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Finance: Equitable Life

My Lords, the noble Baroness, Lady Noakes, has placed on record her admiration for the work of the Parliamentary Ombudsman. I support that. I note, however, that no apology has been forthcoming from the opposition Benches with regard to the maladministration that took place when they were in office, a serious omission which, I fear, was also the case in the other House. The noble Baroness accuses me of repeating the ““mantra”” of Lord Penrose’s report. It is not a mantra but the core of his recommendation that Equitable Life’s problems were brought upon the society by its own board and management, that being a particularly interesting feature of a mutual. In many cases these policyholders were also the members or owners of the society. Penrose was right to identify that factor and to make it clear that regulatory failure was a secondary factor, while still an important one. I reject the suggestion that we overloaded the ombudsman with information. Far be it from us to suggest that she would be capable of having her timetable so influenced. It seems to me that the quality and thoroughness of her report reflect the information that she received and the representations from many places, including from the Government, because there are many important public policy issues here that required recommendations. We have accepted the findings of the Parliamentary Ombudsman in a number of respects, and we have properly made an apology to the policyholders of Equitable where they suffered as a consequence of that maladministration. We have proposed the establishment of ex gratia payments—a model which, I may say, was also adopted in the case of Barlow Clowes when another Government were in office. The use of proportionate liability and its relevance is a concept recognised by the ombudsman, who acknowledges that there are matters of public policy interest here. That is the point that I would refer to when responding to the good and balanced contribution of the noble Lord, Lord Newby. The Parliamentary Ombudsman made clear her view that public policy considerations had to be taken into account. I note that that view has also been strongly endorsed by the shadow Chancellor of the Exchequer. The noble Baroness, Lady Noakes, asked about Sir John Chadwick’s processes. Sir John is an eminent lawyer. His terms of reference do not limit his processes; they do not specify the manner in which he will work; they do not in any way limit the evidence that he may seek in the pursuit of his duties and responsibilities. If Sir John, of his own volition or in response to recommendations, decides that he wishes to issue public reports on an interim basis, or if he chooses to take evidence, that will be for him to determine and for him to report. In answer to a question from the noble Lord, Lord Newby, we have said that Sir John should press on with this as quickly as possible. The noble Baroness and the noble Lord both asked about disproportionate ex gratia payments. This will be a matter on which we will seek to be advised and informed by Sir John, but we envisage that he will take into account the features of different policies. Holders of certain policies may well not have experienced as much damage as others. He will certainly take into account the contribution to any damage that was as a result of maladministration as opposed to any other circumstances, including investment market conditions. He will also, quite rightly, take into account the circumstances of policyholders. This is a matter on which we ask him to reflect; it is a matter on which we ask him to tender advice. In response to another of the noble Baroness’s questions, it will be for Sir John to advise us whether any conditions should apply to the payment of ex gratia amounts. I note that conditions were applied in the case of Barlow Clowes. The noble Lord, Lord Newby, asked why this has taken such a long time. I understand his frustration, but these are extraordinarily complex issues. The commendable work of the ombudsman, which was endorsed by the noble Baroness, took four years. We took six months to consider her response. I think that that was an appropriate period, given the importance of the issues resolved. In so considering matters of this complexity with the care shown by officials and Ministers, we have managed to achieve a good position in which the apology that she sought has been tendered and the payment of ex gratia payments can be made. We are certainly not stringing this out; the language in the Command Paper indicates that Sir John has been asked to reply as quickly as possible. I am sure that he will ensure that he is appropriately resourced; I would not wish to see him in any way frustrated in that respect. Whether an interim payment can be made is a matter on which we would seek Sir John’s advice. In another place, the Chief Secretary to the Treasury quite correctly drew attention to the possibility that the making of interim payments may lead to delays in final payments. That needs careful consideration. The noble Lord, Lord Newby, made an observation about the Icelandic banks. The core difference is that the payment in that case was to protect against systemic risk, to ensure that we did not see the consequences of a complete collapse and failure of the banking system. Those steps were appropriate. I suggested earlier that there was a conflation of investment and depositors. The concepts are different, but the noble Lord was quite right to challenge me on the point. It is why one payment could be made swiftly and executed almost overnight. Here, we are looking at something which the Parliamentary Ombudsman has said will take two and half years using the model which she recommends, but about which the Public Administration Select Committee had some doubts. I commend the Statement made by the Chief Secretary to the Treasury to the other place. I hope that I have answered the questions raised by the noble Baroness, Lady Noakes, and the noble Lord, Lord Newby, if not to their satisfaction then at least in terms of completeness.