that there is a continuing deficit and will be for the next three years, and that there are other spending priorities. Nevertheless, it seems that compensation of only 22%, and the ongoing uncertainty of whether there will be any further compensation at all, is deeply unsatisfactory.
Does my right hon. Friend agree with my constituent who e-mailed me and stated:
“If we were to receive this money it would not be lost. I am sure it would soon find its way into the economy at large and would not languish in savings accounts because we’ve done the saving already!”?
My right hon. Friend’s constituent makes a good point and it is true that the compensation that the banks have had to pay, for example in relation to mis-selling payment protection insurance, has had a beneficial effect on the economy by putting cash into people’s hands, but that is by the bye. As many have said, this is a matter of justice, but also of accountability and good governance. We cannot allow a situation where the regulation of an institution such as Equitable Life fails and no one will step up to the plate and say, “We accept responsibility for that failure” even though thousands of people have been hurt by it. That is the long and short of the story. The Government have a duty. They had to balance the interests of taxpayers fairly, but there is a strong feeling in the House, and among many of my constituents, that more must be done.
It is a somewhat novel, perhaps unique, experience for me to be speaking in support of a motion that begins:
“this House congratulates the Government”.
However, credit where credit is due. Many of us raised this issue consistently with the previous Administration, who refused point blank to take any responsibility for the regulatory failures that led to the disastrous situation at Equitable Life, despite the fact that their own report by Lord Penrose pointed clearly to the regulatory failures in this case. This Government have grasped the nettle and introduced a scheme that has given some relief to many thousands of policyholders who have lost out.
Interestingly, in the last update on the scheme issued by the Treasury, it appears that some 160,000 policyholders have not come forward to submit a claim. A large number of people have still not taken advantage of the help that is offered at the moment, and we should continue to urge them to come forward. It took the report from the ombudsman to get the ball rolling on compensation, and I suppose the reason we are still debating it today was her conclusion that
“the diversion of scarce public resources is a relevant consideration which should be taken into account and weighed in the balance along with other relevant considerations”.
Despite what the hon. Member for Harrow East (Bob Blackman) said, there is a huge difference between the amount sought by the action group, which is about £5 billion, and the amount originally proposed by the Government, which was as little as £500 million. EMAG’s website quotes two vastly different figures, and the Government came down in the middle with a figure of £1.5 billion. I agree with much of what the hon. Gentleman said—we need to deal with the issue of compensation—but first we have to negotiate the sums involved.
The action group has consistently campaigned for full compensation. Its members thought it unfair that “affordability constraints”, as the Government put it, meant they did not get the full compensation to which they were entitled and that they only received 25% of the full amount. Its paper calls it a double injustice that Equitable pensioners should not only bear the cost of the Treasury’s inability to regulate Equitable Life in the 1990s, but be denied the full compensation owed to them because the Government’s inability to regulate the banking sector
“blew a hole in Government finances”.
There is some justice to that.
As the action group points out, policyholders have received compensation amounting to only 22.4% of their losses, and it argues that people’s pension savings, carefully accumulated over decades, should be safeguarded in exactly the same way as funds deposited in banks and building societies, but that is a dangerous argument to make, because funds protected in banks and building societies are subject to a maximum, so it is not complete protection.
I am sure that like all right hon. and hon. Members, the hon. Gentleman and I have constituents affected by this matter, and what they fear most is uncertainty. Mr and Mrs O’Meagher, who are 80 and live in my constituency, have to travel to London so that Mrs O’Meagher can give music lessons in order to top up their income, but they cannot continue to do that, and with their losses from Equitable Life, they see their life in terrible trouble.
The hon. Gentleman makes a valid point, and I agree that this matter needs to be tackled—I shall say something about that shortly. In a follow- up report, the ombudsman was unable to conclude that the Government’s proposals complied with her recommendations for the establishment of a compensation scheme. Even the ombudsman says that more needs to be done.
Like most Members, I had many Equitable Life policyholders in my constituency, and I have had a considerable postbag on the issue from the outset. Many of the policyholders were elderly, and sadly some have died as the saga has ground on, but there remains a great sense of injustice among those still living. Equitable Life was touted as a long-established steady company —when I was a practising solicitor, it was seen as a gold-standard company. No one realised the problem lurking below the surface.
I never had my pension with Equitable Life, but the right hon. Gentleman makes a good point. Many solicitors, accountants and other professionals invested in Equitable Life. It was popular with financial advisers because it was seen as a safe, steady company, but it turned out not to be, and people lost a lot of money because it was not properly regulated.
The Government need to consider future pension provision. Increasingly, we are being urged to invest in pension provision to augment our state pensions, and with the recent revelations that less than half of new pensioners will receive the whole new single-tier pension when it is introduced next year, that is more relevant than ever. The new rules granting much greater freedom for pension holders to access their pensions savings will greatly alter the pensions landscape and the attitude of savers towards pensions, but it might also make it more difficult for company investment strategies. It is imperative in this new environment that there is confidence in the stability and worth of pensions investment—it is not the same as putting money in a bank or building society, where the rate of interest is known, pitiful though it might be at present; it depends on fluctuations in the market and the type of investment made. Admittedly, there is no guaranteed return—there is always an element of risk—but for most people it is a major investment, so the risk should be as small as possible.
I agree with the hon. Gentleman. The public need confidence that the pension industry will be regulated properly, and in this case it obviously was not—the Government Actuary’s Department failed. Now that the public finances are in a better state, I think the Government should pay up in full, as recommended by the ombudsman, otherwise people will not have confidence in the future.
I agree with most of what the hon. Gentleman says. We have to grasp the nettle because it is becoming ever more important that we have confidence in our pension provision. If we fail to give people that assurance, we risk them not having the confidence to invest in pensions, or taking their money out at the earliest opportunity, leading to even greater pressure on the public finances. Equitable Life remains a running sore, and so long as that is the case it risks damaging the whole industry and the attempts to encourage future pension savings. It was not simply a bad investment; the regulator failed to do its job, and that led to substantial losses.
We accepted that people were due compensation on the basis that the amount offered would be determined by the state of the public finances, but, as I said, there remains a gulf between the various amounts suggested. Before we come to any agreement, therefore, we must be clear about the amount involved, but it would be unwise to make it a party political issue just because there is an election around the corner—voters base their decision on many issues, including, in some cases, Equitable Life—but if the public finances are improving, of which some of us are less convinced than others, it is right that Equitable Life policyholders be considered anew. I urge the Minister to consider greater compensation.
I congratulate hon. Members on bringing this debate to the Floor of the House. Since my entry to the House in 1997, this matter has come up repeatedly. I look forward to the day when we no longer have to debate Equitable Life. In 2004, I was one of the more than 100 Members who wrote to the parliamentary ombudsman urging her take up the case, following earlier failed attempts. We finally got a report and we finally got action, but unfortunately it took a long time, and in the meantime many constituents in their 70s and 80s have seen their prospects of a comfortable retirement disappear with this sorry saga.
In 2010, I argued that we needed to get a compensation scheme up and running to get money out as quickly as possible and that the question of how much was an argument for another day. I thought that if we got hung up on an argument about how many billions, it would probably delay the whole process again. As it was, the Government acted quickly in 2010: the scheme started operating in 2011, £1.5 billion having been allocated, and by the end of January 896,367 people had received some compensation. Given the complexity of these issues and the difficulties of tracing people, on the whole I think the Government have done a good job delivering those funds.
Nevertheless, 22.4% will have been a disappointment to many constituents. I do not want to get into an argument about the appropriate level of compensation, but like many Members I think the Government should contribute more as the public finances improve.
The last Government’s lack of action was described as “shabby”, and it would be a tragedy if this Government, having taken that brave decision in 2010, were to be regarded as shabby too, but unfortunately 22% sounds a bit shabby.
I agree. For many of us, it is a start rather than the finish.
The constituents I see in my surgeries have a quiet dignity about them but still feel aggrieved and think that the Government ought to move some more. My main plea today is for the Treasury to consider the issue. The public finances are still a challenge and will be a challenge for the next Government, but I think that as things improve, the Government should be able to provide further funds.
I will in a moment; I just want to make a few more points.
The reality is that most of those affected do not have the ability to earn money or to improve their particular circumstances. They made decisions predicated on certain estimates, and they have been badly let down. I am glad that the coalition Government have moved as they have. We have a good story to tell so far, but it could be an even better story if they listened to the concerns of Members on both sides of the House and made further movement.
The fact remains that £1.5 billion has been allocated, and we have heard that £1 billion has already been paid out to 896,367 policyholders, but that 140,000 have been untraced. On the assumption that many will inevitably remain untraced, it must leave a balance in the fund of £500 million. At what point, then, does the scheme conclude that it will not trace some of these people? At that point, will some of the £500 million be available for further distribution to the 896,000 or so who have already received some money? We can argue about whether there should be more money, but if £1.5 billion has been allocated and not all of it has been sent out, that provides quite a strong argument for making a decision at some point to allocate more of the money available in the Treasury to help these people. I hope that the Government will address that issue first.
The second issue is whether we could top up the £1.5 billion in due course to provide a much more satisfactory conclusion. Like many colleagues, I have retired constituents in my constituency—Poole—who are prudent and sensible people. Most of them made provision for their retirement in the best way they could. They did not go on gambling cruises and they did not go to Las Vegas: because they were responsible, they decided to invest. This provides a very strong case for a Government who believe in the ethics of people acting responsibly to stand by those people when they have been let down.
I, too, congratulate the hon. Member for Harrow East (Bob Blackman) who opened the debate on securing time for it this afternoon. As we have heard, this is an issue of justice and accountability; and it is also one of confidence in the financial markets, confidence in the regulatory system and confidence that political promises and commitments will be honoured. It is particularly on the issue of confidence that I wish to focus.
Let me start by declaring a personal interest. For a few months in 2000, I paid into an Equitable Life pension scheme offered by my then employer. Shortly after I joined the scheme, Equitable Life closed to new business and the company collapsed. I was lucky in that I lost, I guess, only a few hundred pounds, whereas many of my colleagues, like many of our constituents, lost considerably more. In the organisation for which I worked—this was typical for many policyholders—salaries were pretty modest, so it was people on modest incomes who had set money aside, in some cases for many years, to provide for their retirement who were left significantly out of pocket as a result. In fact, the organisation I worked for was a charity. Equitable Life had made a particular effort to take a substantial share of the charities’ pensions market. That is why, as a result of the important shares and securities market, a number of former and retired charity workers are now paying the price.
From my own experience at that time, I view it as important to remember that in taking firm and clear action now, we send a very clear signal about the importance of tight and effective regulation. When I joined the scheme in 2000, I remember seeing advertisements all over the London underground, encouraging people to take out Equitable Life policies. It could only have been a matter of weeks before the schemes collapsed, and it is quite beyond belief that regulators and, indeed, the company’s managers, were not aware at that time that they were advertising on the basis of an utterly false premise. I can only assume that this was a desperate attempt to bring money in as rapidly and to as great an extent as possible to shore up what was well known to be a collapsing business at that time.
However, that was not known to customers at the time. I did not know it, as a relatively financially literate and savvy customer, so it is crucial now publicly to recognise that regulation was seriously deficient. One signal we want to send strongly from this afternoon’s debate is that we will not tolerate that kind of lax regulation again.
My second point about confidence and why it matters so much as we act now in response to the failure at the time is that after the collapse of Equitable Life, the organisation for which I was working—in fact, I was the chief executive—attempted to set up a new group personal pension scheme for our employees. A substantial proportion of those employees refused to have anything to do with this. They could not see the point of investing in another pension scheme when they had been so badly let down the first time. We are talking about people largely in their 30s who were absolutely turned off providing for their own retirement. I suspect that the damage to confidence in the financial markets at that time was much more widespread, going beyond just the immediate impact on the policyholders who lost out.
Thirdly, we need to be honest and open today about where we are going in the future as regards compensation for these policyholders who have suffered so disgracefully. All Members have constituents who feel that they were very much misled by what they understood to have been a commitment to follow through the parliamentary ombudsman’s recommendation that they should be placed in the position that they would have been in had Equitable Life not failed. They feel that what they have received in compensation falls a long way short of that. I have to say that this mismatch between the promises these people felt they had secured and the situation in which they find themselves today is contributing considerably to a loss of confidence in our regulatory system and in our political response to regulatory failure. That is important, and senior politicians need to do all they can to put it right.
I know that many colleagues want to contribute. I am grateful for the opportunity to participate this afternoon. I hope that a strong message will go out to my constituents and other policyholders across the country of the deep seriousness with which this House treats this matter. I know that our debate is being watched very closely by thousands of policyholders in all constituencies across the country.
I apologise for being a few minutes late at the beginning of the debate. It is a pleasure to co-sponsor it with my hon. Friend the Member for Harrow East (Bob Blackman) and the hon. Member for Leeds North East (Fabian Hamilton). I would like to compliment the latter on being as active during the last Government as he has been during this Government to fight the Equitable Life pensions corner. I pay tribute to him for that.
Many have spoken today, and this issue has been going on throughout the term of this Parliament and for many years before that. I am keen not to repeat what others have said. Let me make it clear what we are asking for through this debate, which is for
“the Government to make a commitment to provide full compensation during the lifetime of the next Parliament as the economy and public finances continue to recover.”
That wording was deliberate. We recognised, as we always recognised on the all-party parliamentary group, that we inherited a catastrophic economic situation so that providing the full amount of money would cause real problems. I believe that we have been reasonable and sensible all the way through. We understand the challenges faced by the Government, and the motion, as I have clarified, recognises that. We are fully aware of the challenges with our own economy and the global economy, so we are not asking for everything appropriate to be paid immediately. Rather, we advocate achieving doing that over the next few years as the economy recovers, which is fair and reasonable.
Ann Abraham was the parliamentary ombudsman all those years ago, producing the final report in 2008. She said:
“The central story of this report is that this robust system of regulation was not, in respect of the Society, implemented appropriately—that is, consistently, fairly, and with proper regard to the interests of those directly affected”.
All of us who are present today, as well as the 200 or so members of the all-party parliamentary group, recognise that the ombudsman herself saw that the regulatory framework had failed, and we understand the financial challenges. However, the reason we are here, and the reason the all-party parliamentary group, with the support of EMAG, has not stopped lobbying and campaigning throughout the current Parliament—I was privileged to become its secretary literally within weeks of being elected in 2010—is that this is a matter of not just probity, but honour. The regulator failed, and this was Government regulation.
My hon. Friend is right to say that it is a matter of honour, but it is also a matter of urgency. He is making his case in a very modest way. May I invite him to endorse what was said earlier about the urgent need to settle individual claims—I think that the figure we heard was £115 million—and to address the issue of elderly people whose cases may well not be settled before they die unless we act now?
My hon. Friend is absolutely right. A number of people are now reaching an age when something needs to be done extremely quickly. A constituent of mine, Billy Murphy, a variety artist for 70 years, had been lobbying me patiently, and I had been supporting him, until he sadly passed away in January. He had been making contributions for many years, and he was a very good example of the people to whom my hon. Friend and many others have referred: decent, hard-working people who were prudent and put money aside. Those people have lost out, not because of their own inadequacy —not because they took a punt, or played the stock market—but because they invested in a well-established and respected pensions company that was regulated by the Government. It was regulated by the Government: that is the whole point, and that is why we as a nation, whichever Government are in power, have a real responsibility to do what is right.
I am a former Equitable Life policyholder myself. I had a company pension policy. I distinctly remember questioning the person who sold me the policy about how Equitable Life was regulated, and being told that there was no chance of its failing because it was acting well within the regulations that existed at the time.
That is a very important point. The whole system—from the perspectives of finance, prudence and proper rule of contract law—fell apart under Equitable Life. It completely collapsed. When something like that happens in a country like the United Kingdom, the duty of the Government, irrespective of some of the broader issues, is to provide proper compensation, because otherwise the whole fabric becomes extremely vulnerable.
I find it bewildering that none of the senior managers of the old Equitable Life—and none of the people who were in charge of the marketing side or the investment side—went to jail. If I, as a Member of Parliament, find that bewildering, I can imagine the profound frustration that so many of our constituents must feel, given that they were doing the right thing. This was a company that was regulated, regulated within an inch of its life—that was the whole point of the sector—yet, through no fault of their own, it collapsed, and, a few years later, the parliamentary ombudsman said that there had been a systemic failure of regulation. All those senior managers and executives, whom we all knew, must have been aware of what was happening.
I greatly appreciated what was said earlier by the hon. Member for Stretford and Urmston (Kate Green). When she bought an Equitable Life pension which she kept for a few years, all the marketing suggested that the company was rock solid and the purchase almost a steal. She was told “You really must invest in this.” Those people must have known what was happening, and I fail to understand why they were not penalised.
My hon. Friend is putting his case very articulately. When Mr Ralph Williams, along with a large group of my constituents, came to see me about this whole matter, one of the points that they made most strongly was that they were nearly all elderly. According to a parliamentary answer that I received on 10 February, only £990 million of the £1.5 billion total has been paid out. The Government are profiting from people who are dying at this very moment. Is it not only fair for everyone, including the annuitants, to be paid whatever the Government have agreed, in full, now?
I thank my hon. Friend for his powerful intervention, and I look forward to hearing what the Minister has to say in response to it. People are dying: there are no two ways about it, because of the age profile.
Another constituent of mine, David Stevens—a distinguished teacher for many years in Eastbourne, a former mayor and, as it happens, a Conservative councillor, who is also a very decent chap—lost out hugely in the Equitable Life debacle. He lost just under 80% of the worth of the pension in which he had invested for all those years.
This issue is about real people. That is why we are here, and why the all-party parliamentary group receives so much cross-party support. It is not just that we all know many constituents who are suffering and have experienced a profound loss despite having done the right thing, and despite being led to believe that the industry was heavily regulated. As I stressed at the beginning of my speech, I have believed—as others do—that this is a point of honour ever since I was elected in 2010, which is why I joined the all-party parliamentary group.
In a civilised country like the United Kingdom, people are often rightly encouraged to save and be prudent so that they are less of a burden on the general taxpayer. Hundreds of thousands of people did that on the basis of an absolute assurance that this was a properly regulated industry, and then lost out through no fault of their own. I have always believed that senior figures in the Treasury must have known that Equitable Life was wobbly, but many people have received 80% less than they should have received, and that is unacceptable.
I was delighted to speak today. I hope that both the Government and the Opposition will provide some succour.
Order. Unfortunately, I must reduce the speaking time limit to six minutes. If Members really must intervene, by all means let them do so, but I ask them to try not to use too much time. We need to move on to the next debate sooner rather than later.
I shall confine myself to the reduced speaking time, Mr Deputy Speaker, and in doing so, I shall pay only short tributes to those who have secured this timely and necessary debate. I believe that my hon. Friend the Member for Leeds North East (Fabian Hamilton) has followed this issue—as I have followed similar issues—through several Parliaments, and that the hon. Member for Harrow East (Bob Blackman) has, in a very determined and concentrated fashion, made it a priority since his election on the basis of a very strong campaign on the subject.
Several aspects of this issue must make us uncomfortable. We can all respond, in a way, to the emotive interjection of the hon. Member for The Cotswolds (Geoffrey Clifton-Brown), who called for immediate full payment and said that there was no alternative. That makes us all feel very good. However, I wonder what impact the debate will have on the many pension holders who are wondering whether we can improve on the present situation. We must not, as my hon. Friend the Member for Stretford and Urmston (Kate Green) made clear, give false hope. We are dealing with recalcitrance in the machinery of government and although we are entirely rightly approaching this on an all-party basis, which it is important for us to maintain, it is clear that for some reason, although there is a will to do this among Ministers it is held up because the machinery of government initially does not want to admit guilt, and at a later stage has to constrain things and uses the grounds of the public purse to do so. That will happen whatever state the public purse is in: other priorities will rank higher and there will be other things we need to do. We will be told we must look to the future and, above all, we must not create precedents. I say to the Minister and my right hon. Friend the Member for East Ham (Stephen Timms), who was a Minister, that they will find that the roadblocks put up by the machinery of government are almost insuperable. However, I believe that there is a way through in this case.
Many Members have referred to the Penrose committee and to the ombudsman’s report. There was a very clear statement, the like of which I do not think I have seen in my time in the House, about a total and comprehensive failure of regulation. There are no ifs, no buts and no extenuating circumstances, just an admission of failure and of incompetence on the part of Government that should be put right. I believe that it can be put right and think that there is a measure for doing so.
The great thing about this debate is that there is no doubt about the figures. I cannot see anybody disputing the figures, not even the Treasury. The total is £4.3 billion and the Government have pledged £1.5 billion. Without damaging the present deficit, £115 million would enable us to deal with the most chronic, the most aged and the least well-off of the pension holders. They could be dealt with straight from the contingency of about £100 million that is committed in the Government deficit, as is the total £1.5 billion. That is all in the deficit—it has to be for the Government to commit it. In my day, a commitment to spend counted as expenditure in the year it was committed, not in the year it was paid out. That might have changed, but it is a commitment and it will have been taken into account in the Budget this year. In my opinion, the whole amount could have been taken into the year in which it was committed and future Government projections will certainly all have it in.
Without any effect on the Government deficit, we could pay off the clearly identified with £115 million straight away and we could look at the as yet unspent £500 million. That would make a big start, although it would not go all the way. I share the emotion expressed by the hon. Member for The Cotswolds and could speak about it with the same intensity as he did, but the fact is that £500 million is there. There is £115 million to deal with the worst cases. Let us get that paid out. I agree with the hon. Member for Harrow East—this seems very much to be his idea—that we should have it in the party manifestos. There might not be great hope of that, but why not try? I will certainly support it with my party and I am sure that he will with his. I am not sure what success we will have, but we should support that.
Beyond that, we are dealing with a further £2.3 billion. I do not think that we should consider a time period of any more than three years. We must be precise, so that unlike with the contaminated blood scandal, when the Government could sit back and say that having caused those people’s deaths they would die sooner or later, this does not become a terminal problem. We cannot wait that long. That money should be timetabled, committed and spent within three years of the new Government taking office. That is a proposal on which I think we can unite. We could bring most policy holders into it and it is doable.
I, too, congratulate the hon. Members who secured the debate. Like my hon. Friend the Member for Harrow East (Bob Blackman) and the hon. Member for Leeds North East (Fabian Hamilton), I have signed the pledge. This is not a phrase that often falls from my lips, but that was the right thing to do under those circumstances and it is right for Governments to keep their pledges. I know that there are constraints in Government and having served as a member of this Government I am conscious of the economic pressures, and I understand the point made by the hon. Member for Coventry North West (Mr Robinson) about the fact that periodically civil servants come to Ministers with rather convenient escape clauses, but the job of Ministers is sometimes not to accept such escape clauses.
I am speaking on the basis that this is a Government who are committed to markets and to stability and confidence in our markets. I believe in that. The financial services sector and insurance sector are a critical part of our markets. I speak as secretary of the all-party parliamentary group on wholesale financial markets and services. For the markets to work efficiently, there must be proper and secure regulation and when there is a failure in regulation there must be genuine certainty of recompense to those who have done no wrong, because otherwise honest and sensible investment is deterred. That is the risk if we do not do justice to the Equitable Life policyholders. What message would that send? We all say that it is right to invest prudently and wisely for one’s future and any such message would be against the philosophy of my Government and, I hope, against the philosophy of any responsible Government. In the long-term, it is in the interests of good economics and good financial planning that we do justice to the Equitable Life policyholders.
The motion is sensibly and moderately phrased. We are not saying that everything can be done at once, but that in the course of the Parliament this ought to be done. It might be that the proposal made by the hon. Member for Coventry North West is part of that. I will not be tied to an exact time frame, but it is particularly important that the oldest—the pre-1992 people—are given priority. It is also important to recognise that although the Government are picking up something that did not happen on their watch, part of being in government is that one has to deal with the consequences of what one inherits and has to do so fairly. Happily, thanks to the policies of this Government, the economy is improving. It is not unreasonable against that background to expect those people who have made a sacrifice, in that their fair recompense has been delayed, to share some of the fruits of that economic recovery.
I know that the hon. Gentleman did not mean to interject any sort of difference between party or Government, but what he said was not right. The lack of regulation and the failure of the policies happened under a Conservative Government’s watch. We must get away from mentioning Governments, as this affects all parties and all Governments over the period of the failure.
I am sorry to disagree with the hon. Gentleman, but he misunderstands what I was saying. Regardless of party, there is an obligation on Government, and I must say that the 13 years for which there was a Government of which he was a distinguished member cannot be entirely ignored. We all must pick up what we inherit from our predecessors, of whatever party, and we must put them right. That is the key and that is why I agree that having done the history we need to move on and find a sensible way forward.
My hon. Friend makes an entirely fair point. This should all have been sorted out before the Government came on to the scene. The question of who was to blame and why ultimately requires almost a Crichel Down sort of approach—we must all accept responsibility for what happens under regulators who were not politicians. We must accept that it was done and must now resolve it. Had it been resolved sooner, there might have been more money around to deal with the issue. However, given where we are now and that the economy is improving, we can certainly do justice to people through a sensible series of staged payments, starting with those who are in the greatest need and who are most vulnerable. It is reasonable to ensure in the course of the Parliament that proper justice is done.
Let me give a sense of the impact on individuals. I have one constituent who makes the point that having invested sensibly his income has effectively been cut by some £20,000 a year. To a pensioner, that is an awful lot of money and they have had to downsize from their long-established family home. Another constituent has an acknowledged loss of £61,000 and is some £47,000 adrift with the payments out. That is not fair for somebody who has worked hard and is now in no position to supplement their income for the future.
Another very elderly gentleman had to wait some 18 months—because, frankly, of ineptitude and lost correspondence—to even receive acknowledgement of his entitlement. He should not have to come to his Member of Parliament to escalate these matters. That is something that any sensible and well-run compensation scheme should deal with as a matter of course. I am sure we all hope eventually to overcome the difficulties for our constituents, but they should not be happening in the first place.
I am sorry to reiterate the point I made in an earlier intervention, but one member of the group of people who came to see me was elderly and, if he dies, his widow will get only 50% of the 22% he is entitled to, which is already pretty measly. Is it not incumbent on the Government to make payments now, in full, so that at least people can have that small amount of money to pass on to their dependants?
On that basis, it is particularly important that we deal with the pre-1992 people, who are generally the oldest, but it is also important to have a proper, staged programme in place to deal with everyone.
When I was a lawyer, I accepted, as I think anyone would, that it was not possible to deliver for a client everything in their legitimate claim, because money might not be available or there might be delays. A settlement would be reached and a sensible discount accepted as a resolution, but I do not think that anybody would regard 22% as being a fair settlement of a claim. The Minister is an honourable woman and she must tell us today that she recognises that we are obliged, as a matter of honour, to give the people affected a sum much closer to that of their undisputed loss. As has been said, the quantum is not in dispute—it is a proven fact. We now need to say that, because of the improvement in the economy, we can do better than we were originally able to, for whatever reason. That is the honourable and legitimate thing to do, and it would also restore faith in an important element of our financial sector.
I agree with the hon. Member for Coventry North West and I hope there is enough that we can all agree on. The wording of the motion itself gives the Government the flexibility, provided there is good will—I am sure there is—to achieve its aims in a fair way for the people who have lost out through no fault of their own.
I will be brief. I congratulate the hon. Member for Harrow East (Bob Blackman) and my hon. Friend the Member for Leeds North East (Fabian Hamilton) on giving us the opportunity to debate this issue and on the motion, which sums up the situation very well.
I want to make two points. First, I am sure others have received a similarly, or possibly identically, worded letter to that which I have received from one of my constituents, which states:
“Victims of the Equitable scandal are…incensed that savers with Northern Rock, Bradford & Bingley, Icesave, RBS, HBOS and others have been bailed out 100% while they have been left with…compensation of less than 25% of their losses.”
When I first read that statement, I was not entirely sure that it was comparing like with like, but the more I thought about it, the more obvious it became that, ultimately, the comparison is completely valid, because there was a failure to regulate all those organisations and Equitable Life properly. The right hon. Member for Arundel and South Downs (Nick Herbert) has said—this was the first thought that occurred to me—that there were macroeconomic reasons for having to bail out those organisations at the time. Even so, the comparison of the two problems that both resulted from the failure of regulation is valid.
Secondly, it has been said repeatedly that the ombudsman pointed out unequivocally that there had been maladministration. We need to think carefully about that and the implications for the whole ombudsman system if we do not accept its consequences as well as its judgment. An ombudsman system that finds maladministration and then says how it can be dealt with cannot be properly respected by the Government or anybody else unless the consequences of its findings—in this case, the costs involved—are addressed in full. It is important, for all the reasons that have already been given, that the people affected are properly compensated, but it is also important, if we are going to have a proper ombudsman system, to accept not only its findings with regard to maladministration, but the consequences of those findings.
I am perfectly content with the motion, which concludes by calling on the Government
“to make a commitment to provide full compensation during the lifetime of the next Parliament as the economy and public finances continue to recover.”
My hon. Friend the Member for Coventry North West (Mr Robinson), the hon. Member for Harrow East and others have put together, almost during the course of this debate, a package that might work. It involves using more effectively the money that is already available now and then having a programme of meeting the full costs over the course of the next Parliament. I think that that strategy provides a solution and I hope the Minister will accept that when she responds to the debate.
I congratulate my hon. Friend the Member for Harrow East (Bob Blackman) on securing the debate and on his speech. He, together with my right hon. Friend the Member for Chesham and Amersham (Mrs Gillan), came up with a practical solution when they talked about the £115 million. As my right hon. Friend the Member for Saffron Walden (Sir Alan Haselhurst) has said, it would be nice if we could get some credit.
There could not be a more perfect Minister to respond to this debate than the Economic Secretary, because before she became a Minister she was a wonderful advocate on behalf of those of her constituents who have suffered as a result of the issue under discussion. I hope she is well placed to persuade her boss, the Chancellor, so that, in two weeks’ time all the hon. Members present can take some credit, not least for the settlement of the £115 million. Every Member present has constituents who are among the 945,000 Equitable Life policyholders who have suffered huge losses.
I have raised the issue many times with the Treasury and I always receive the same response, which essentially states that the Treasury has decided to pay out £1.5 billion of its £4.3 billion obligation and that the Government understand the policyholders’ disappointment, but that tough decisions need to be made due to the pressures on the public finances.
We all understand that taxpayers’ money needs to be managed and spent carefully and with the greatest consideration. However, paying out the full amount of the obligation to the Equitable Life victims is not merely about spending the outstanding £2.8 billion of our scarce resources. It is about regaining and rebuilding the public trust in the ability of our Government to create a safe environment and regulation in financial services. This is about the reputation of the British Government and financial services generally.
The problem is not going to disappear, regardless of which Members of Parliament survive the cull on 7 May. Equitable Life victims will continue campaigning and the Members who are returned here will continue to put pressure on the Government of the day to meet their obligation. The Equitable Life victims were, as we have heard, absolutely doing the right thing, working hard and paying into pension funds for their retirement. That sense of responsibility and work ethic is exactly what this Government support.
By paying only 22% of the obligation, the Government are ignoring the recommendation of the parliamentary ombudsman, as many Members have said—it is the same recommendation that was previously accepted by the Government in full. The British Government’s ignoring the parliamentary ombudsman sets a poor example for ombudsman cases across the country. If the Government do not respect an ombudsman recommendation, why would anyone do so? It sets a precedent for undermining the work of ombudsmen generally throughout the United Kingdom. The need for austerity does not need to be explained to any one of us. However, compensation for victims of the Equitable Life scandal is not something that can be subjected to cuts. My constituents have already lost enough time and nerve trying to fight this injustice and I urge my hon. Friend the Minister to honour the outstanding debt.
I want to take this opportunity to congratulate the Government on what they have done so far. It certainly was not their fault that we were left with these terrible financial difficulties, but it is not right that the role of the auditors and external consultants should go unmentioned. They should be held to account for this scandal. Ernst and Young was providing audit services to Equitable Life. The company’s bosses now say that they regard this to be a closed case, as the individuals responsible have now retired. However, it is very far from being a closed case and a happy retirement for our constituents who are waiting for the remaining 78% of their money to be paid out. I reiterate that this is not just about spending taxpayer’s money. It is about the credibility and respectability of this Government and of UK financial services, and about the trust in our ombudsmen system.
I, too, congratulate the hon. Member for Harrow East (Bob Blackman) and my hon. Friend the Member for Leeds North East (Fabian Hamilton) on their work on this important issue and on securing the debate today. They outlined articulately the time line of the issues surrounding Equitable Life, and I do not intend to repeat any of that. More than 1 million people throughout the country have been affected by the issue, which dates back to the early 1990s. No Government between then and now have adequately dealt with the problems; they have been problems for successive Governments. However, the people who are affected do not care which party is in government; they simply want to be compensated and to feel supported by the Government of the day in getting the compensation and help that they deserve.
On Friday, I met two of my constituents who have been impacted by the maladministration of Equitable Life in quite different ways. The first was a gentleman who had cautiously saved for many years with Equitable Life. His hope, when he took out the policy, was to fund an early retirement at the age of 60. He is now approaching that age, but his hope has been dashed by the failure of Equitable Life. He managed to withdraw some of his money when the problems started to occur, but he has still suffered the loss of tens of thousands of pounds and he has been given to understand that he is entitled to no further compensation. The second was a lady in her 80s who had saved for decades but has been left with just a small fraction of her money in retirement.
These are not gullible people. The policyholders who got caught up in the Equitable Life disaster were hard-working taxpayers who played by the rules, worked hard and prudently and responsibly saved for their retirement. The lady I just mentioned had worked for a company that had to comply with financial services legislation, which only serves to fuel her incredulity at what has been allowed to happen. She retired 20 years ago, hoping that the policy she had taken out would fulfil its promise, but she was misled and mis-sold a policy that she had received with good industry-approved advice. She believed that she held a legitimate and lucrative policy. She, and many others like her, put their faith in the pensions system and planned for their retirement sensibly, only to find that the rug had been pulled from beneath their feet when they retired. These are not wealthy people; they are people who are being hit by the cost of living crisis that my other constituents are facing. They have lost life-changing sums of money and their standard of living has been devastated in many cases. Their own personal long-term economic plans have been shredded, through absolutely no fault of their own.
Some hon. Members have referred to the fact that locating the people who are eligible for compensation has been slow and inadequate. I believe that about 151,000 people still need to be found by the Government. What does the Minister plan to do to widen public knowledge of this issue in the near future? What publicity campaigns are planned to reach the most unreachable people, many of whom are pensioners without internet access? They would probably use the more traditional forms of media used for publicity campaigns. Also, I found it difficult when preparing for this debate to get figures telling me how many of my constituents might be affected. Will the Minister explain to the House why no figures are obtainable showing the regional breakdown of those affected by the collapse of Equitable Life’s payment scheme?
Time is against many of the policyholders. We have heard that many have sadly died. The Lib Dem manifesto promised to set up a
“transparent and fair payment scheme”
and the Conservative manifesto had a similar promise, but many policyholders feel that the current scheme does not fulfil those promises. Those affected by the maladministration of Equitable Life have been left in great financial difficulty despite planning and saving carefully for their retirement. This has had a serious impact on their quality of life. In my experience, those affected are just as angry with the Government as with Equitable Life. They are angry with successive Governments for not taking full responsibility for the failures identified at the time and for not adequately compensating those affected. One elderly constituent said to me, “They are waiting for us to die.” That is the appalling impression that that lady has been given, and I am sure that she is not alone.
I acknowledge that the present Government have made considerable progress towards compensating those who have suffered losses, but that comes nowhere near to fulfilling the promises of a fair payment scheme that appeared in the Conservative and Liberal Democrat manifestos. That is not just my view; I suspect that it is the view of the vast majority of the 1 million people who have been affected. I ask the Government not to leave this matter any longer and to address it in the upcoming Budget. I ask them to ensure that people are compensated so that they no longer feel that the Government are letting them down.
It is a pleasure to speak in the debate. I congratulate my hon. Friend the Member for Harrow East (Bob Blackman), my neighbour the hon. Member for Leeds North East (Fabian Hamilton) and my hon. Friend and colleague the Member for Eastbourne (Stephen Lloyd). I am proud to be a member of the all-party parliamentary group for justice for Equitable Life policyholders, which has shown how powerfully we can campaign when we do so collectively and collaboratively on a cross-party basis. I congratulate the co-chairs and officers for leading us in that endeavour.
I start by welcoming the progress that has been made. I remember the early meetings that took place towards the end of the last Parliament and the frustration that, at that stage, there was no compensation at all. We finally got the announcement of compensation, and I welcome the fact that payments surpassing £1 billion have now been made to 896,367 policyholders. That clearly represents great progress, but the clear message from the House today is that it is not enough. This debate itself shows that this is not the end of the matter, however convenient it might be for the Treasury—either side of the election—were that to be the case.
I strongly support the motion today and I shall carry on campaigning on behalf of my constituents as part of the group. About 40 of my constituents have raised this matter with me over the past few years, and many have told me of the hardship that they have experienced. Virtually none of them are wealthy people. They are people whose modest and very well planned retirement incomes have been drastically affected, and that has had a huge impact on their quality of life at a time when they should not have to face that and can do nothing about it. I pay tribute to all of them, and to the way in which they have campaigned as members of the Equitable Members Action Group. They include Ray and Marjorie Dunn, who have worked closely with me and played an important role in bringing people together. It has been a pleasure to work with them and all my constituents.
Would my hon. Friend also acknowledge the outstanding work that the members of the Equitable Members Action Group have done for us in Parliament? They have kept us informed and provided a secretary, and they have ensured that we pulled together on their behalf.
My hon. Friend makes an important point. EMAG has done a wonderful job. Working together, inside and outside the House, has been an exemplary way of getting positive change.
One thing has not been raised in this debate so far and I am pleased to raise it strongly, as a member of the Public Administration Committee in this Parliament. One contributor today said it was disgraceful that neither the previous Government nor this Government had fully abided by the clear view or the will of the ombudsman, because they thought, “What’s the point?” I urge right hon. and hon. Members to look at the Public Administration Committee’s reports in this Parliament, because we are calling for a radical overhaul, part of which should be that Governments are bound by such decisions so we would never have this nonsense.
We have an absurd situation, because we are talking about the Parliamentary and Health Service Ombudsman, with the responsibility to Parliament. The Public Administration Committee has a view, as the Select Committee that oversees the ombudsman, and it wants a radical overhaul, The ombudsman’s office wants a radical overhaul, as does the ombudsman herself and the public, but we cannot have one because Parliament cannot reform its own ombudsman—only the Government can do so because it requires primary legislation. That is absurd and we need to find a way to enable Parliament to introduce legislation for matters that are parliamentary and not to do with the Government. I urge the Government in the Parliament—whoever is in government—to listen finally to that, to let go and allow Parliament to reform its own ombudsman in a way that is so clearly needed.
I am glad that this Government have come up with more than Sir John Chadwick proposed, which we all strongly said was not enough. I am also pleased with the campaign launched in October 2013 to find the 400,000 lost victims of the Equitable Life scandal. There are now approximately 142,000 policyholders who are due a payment but the scheme has not yet been able to trace or validate their address, so I hope that work will continue. This is taking too long, given that these people are in their retirement, need this money now and simply cannot wait. Tragically, some of them have died, and some will die without having had the chance to get that money they are clearly owed as a result of the maladministration and lack of regulation.
What is particularly galling is that there has been a double failure of regulation: the failure to regulate the banks properly led to the catastrophic collapse in the banking sector, which then led to vast amounts of money going to bail out those banks, and that is one reason there is not the money in the pot to compensate these people. That is a bitter pill to swallow, which is why there is no justification for not backing today’s motion and not coming forward, finally, after all these years, with the solution that is clearly the right and moral one.
Let me give an example to illustrate that point. After the giving of £620 million to 37,000 annuitants, 945,000 Equitable Life policyholders have shared the remaining £775 million, which of course is the 22% of their losses. Yet when we look at how much money has gone into the banking sector—we still have publicly owned banks—we see that there is a discrepancy that simply does not sit right and must be addressed.
We must finally draw this matter to a close. We must finally see a fair and final resolution. I share the passion of right hon. and hon. Members in not wanting to have to debate that; we must not be debating this issue at the end of the next Parliament. I hope we shall see some progress in the Budget. It is realistic to say that it will be some and not all—the latter would not be realistic—but it absolutely must be in the next Parliament. Let us now have a cross-party convention, let us take this out of the electioneering and have a genuine, firm policy commitment that the next Government will honour this pledge, as should have been done. It is an obligation on the British state, an obligation on this House and an obligation on this Government and the next one. It is an obligation that must finally be honoured.
I wish to acknowledge, again, as has been done throughout this good debate, the extent of the hardship and anxiety that all too many people have endured as a result of the failure of Equitable Life. I, too, pay tribute to the hon. Members for Harrow East (Bob Blackman) and for Eastbourne (Stephen Lloyd) and my hon. Friend the Member for Leeds North East (Fabian Hamilton) who have led the all-party group, spoken in the debate and championed the cause of the victims of the Equitable Life collapse over the years, and to others like them. Like the hon. Member for Leeds North West (Greg Mulholland), I also want to pay tribute to EMAG for its tireless campaigning on behalf of so many people who have lost so much. Its campaign has won real sympathy and support in Parliament and among the wider public.
My hon. Friend the Member for Coventry North West (Mr Robinson) rightly pointed out that the hon. Member for Bromley and Chislehurst (Robert Neill) seemed to be a little unsure of the history of this case. The problems at Equitable Life occurred between 1990 and 2001, so almost all occurred under the regulatory arrangements in place before the creation of the Financial Services Authority. The previous Government, of whom I was a member, issued an apology in January 2009 to policyholders, on behalf of the public bodies and the successive Governments responsible for the regulation of Equitable Life between 1990 and 2001 and for the maladministration that took place.
The consistent argument of EMAG has always been that the losses incurred by Equitable Life members are due to maladministration, as opposed to the bad investments and rash actions undertaken by Equitable Life. As we have heard in the debate, EMAG felt vindicated by the ombudsman’s reports. The previous Government did not agree with that view—with the view of the ombudsman. Members of the current Government stated clearly during the election campaign —we have heard about the pledges that were widely signed by Government Members—that they did agree. In government, however, they have not delivered.
The previous Government recognised that many policy- holders were disproportionately affected by the events at Equitable Life, and on that basis announced a commitment to a payments scheme to help. The ombudsman proposed a scheme entailing a case-by-case review, looking at 30 million investment decisions by 1.5 million people over 20 years. The ombudsman thought that would take two and a half years, but others thought it would be more. The previous Government asked Sir John Chadwick to advise on a simpler scheme. His report in July 2010, after the general election, referred to
“the obvious impracticability—if not impossibility—of determining these questions on an individual basis”.
The new Government, elected in 2010, explicitly accepted the ombudsman’s recommendation. Indeed, today’s motion, which I shall address in a moment, congratulates the Government on accepting the ombudsman’s recommendation in full. However, that announcement having been made by the new Government, the ombudsman then wrote to every Member of the House in July 2010, saying:
“In the light of the new Government’s commitment to implement”
“recommendation in full, the approach embodied in the Chadwick report has thus been overtaken by events and cannot provide a basis for the implementation of the recommendation.”
She said that her proposal and Chadwick were irreconcilable, but Chadwick, as we have heard in this debate—the hon. Member for Leeds North West mentioned this—was in fact what was done. During the election campaign in 2010, the then Opposition spokesman went around the country promising that, if elected, the Conservatives would deliver on the ombudsman’s recommendation. During the campaign, EMAG asked candidates to sign a pledge. The hon. Member for Harrow East was telling us that Conservative candidates were encouraged to sign this pledge. It said:
“I pledge to the voters of this constituency 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.”
More than 90% of Conservative Members signed that pledge: the Prime Minister did, the Chancellor of the Exchequer did. Every Liberal Democrat MP signed it, including the Deputy Prime Minister, and Equitable Life members and EMAG expected that once the coalition took office it would be delivered, but it was not. Not surprisingly, EMAG felt and still feels utterly let down by so many who signed that pledge in 2010 and did not deliver.
My hon. Friend the Member for Leeds North East referred to his amendment in the House in November 2010. I was just looking through the list of the 76 Members who voted for it, which includes the hon. Members for Harrow East and for Eastbourne, and of course my hon. Friend the Member for Leeds North East, but it was mostly Labour Members who voted for it. Hardly any of the 287 Conservative Members who signed that pledge voted for my hon. Friend’s amendment.
The Government formally accepted the ombudsman’s recommendation, but described Sir John Chadwick’s recommendation as one of the building blocks for a solution. That infuriated the ombudsman who argued that as the Government had accepted her recommendation, Sir John’s report was no longer relevant. It is worth looking again at what the ombudsman recommended. She wrote:
“My second—and central—recommendation is that the Government should establish and fund a compensation scheme, with a view to assessing the individual cases of those who have been affected by the events covered in this report and providing appropriate compensation. The aim of such a scheme should be to put those people who have suffered a relative loss back into the position that they would have been in had maladministration not occurred.”
No one would claim to the House that that is what has been done. The hon. Member for Southend West (Sir David Amess) made the point—the ombudsman’s recommendation has not been delivered—so I am a little puzzled, if I can cavil, as to why the motion invites us to welcome the Government’s acceptance of the ombudsman’s findings in full, given that they certainly have not been implemented.
Legislation was enacted in 2011 for a scheme. It is not an easy thing to fashion a scheme that is both fair to members and protects the public purse. The Government came up with a scheme that was reasonable, although it fell far short of what was hoped for. I am sure that other Members who have spoken have seen the film on the EMAG website, “Time for the Treasury to Settle its Debts”, which features quotes from both the Conservative and Liberal Democrat manifestos—commitments referred to by my hon. Friend the Member for Airdrie and Shotts (Pamela Nash) and by the right hon. Member for Arundel and South Downs (Nick Herbert) earlier in the debate. The Government therefore formally accepted the ombudsman’s recommendations, but instead implemented Sir John Chadwick’s recommendation.
We all hoped that the new scheme would administer payments effectively and efficiently. The Public Accounts Committee has been critical of the administration of the scheme, referring to a series of administrative failures, including delays in making payments to policy holders and poor customer service. Then in the March 2013 Budget the Chancellor announced some welcome limited compensation for those who bought their with-profits annuity before 1992.
Many people have suffered, in some cases a great deal, as a result of the failure of Equitable Life. The hardship suffered is not in doubt. We support the steps that Ministers have taken to provide some compensation, but it falls very far short of what Equitable Life members thought they were being promised by Conservative and Liberal Democrat Members during the election campaign.
The Minister who will reply to the debate today signed that pledge. She made a commitment to her constituents to support and vote for the full compensation that the ombudsman called for. It is for her to explain to the House and to all those who have lost so much why that pledge has not been delivered.
I add my congratulations to my hon. Friend the Member for Harrow East (Bob Blackman) and the hon. Members for Leeds North East (Fabian Hamilton) and for Eastbourne (Stephen Lloyd) on securing the debate. Their tireless work on this important issue is greatly appreciated by our constituents. Prior to my ministerial appointment, I was a member of the all-party group on Equitable Life policyholders and a number of my constituents have been badly affected, so I am deeply sympathetic to policyholders’ losses in this sorry tale. I shall explain what the Government have done to resolve the long-standing issue of Equitable Life and set the record straight on some of the history.
This situation has been a key priority for the Government. While Equitable remained solvent and continued to pay premiums to its members, its problems caused a great many of its policyholders to suffer significant emotional and financial distress. When we came to office, we made a commitment to implement the ombudsman’s recommendation that the Government should make fair and swift payments to Equitable Life policyholders in recognition of the part that the Government played in Equitable’s problems. Those payments were swift, in that within six months of taking office, we introduced the Bill that became the Equitable Life (Payments) Act 2010, and payments started to be made to policyholders in June 2011, which was within six months of Royal Assent. They were also fair because the scheme’s rules are based on the Government’s full acceptance of the parliamentary ombudsman’s findings of maladministration and, importantly, on the assumption that all policyholders would have decided to invest elsewhere had the maladministration regarding regulatory returns not occurred. Of course, that is a conservative assumption.
The ombudsman did not quantify the relative loss, which is the difference between the amount received by Equitable Life policyholders and what they would have received if they had invested in the same way in a similar company, but this Government assessed the total as £4.1 billion. That was significantly more than the final figure of £340 million that was arrived at under Sir John Chadwick’s methodology, which was based on the previous Government’s limited acceptance of the ombudsman’s findings. In the 2010 spending review, after taking account of the need to be fair to all taxpayers, we announced that up to £1.5 billion would be made available for payment to eligible policyholders.
Is my hon. Friend going to address the part of the motion that calls on the Government to pay full compensation in the next Parliament? The right hon. Member for East Ham (Stephen Timms) did not deal with that point, but our constituents want it to be addressed.
Yes, I am.
In line with representations received, out of that £1.5 billion, we covered the relative losses of the with-profits or trapped annuitants in full. Those annuitants were unable to move their funds elsewhere or to mitigate the impact of their losses by seeking employment. They were also generally the oldest policyholders. The remaining available funding, on the advice of the independent commission, was distributed pro rata to other policyholders, representing 22.4% of their relative loss. I know that that was deeply disappointing to many. These difficult decisions were taken in the light of the position of the public finances and in the interests of overall fairness to all taxpayers.
The motion notes that
“the Parliamentary Ombudsman recommended that policyholders should be put back in the position they would have been in had maladministration not occurred”.
However, the ombudsman went on to say that the impact on the public purse should also be taken into account when considering payment. She also stated that she was acutely conscious of the potential scale of what was recommended. She has subsequently written to the all-party group to say that the Government’s decisions on affordability and eligibility cannot be said to be incompatible with her report.
I congratulate all Members who contributed to the debate. It is clear that they have been assiduous in representing their constituents and have done an excellent job. My hon. Friend the Member for Southend West (Sir David Amess) talked about Ernst and Young as the auditors of Equitable, so he might be interested to note that in 2010, for its part in Equitable Life, it was fined £500,000, plus costs of £2.4 million, and received a reprimand by the accountants’ joint disciplinary scheme.
The hon. Member for Airdrie and Shotts (Pamela Nash) asked for a regional breakdown of amounts paid. No breakdown by region has yet been compiled, although we could produce a basic one if that would be particularly helpful. However, I assure her that regionality does not influence the scheme’s operation in any way.
My hon. Friend the Member for Harrow East, as well as the hon. Member for Coventry North West (Mr Robinson) and my hon. Friend the Member for Southend West, talked about the situation for the pre-1992 annuitants and the fact that they are elderly and financially vulnerable. The first regulatory return from Equitable Life that would have been different had there been no maladministration was that of 1991. This was available on request from Equitable Life from mid-1992 and could not, therefore, have been expected to influence investor decisions before late 1992. Therefore no relative loss was suffered by this group. However, as hon. Members have recognised, the Government agreed that this group of pre-1992 annuitants, although they are not affected by maladministration, have suffered significantly from a loss of income that they would have expected. For this reason the Government made an exceptional ex gratia payment of £5,000 to this group, with a further £5,000 to those on pension credit, in December 2013.
The hon. Member for Leeds North East and the right hon. Member for Knowsley (Mr Howarth) raised the question of compensation for the Icelandic bank savers in Icesave and why Equitable Life savers are being treated differently. The ex gratia payments to UK depositors in Icelandic banks were made as a result of a decision by the previous Government to guarantee all qualifying retail deposits specifically to protect the financial stability of the UK. The financial compensation scheme was simply the agent for these payments and we expect to recover all those sums from the Icelandic banks and are continuing to do so.
Specifically in the case of failed banks and why they receive compensation, the Financial Services Compensation Scheme is funded by a levy on financial services firms, so again those compensations do not come from the public purse.
In answer to the hon. Members for Moray (Angus Robertson) and for Airdrie and Shotts who asked when the scheme stops tracing people, all policyholders are either written to at their last known address or put through electronic tracing methods, such as looking them up against the electoral roll. Attempts are made through the Department for Work and Pensions to trace those owed more than £250. I should tell hon. Members that about 50% of the remaining policyholders are due less than £100.
My hon. Friend the Member for Poole (Mr Syms) asked whether we could re-allocate the remaining £500 million. That remaining £500 million is to make ongoing payments to annuitants for the duration of their annuity. Finally, the hon. Member for Stretford and Urmston (Kate Green) and my hon. Friends the Members for Bromley and Chislehurst (Robert Neill) and for Southend West asked what we had done to ensure that people were not put off the idea of saving for their retirement. As hon. Members know, the Government have undertaken a fundamental reform of the regulatory system, and put in place the Financial Services Act 2012 to establish a new system of specialised and focused financial services regulators. They abolished the FSA and set up new regulators within the Bank of England and the independent conduct of business regulator, the Financial Conduct Authority. These reforms are designed to ensure that the conduct of firms, and with it the interests of consumers and participants in our financial markets, are at the heart of the regulatory system and are given the priority that they deserve.
The recent news on the improvements that this economy has made since 2010 is to be welcomed and shows that this Government’s long-term economic plan is working, but we have a long way to go to restore the public finances, and the public purse remains very constrained. It is right that we have taken action on the Equitable issue, but we must balance this with the need to continue to address the difficult position of the public finances and the impact on fairness to all taxpayers. That is why this Government have no plans to change the funding available to the payment scheme. Our focus is rather to complete the small number of remaining payments. We have continued to make excellent progress with the scheme itself. Only this week I was pleased to report that over £1 billion has been paid to nearly 900,000 eligible policyholders.
In conclusion, I genuinely have deep sympathy with those who carefully saved for retirement and are not receiving the income they expected. Resolving the Equitable Life issue, and doing so swiftly and in a way that was fair to all taxpayers, has been a priority for the Government.
I congratulate the 12 Back-Bench Members from across the House who made speeches in the debate and the huge number who intervened. The will of the House is quite clear: this is a debt of honour, and it is no fault of the individual savers whose life savings have been either lost or severely depleted. We have heard many examples from Members. I could produce a mailbag full of examples of individuals from across the country who invested for their retirement but are now unable to supplement their income, through no fault of their own. They did the right thing by saving for their retirement, but through regulatory failure, a failure by Equitable Life and a conspiracy with the then Government, their savings were taken away from them.
This is a debt of honour, so I must stress the point that we should honour it over the course of the next Parliament. I completely accept my hon. Friend the Minister’s point that the economy was in tatters in 2010 and that a series of difficult decisions had to be made. I congratulate the Government on coming forward with a large sum of public money to compensate those individuals who are due. However, a debt of £2.8 billion is still owed to those people who saved for their retirement. That should be funded over the course of the next Parliament.
However, given the remarks from the Minister and the shadow Minister, I fear that there are currently no plans to provide that compensation. That means the battle will go on. The fight will continue until such time as the Equitable Life policyholders receive the compensation they are due. Therefore, if it comes to it, we will press the motion to a vote.
Question put and agreed to.
That this House congratulates the Government on providing a scheme to compensate victims of the Equitable Life scandal; welcomes the Government’s acceptance of the Parliamentary Ombudsman’s findings in full; notes that the Parliamentary Ombudsman recommended that policyholders should be put back in the position they would have been in had maladministration not occurred; further notes that most victims have only received partial compensation compared to the confirmed losses; and calls on the Government to make a commitment to provide full compensation during the lifetime of the next Parliament as the economy and public finances continue to recover.