Contribution
It is always a privilege to respond to a debate under your chairmanship, Ms Furniss. Let me start by thanking my hon. Friend the Member for Leeds North East (Fabian Hamilton) for opening the debate. He was referred to as a limpet earlier, but he has been more proactive than that in his campaigning on this issue over the years. It is an important issue to him and to lots of other hon. Members. I should echo the point he made at the beginning about the right hon. Member for Goole and Pocklington (David Davis), who is not in the Chamber but who has been focused on this issue for a long time. Members have campaigned on this issue with tireless energy and kept the issue in the spotlight.
I want to reflect on some of the astute points that several hon. Members made. The truth is that it is not possible to restore trust entirely—certainly, not in the firm that was involved in this among the people affected, but also probably in the regulator, but hopefully Members’ campaigning has restored trust in local representation and the campaigning energy of local representatives.
The issue is even more important to the thousands of Equitable Life savers who were affected. The point, which was well made by the hon. Member for Christchurch (Sir Christopher Chope) and others, about the human effect is one that I am sure everybody in this Chamber has at the front of their mind. Those affected included my grandfather, and I have met lots of other constituents who were members of the mutual before it disappeared. I have also met with the action group, which many hon. Members have also met with. We have all heard about the kinds of human impacts that hon. Members have set out well today.
On the big picture, several hon. Members, including my hon. Friend the Member for Leeds North East and my hon. Friend the Member for Bracknell (Peter Swallow) talked about the importance of people having trust in pensions. This is a particular part of the pension system, but the point also applies to the entire pension system. That is something I take very seriously indeed as the Pensions Minister. I was up in Liverpool at the Pensions UK conference last week talking in those exact terms about how our task is to make sure that we address what is today, if we are honest, too low a level of trust in pensions. That is true of both state and private pensions. It is our job to rebuild that trust. That includes how, in some parts, pension scams are on the rise—my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) raised that.
Obviously, the Financial Services Compensation Scheme now exists, in a way that it did not in the period that we are talking about, when we are talking about pensions operating within the contract-based part of the pensions system. That is a big change, and it is compensation paid not by taxpayers, but by the financial services industry itself. That is the answer to the specific question posed by the hon. Member for Christchurch about what happens when the regulators or, more importantly, the providers fail. The answer is that there is a compensation scheme, although we are here because there was not a compensation scheme in place—and it has caps in terms of the compensation due.
I will make some progress on the specifics of this case. Hon. Members will be aware this is a topic that has been well documented and explored over the years—the hon. Member for St Ives (Andrew George) set out the role of the sabbatical for him in the period in which that has taken place. The Equitable Life payment scheme was established to make payments to eligible policyholders where maladministration had been found. That maladministration contributed to some savers suffering a relative loss totalling £4.1 billion. Relative loss was defined as the difference between the value of the policyholder’s funds with Equitable Life and what they would have received if they had made a comparable investment elsewhere. I am merely pointing out that that is not a cash loss; it is a loss relative to a counterfactual of having invested in a different but similar product.
That approach followed the 2008 parliamentary ombudsman’s report into the collapse, and was the foundation of the payment scheme. In 2010, the Government of the day accepted the ombudsman’s findings and chose to allocate in the region of £1.5 billion —the quote from the Chancellor at the time—to make tax-free payments to eligible policyholders in respect of the reduced returns that they received from their investments. That Government chose what they saw as the correct balance of interests between the interests of the affected policyholders and taxpayers. That is the choice that was made. I am obviously fully aware that, as we have again heard today, people are dissatisfied with that £1.5 billion and suggest that the issue should be reopened.
It is not for me to defend the decisions made by the then Conservative and Liberal Democrat coalition Government. To be fair to the hon. Member for Richmond Park (Sarah Olney), she came closest to doing so today, but other colleagues chose not to—[Interruption.] The hon. Lady chose to defend the decisions of that Government to some degree and others obviously did not. The balance of opinion in this Chamber is that the then Government made a mistake in the size of the compensation that was allocated. It is not for me to make that case, but were they here to do so, they would say that decisions need to be fair to taxpayers as well as policyholders, and they would point out that there is a wide range of people responsible for the disaster that we saw in Equitable Life, including those who were responsible for the firm through that period in the 1990s when very reprehensible actions took place.