Cable and Horwood on Equitable Life

• [Mar 16] Vincent Cable: ' . . ANY one of those delays could be excused and explained, but the cumulative effect of the Treasury foot - dragging is great ill - will and is the reason why Members on both sides of the House keep returning to this issue. It is also why the 1 million people affected by this issue are so frustrated.'

I will try to make your task a little easier, Mr. Deputy Speaker. I had the privilege of introducing a debate on this subject on 21 October 2009, when I set out in considerable detail the Liberal Democrats' views on how the problem should be dealt with, and I do not need to rehearse those arguments and the history again. There is a fair degree of consensus, which was summed up by early - day motion 1423 in the last Session. The motion was signed by 351 Members, from all parties, which I believe is the largest support for any such motion. On my quick arithmetic, that means that 70 per cent. of Members who are not on the Government payroll supported it. A considerable amount of work has been done since by the all - party group to reinforce that.

I shall first discuss the practical issues raised by the exchanges between Mr. Hoban and the Chief Secretary. Since October, as the Chadwick process has ground on - we have now had the third interim report - and in the past few days, there has been a breakdown in the relationship with the policyholders group, which has consistently defended the interests of policyholders throughout the process. Initially, it worked in a constructive and positive way with Sir John Chadwick despite having reservations about how the process was being conducted, but that relationship has now broken down. I do not believe that the Minister addressed that problem.

I have two suggestions for the Minister. First, nobody is suggesting that we now go back and throw the work of the Chadwick commission into the waste - paper basket and start all over again. To be fair, as the hon. Member for Fareham said, we are where we are and we have to operate from the current position. The legitimate concern of policyholders is the lack of independence in the process and the role of the auditors, which I believe are appointed and paid for by the Treasury. If there were greater confidence that that process was genuinely independent, much of the lost confidence could be restored. Will the Minister consider how independent auditors who have the confidence of the policyholders can be introduced to the process, perhaps alongside those already designated by the Treasury, to bring the policyholders group back on board in the process?

We can argue whether it would have been better to have gone down the tribunal route than the ombudsman report route, but the policyholders group vehemently denies that matters are as complicated as the Minister made out. We can go over the history, but - given where we are - the key need is to establish the independence and integrity of the process. Confidence has broken down, and we need to find a simple way in which that can be remedied.

The other issue that has arisen - and it is an immediate and practical one - is that of interim payments. All three of my colleagues who have intervened - my hon. Friends the Members for Cheltenham (Martin Horwood), for Richmond Park (Susan Kramer) and for Solihull (Lorely Burt) - made that point, and I heard the Minister's reply. I can understand the theoretical problem - that the interim payments might collectively be greater than a cap that might be imposed - but it is a rather academic objection. We are, after all, talking about a narrow category of people whom we all agree should be compensated - the trapped annuitants and the late entrants. Nobody is now disputing that. It also concerns a modest part of the compensation to which they will ultimately be entitled. So it is not clear why this relatively modest but rapid intervention of making interim payments should hit the financial ceiling, unless the Government envisage a ceiling that is ridiculously and unreasonably low. I hope that the Government will take a fresh look at the interim payment issue, because the objection advanced is not very credible.

If those two steps could be taken - a greater degree of independence in the auditing process, which is very complex and which no hon. Member is equipped to deal with technically, to restore the confidence of the policyholders, and the introduction of an interim payments scheme - much of the current suspicion about what is happening would be defused, and we would be back on track. That is the substantive point that I wish to make, but I shall briefly summarise the two overriding concerns that Members have expressed throughout the debate.

The first is the cumulative delay. We can argue about whether a particular step was reasonable or not, but it is the cumulative impact of a decade of delay that has caused so much anxiety and anger. The second is the integrity of the ombudsman process and our responsibility as a House for upholding the ombudsman's authority.

On the first issue, it is worth - without going into the long and sordid history - recalling the milestones in this decade - long process. We had the four years to Penrose, who indeed criticised the delays in establishing his report. Then there were the three years to the ombudsman's report and then the 18 - month delay in the publication of the ombudsman's report through the Maxwellisation stage, followed by the Government's response, which was not satisfactory. Then came the ombudsman's response to the Government, then the various challenges, including judicial review and the Public Administration Committee's report. Then we had the six - month delay until the Chadwick process got under way, and the next series of steps that we are now encountering. Any one of those delays could be excused and explained, but the cumulative effect of the Treasury foot - dragging is great ill - will and is the reason why Members on both sides of the House keep returning to this issue. It is also why the 1 million people affected by this issue are so frustrated.

The second overriding issue is the authority of the ombudsman. It is worth recalling that 351 of us said, when we signed the early - day motion, that this House

"reaffirms the duty of Parliament to support the office of the Ombudsman; believes the Government should accept the recommendations of the Ombudsman on compensating policyholders who have suffered loss".

We can argue about whether the ombudsman's process was the best, but its principles were clear, and one of them was that compensation was right, and that it should take place according to the principle of remedies: we are not talking about arbitrary compensation with figures plucked from the sky, but about a carefully thought out procedure. The ombudsman also made the specific recommendation of an independent tribunal - like process. We know that the Government have rejected that, but the key point was independence, and that is what is lacking from the present proceedings. We then had talk about "rapid", "transparent" and "simple" solutions to compensation, but again, we have not had "rapid", we probably have not had "transparent", and we certainly have not had "simple". The question is: how do we get past that stage?

I will leave the Minister with the thought that introducing an independent element into the actuarial process at this stage may restore some of the confidence that has been lost. If the Government are now willing to look at interim payments through the Chadwick process, that would go some way - probably a limited way, but some way at least - to stemming the anger and frustration that a lot of policyholders feel.

• . . Martin Horwood (Cheltenham, Liberal Democrat): I shall try to avoid the more party political comments made by some contributors to the debate, partly because the Equitable Life issue is one of simple justice, not of ideology or of party, and partly because many of the mistakes relating to Equitable Life and the regulatory regime that governed it predate this Government, which underlines the time that many policyholders have been waiting for a resolution to the issue. Many Members have referred to the 10 years since the Court of Appeal judgment and since Equitable closed its doors to new business, but six years before that Equitable Life started cutting the size of final bonuses, and by what should have been the turning point, the parliamentary ombudsman's report in 2008, the crisis had been brewing for about 14 years. Policyholders have therefore had to wait an enormous length of time.

Mark Field (Cities of London & Westminster, Conservative): I appreciate that some matters have been in gestation for some time and, therefore, should not be subject to party politics, but does the hon. Gentleman not understand the concern, which many of us feel, including Mr. Weir who spoke for the Scottish nationalists, that the treatment of Equitable policyholders has been so very different from the treatment of shareholders in banks, bank account holders and a range of others? As I said in my contribution, a whole lot of cash has been showered on such individuals, in stark contrast to the treatment of Equitable Life policyholders.

Martin Horwood (Cheltenham, Liberal Democrat): The hon. Gentleman makes a fair point, and it is incumbent on whichever Government happen to be in office when such wrongs are exposed to respond fairly and reasonably, and that responsibility lies fairly and squarely with this Government.

The ombudsman's report was absolutely damning. It said that the Government and regulators were guilty of regulatory failure and recommended that an independent tribunal quickly and simply calculate compensation. The Government slowly accepted, and apologised for, maladministration, but they initially rejected many of the ombudsman's findings, failed to offer immediate compensation and failed to set up the fully independent process that the ombudsman had asked for. That refusal was not only an injustice to Equitable Life policyholders, but a potential threat to the whole credibility of the ombudsman system. On many aspects of casework, many hon. Members might share my frustration that the ombudsman's reports are often not properly acted on, and I am afraid that the response of the Government at the time and, to be honest, since then has helped to undermine the credibility of the ombudsman system. That is potentially serious, particularly in respect of the Chadwick process, which we now have instead, because there is now a real question about whether it will resolve the issues at all.

I am disturbed by the wording in the press release from Sir John Chadwick's office on 4 March. It accompanied his third and final interim report and noted his provisional views as to what factors the Government

"may wish to take into account when considering which policyholders have experienced disproportionate impact."

In other words, the report will be only a polite suggestion to the Government about what they might do, and it will leave them scope for what might be regarded as a wider and remaining injustice, which those representing policyholders might easily reject. If we have only those tentative suggestions, we face the awful prospect, 16 or 17 years after the first warning signs, of still no resolution for about 40,000 Equitable Life pensioners, whose average age is, as Tony Baldry said, 79. Certainly, many of them are elderly and many have sadly died while waiting for compensation, and, as I said in an intervention, it is estimated that as many as 2,500 could die in the next 12 months without ever having received compensation.

Policyholders were told to expect a final report from Sir John Chadwick in spring 2010. Well, the daffodils are out and my personal benchmark of spring, the Cheltenham gold cup, is imminent - the Cheltenham festival has started - but there is still no report. The real shame, as many Members have pointed out, is that in the end it will be a post - election report, and that adds to fears that the report will be controversial; that it might, as my hon. Friend Susan Kramer pointed out, use over - pessimistic assumptions and that, in the end, it will be highly contentious.

John Pugh (Southport, Liberal Democrat): My hon. Friend is making dire predictions, but one feature of this case is that the pessimists have invariably been right.

Martin Horwood (Cheltenham, Liberal Democrat): Indeed, that is absolutely true, but let us hope that it is not true on this final - or what we hope will be this final - occasion.

The human impact of this fiasco has been absolutely terrible. Mr. and Mrs. Littlewood of my constituency wrote to me in 2008, describing that human impact. They said:

"Personally our pension payments have been sabotaged to the effect that we are now always, even more, conscious of the cost of daily expenses and costs... The annual payments we put into E. L. to achieve a modest pension out of our earnings have been ravaged."

That is the effect. Like many others, their prospects of a happy and modestly prosperous retirement, reasonably free from financial worries, which is what most of would hope for at least, have been wrecked.

It is pretty difficult for many Equitable Life policyholders to bear that situation, for a number of reasons. First, as Mr. Field pointed out, there have been bail - outs for those in cases such as Barlow Clowes, when the current Prime Minister championed the rights of investors. It therefore seems ironic that, on his watch, we have not been able to expedite similar compensation for Equitable Life policyholders. Secondly, in the Government's view the bail - out culture apparently extends to wealthy bankers who have brought this country to the brink of economic collapse, but not to hard - working pensioners who have done nothing wrong. They simply and prudently tried to save for their retirement, but they have ended up in a much worse situation. Finally, because there is a clear risk that the Chadwick report may not lead to an agreed resolution, the prospect of an actual payment that helps people in their daily lives and with their current financial situation will recede still further into the middle distance.

I urge the Government to accept a couple of requests. First, they should urgently look at the prospect of an interim compensation scheme. Government Front Benchers gave a pretty feeble answer earlier, and the idea that the Government are not willing to consider such a scheme because there might be a small overpayment to some Equitable Life policyholders, many of whom have been waiting 10 years for any payment at all in compensation for their losses, will sound rather hollow to all policyholders, but that is a risk that the Government ought to be prepared to take. Indeed, there may not even be a real risk, because, as other Members have pointed out, EMAG's estimate of the cost of that compensation scheme is £200 million - a fraction of the compensation that is likely to be paid in the final analysis.

Secondly, even at this late stage, I urge the Government to clarify urgently the remit given to Sir John Chadwick and express the hope that his recommendations will propose compensation in the spirit of the ombudsman's report - in a way that rebuilds a level of confidence among policyholders and offers some prospect of justice at the end of this whole long - drawn - out and sorry business.

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