Equitable Life (Payments) Bill

My Lords, the Government take very seriously the injustice that Equitable Life policyholders have faced. In our programme for government we pledged to implement the Parliamentary and Health Service Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policyholders for their relative loss as a consequence of regulatory failure. The importance that the Government place on Equitable Life is clearly reflected in our actions and our desire to achieve a swift resolution for policyholders. Today’s Bill is an important step towards delivering this ambition. Since coming to power in May we have made more progress on this issue than the previous Administration achieved during their entire tenure in office. We have done this by publishing Sir John Chadwick’s report on losses suffered by policyholders and their impact; by commissioning the first bottom-up estimates of losses suffered by policyholders and publishing them in full; by establishing the Independent Commission on Equitable Life Payments; by announcing our intention to start making payments by the middle of next year; and by announcing that around £1.5 billion of public funds would be allocated to the payments scheme. While it is important to note just how far we have come, I am well aware that there is still some way to go. The Government accept that the relative losses suffered by policyholders amount to some £4.3 billion. This is the difference between what policyholders who invested from September 1992 onwards received from their policies and what they would have received if they had invested elsewhere. It includes all the Parliamentary Ombudsman’s findings of maladministration, which the Government accept in their entirety. At the spending review, my right honourable friend the Chancellor of the Exchequer announced that around £1.5 billion of funding would be allocated to the scheme. This is more than four times the £340 million figure recommended by Sir John Chadwick. A number of parties have raised the plight of with-profits annuitants—WPAs. They are trapped with policies that are providing a declining income for their retirement. As a Government, we have recognised their circumstances and decided to cover the full cost of their losses. This amounts to approximately £620 million. WPAs will be paid their losses through regular instalments for their lifetime. Taking into account the pressures on the public purse, Her Majesty’s Treasury could allocate only £1 billion over the first three years of the spending review. This will cover the first three years’ payments to WPAs and lump sum payments to all other policyholders, and to the estates of the deceased, which will also be paid during this period. The remaining amount of approximately £500 million will be used to provide ongoing regular payments to WPAs. There has been some disappointment from policyholder groups about the amount that we have allocated to this scheme. However, there are many competing priorities for the limited funds that we have at our disposal. We must also remember that the Parliamentary Ombudsman herself stated that, "““the public interest is a relevant consideration and that it is appropriate to consider the potential impact on the public purse of any payment of compensation in this case””." I know that independence of the payments scheme was a key concern for many parties, and I can assure this House that it is also an important issue for the Government. In July, the Government established the Independent Commission on Equitable Life Payments. The commission has been asked to advise on how best to allocate fairly funds provided for the scheme to all policyholders, with the exception of WPAs and their estates. The commission is in consultation with interested parties. This will help us to ensure that the views of policyholders are heard, and will help to inform the commission’s advice. The Government are keen that the commission should conclude these discussions as quickly as possible and have asked it to submit its report by the end of January. Regardless of the final design of the scheme, the Bill before the House today is essential to ensuring that payments can be made. The Bill authorises the Treasury to incur expenditure and to make payments to those adversely affected by the Government’s maladministration in their regulation of the Equitable Life Assurance Society. The Bill also allows the Treasury to make provision for these payments to be disregarded for tax and tax credits. My right honourable friend the Chancellor of the Exchequer announced in another place that we will use this power so that payments will be made free of tax to all policyholders. The Government have also discussed the issue of means-tested benefits with the Department for Work and Pensions. Those discussions have led to the decision that lump sum payments will be treated as capital for the purposes of assessing eligibility for means-tested benefits. This is fair because in normal circumstances this money would have become part of policyholders’ capital whenever it was received. Capital limits do not immediately cut off eligibility for benefits; they work on a sliding scale, gradually reducing support for individuals with larger assets. However, for WPAs the payments will be treated as income for the purposes of means-tested benefit. This is also fair as it reflects the structure of the policy that they bought and which gave them a regular income stream. The Government have decided that National Savings and Investments—NS&I—is the preferred option for delivering this scheme. As part of its normal functions, NS&I already makes millions of payments to customers every month. It has the necessary processes and infrastructure in place successfully to deliver a scheme of the size and scope that we have proposed. The Bill will grant NS&I the power to administer the scheme and ensure that payments can be made as soon as possible. As I have said, it is our ambition to start making payments in the middle of next year. I am sure that we all want a swift end to this matter, and the Equitable Life (Payments) Bill is a key milestone on the road to resolving these long-standing issues. It is a clear sign of the Government’s commitment to those who have suffered losses due to the maladministration in the regulation of Equitable Life. Policyholders have waited for more than a decade for justice. Passing this important piece of legislation is essential to achieving it. I beg to move.