MIS-SOLD PERSONAL PENSIONS ETC.

HC Deb 25 January 1996 vol 270 cc490-506

Question proposed, That the clause stand part of the Bill.

4 pm

The Economic Secretary to the Treasury (Mrs. Angela Knight)

The purpose of the clause is to exempt from income tax and capital gains tax compensation paid in respect of certain mis-sold personal pensions, buy-out contracts and retirement annuity contracts. The exemption applies where, between 29 April 1988 and 30 June 1994 inclusive, an individual was wrongly advised to transfer from, opt out of or not to join an occupational pension scheme and instead to take out a personal pension scheme, buy-out contract or retirement annuity contract. It may be helpful if I briefly define the terms to which I have referred.

"Transfer" means the payment of a sum of money from an employer's pension scheme into a personal pension plan or a buy-out contract. "Opt-out" means someone who is a member of an employer's pension scheme and who leaves that scheme while still employed by the company, and takes out a personal pension instead. "Non-joiner" means someone who, on starting a job, decides not to join their employer's scheme even though he or she is able to do so, and takes out a personal pension scheme instead.

The problem has been identified. It became clear to regulators and to the Government that some sales of personal pensions had taken place on the basis of advice that was bad, and not given in accordance with the regulatory rules then in force.

Mr. D. N. Campbell-Savours (Workington)

Early in her speech, the hon. Lady used the word "mis-sold", and she used that word rather quietly. Will she explain to us how it was that so many people managed to buy a product that was obviously not one that they should have purchased? How was it that they were mis-sold that product?

Mrs. Knight

The clause is entitled "Mis-sold personal pensions etc." Perhaps the hon. Gentleman would care to read it, because it goes into some detail—

Mr. Campbell-Savours

What about the background?

Mrs. Knight

It goes into some detail of the aspects that we propose to help in such cases.

Mr. Campbell-Savours

That is not what I asked.

Mrs. Knight

In reply to the substance of the hon. Gentleman's question, the background to the investigation that is taking place at the moment is well documented. He will have read it in many of the reports by the various regulators who are inquiring into the matter, and I shall say more about it later. If the hon. Gentleman would care to wait a few moments and allow me to proceed, I believe that he will find that the questions he asks will be answered.

The hon. Gentleman will recall—we all recall—that my predecessor, my hon. Friend the Member for Chichester (Mr. Nelson), made a statement to the House on 25 October 1994. He announced that anyone with a personal pension who was found to face financial hardship as a result of mis-selling would be entitled to redress. The aim is to put people in a financial position equivalent to that in which they would have been if the mis-selling had not taken place. But to do that, a considerable amount of work needs to be done to identify those who have suffered loss as a result of the mis-selling and to assess how much compensation is due.

Mr. Campbell-Savours

The hon. Lady keeps using the word "mis-selling". I understand that, in so far as she is giving a taxpayer a subsidy towards redressing the difficulties that have arisen, we are in fact talking about taxpayers' money being used to deal with a problem that was generated by mis-selling. In this debate, we are surely entitled to know why it happened. Why did people find themselves in a position where they bought products that were obviously inappropriate in the circumstances? May we be given a little background information, because we are spending taxpayers' money today, are we not?

Mrs. Knight

People were given wrong advice—in most instances as a consequence of the mis-selling; people may well find that their financial position is not as beneficial as it would have been if, for example, they had stayed within the occupational pension scheme.

The proposals are designed to identify those people and, where possible, to reinstate them into the occupational pension scheme. For some individuals, such redress—entry into either the occupational pension scheme or the personal pension scheme that they took out—is not available, because they have retired. Under those circumstances, a cash payment will be made—the Government do not consider it correct to tax in those circumstances.

Mr. Campbell-Savours

Is it fair to say that there was a deficiency in the regulatory approach adopted by the Government for regulating the industry, which is why the problem occurred? Is it fair to say that we are paying today because of a lack of Government regulation in a sector where clearly there should have been regulation? Is that what the hon. Lady is saying?

Mrs. Knight

No. I am saying that some people did not pay proper attention to the regulation that was in place. Personal pensions have been sold correctly to a considerable number of people. However, it is those pensions that have not been sold correctly to some other people that we are addressing. In certain circumstances, where compensation is paid in the way that I have just explained to the hon. Gentleman, people may be liable for tax, but the Government do not consider it right to tax people in these circumstances. I hope that that is something with which the hon. Gentleman and other Labour Members will agree.

Mr. Alistair Darling (Edinburgh, Central)

I wonder whether what the hon. Lady has just said is correct. It is common ground throughout the industry and among all the regulators that the regulations in force when the mis-selling took place were deficient. Her assertion that certain salesmen ignored regulations that were adequate is not right, unless the Government are changing their view. There used to be common ground between the hon. Lady's predecessor and myself that the regulations were deficient at the time, which is why they were subsequently changed.

Mrs. Knight

The hon. Gentleman knows full well that we have tightened up the regulations, and rightly so. He also knows full well that a considerable number of pensions have been sold, and the circumstances in which they were sold were good, and the consequences for the individuals who bought them have been good.

We are today talking about a small minority. A considerable number of people were sold pensions that were fine and a considerable number of people have made prudent provision, and will receive its benefit under the regulations that were in place at the time. One must, if necessary, tighten up the existing regulations, and we have done so. But one must also put the problem in perspective, which is what my predecessor did in his statement to the House on 25 October. The clause takes the issue forward from that statement.

Mr. Dennis Skinner (Bolsover)

Is not the truth of the matter that the Minister is saying that the Government made a mistake, the regulations were deficient, the Government did not know, and now, today, they are putting that right? People did not make a mistake on their own account—the regulations were there and people made their investments.

Now the taxpayer is going to bail them out, and that could be called a subsidy. The Government are involved in a subsidy because of a deficiency in their regulations. I want to know how many people are involved, and how much in total the taxpayers out there in the hon. Lady's constituency and mine will have to find to foot the bill for that mistake by the Government.

Mrs. Knight

The Committee will not be surprised to learn that I do not agree with the construction that the hon. Gentleman has put on the issue. However, I am sure that he. will agree—I look forward to hearing his confirmation—that those people who are affected, who have retired and who therefore cannot be helped by the restitution to an occupational pension or a top-up to a personal pension—should be compensated, and should not have to pay tax on that compensation. I am sure that people in the hon. Gentleman's constituency who find themselves in that position will welcome the fact that the Government have decided not to tax their compensation.

I am not able now to give the hon. Member for Bolsover (Mr. Skinner) the total numbers involved, nor am I prepared to speculate. We will all have the numbers when the review is complete.

It is clear from the review so far that the majority of cases are people who either transferred out of or opted out of pensions, and that redress for those people will be achieved by restoring them to the occupational pension or by topping up their existing personal pensions. That is a different issue, but the majority will come into that category. However, a few will have retired, so cash compensation will be the only help available to them.

If I might proceed, that would be of real help to the Committee.

Mr. Darling

May I help the hon. Lady out again? The figure that she is grasping for is 400,000.

Mrs. Knight

indicated dissent.

Mr. Darling

It is. The Personal Investment Authority, which has taken the lead in investigating the matter, believes that 400,000 pensions were wrongly sold. On that basis, surely the Government must have some estimate as to the cost of the measure.

Mrs. Knight

The hon. Gentleman should be careful about bandying numbers around. Until the review is complete, there is no way in which accurate numbers can be given. That is the reason why I do not propose to do so. No doubt the hon. Gentleman will have read press reports in which the numbers were much lower, but I cannot confirm, deny or comment on them. It would be better for the Committee to deal with the problem before us, rather than to speculate on numbers which may not be even reasonably accurate, because, until the review is complete, we will not know.

Mr. Campbell-Savours

rose—

Mr. Clive Betts (Sheffield, Attercliffe)

rose—

Mrs. Knight

I will give way.

The Chairman of Ways and Means (Mr. Michael Morris)

Order. To which hon. Member is the hon. Lady giving way?

Mr. Betts

I think that the hon. Lady has given way to me.

The Chairman

Order. I would be grateful if the hon. Lady would indicate to which of the two hon. Members she has given way.

Mrs. Knight

I apologise, Mr. Morris. I gave way to the hon. Member for Sheffield, Attercliffe (Mr. Betts).

Mr. Betts

The Minister said that she cannot speculate about the figures. Given that the Government are talking—rightly—about compensation and tax relief on that compensation, presumably they have made contingency plans in their estimates for future expenditure and future reduction of income. Surely the Minister can explain to the House precisely how much those contingency plans will cost, as they must be based on the numbers of people involved.

Mrs. Knight

The problem relates to industry mis-selling to individuals; therefore, financial redress and the payment of compensation to individuals are matters for the industry. The Government propose not to charge tax on compensation when it is paid in cash to individuals. We expect the number of people involved to be relatively small, but until the review has been finished, we cannot speculate on numbers.

It does not make sense to pull numbers out of a hat or to try to make estimates when we do not have the facts available. That is why the Government are waiting for the review to be completed. We are urging the regulators involved to complete the review as quickly as possible. As the hon. Member for Attercliffe will know, we had hoped that the review would be completed by now, but the principal delays have been caused by legal cases. That is unfortunate, but we must live with it. Those cases have now concluded, and the review is continuing apace.

4.15 pm

Mr. Campbell-Savours

Will the Minister confirm that we could be talking about many millions of pounds of taxpayers' money which must be used to bail out those people who are in difficulty as a result of Government negligence in the past?

Mrs. Knight

It is not negligence, and I ask the hon. Gentleman not to use that term. The Government have not been negligent, but there has been mis-selling by the industry; that is where the responsibility lies.

The levels of compensation and the total bill will be revealed in due course, once the specifics are known. The vast majority of compensation payments will be borne by the industry. The Government will be involved in only a very small area, in the sense that tax may become an issue in a small number of cases. The clause ensures that the tax problem will not be borne by the individual concerned, but that it will be resolved by ensuring that there is no tax payable at that time. I repeat that it is one small circumstance; it is not the case with the majority of the money that will be involved in paying compensation in various forms.

I must make some progress, although I suspect that many of the points that I intended to make have been covered in the discussion. The Securities and Investments Board and self-regulatory organisation programmes—which have been worked up in order to set in train the process of determining who has and who has not been mis-sold a pension—are under way. The SIB released a detailed statement on 16 January, in which it revealed the stage that the review has reached. Those who have mis-sold personal pensions are beginning to put the matter right.

However, we should not kid ourselves: it is a mammoth exercise. Many of the large life companies have written tens, if not hundreds, of thousands of letters to their clients. Once returned, the questionnaires that they have sent must be analysed. We are now beginning to see the first fruits of the process, as payments are starting to be made. Conducting the review is a big task, but it is worth while.

It is worth it because people have the right to expect the investment advice they take to be in their best interests. When it is not and they lose, they expect that things will be put right. Personal pensions are a very good thing. They offer people flexibility in planning for the future, and it is in the interests of everyone—individuals and the industry—that confidence is restored.

Many firms have been actively engaged in taking the review forward, but the pattern is not uniform. A few of the firms concerned have not applied themselves to the task with the vigour that might be expected. Legal actions have also been brought, which have slowed the review, and, as a consequence, progress has not been as fast as we had hoped. However, those who have put obstacles in the way have only delayed the review. It is now on course, and I assure the House that it will be taken forward with vigour and will be carried through to a positive conclusion.

Let no one underestimate the task at hand, but let no one get it out of proportion. All those involved in the industry are particularly keen to identify those who have been the victims of mis-selling, and to resolve the matter satisfactorily.

Mr. Campbell-Savours

I am a little worried about some of the debts that a Labour Government—elected probably in April or May next year—will inherit. Will the Minister clarify something for me? Is it possible that a Labour Government might inherit a liability which our taxpayers will have to pay—a liability incurred as a result of negligence by the Conservative Government?

Mrs. Knight

The hon. Gentleman should not bank on there being a Labour Government next year. The biggest liability that he will inherit is the social chapter, which is proposed by his colleagues, and its consequences on unemployment in this country. On the mis-selling of pensions, the problem will be there next year, and indeed the year after, but it is a problem that is being solved well.

I now return to the clause itself, which is particularly designed to resolve the issue that we have discussed—instances in which compensation may result in tax. The Government are anxious to do all they can to speed up the compensation process. It is not just the clause that will help people. As I announced on 21 November, on advice from the Government Actuary, the Government have reduced the charges for reinstating the pension entitlement of current public service employees.

Mr. Betts

The Minister said that the Government were doing all they can to speed up the process. Perhaps she can name one or two concrete measures that the Government are taking, because many constituents feel that nothing much is happening. They were sold the wrong pensions and are not being compensated—certainly not at any discernible speed.

Mrs. Knight

Perhaps the hon. Gentleman was not listening. I have just named two measures: first, the change that will make it much easier for members of Government pension schemes to get back into pension schemes, as a consequence of the assessment from the Government Actuary; and, secondly, the clause, because it addresses the potential tax issue. These measures have received an immense welcome from the industry as being useful and good to facilitate the pension mis-selling problem.

We also endorse the SIB recommendation that redress should, if possible, take the form of reinstatement in the original occupational pension scheme. Under existing legislation, compensation for the type of mis-selling covered by the SIB review could, depending on the form in which it is paid, be liable to income tax or capital gains tax. The clause covers both eventualities.

The payment of compensation for mis-selling is still in its early stages, and we believe that it is in the interests of all concerned for there to be certainty on the tax treatment of the compensation payments. That is why we have introduced the clause. I commend it to the Committee.

Mr. Darling

I have been a Member of the House only since 1987, but I have always understood that it is one of the great traditions in Committee that the Minister says why a clause should stand part of the Bill. I found it quite astonishing that the Minister said that she had no idea how the problem arose or how many people might be involved, yet that it might be a mammoth task. She said that no one should underestimate the task involved, but went on to say that no one should overestimate it either. She could not tell us how many people would possibly be affected. She had no idea how much it will cost. She had very little to say in terms of what the Government are doing to try to resolve the problem.

As my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) rightly suspected, the Government are not doing very much, and one reason for that is that it was they who created the climate that encouraged some unscrupulous people ruthlessly to exploit the vulnerability of many people who had recently been made redundant or were in occupational schemes, who were wrongly persuaded to come out of those schemes and to go into private pensions that were wholly inappropriate for them.

The Minister is coy, either because she genuinely has no idea why the clause has come about and she has simply been good enough to read us a Treasury brief in order to justify the clause; or possibly because she knows full well that the Government have to accept a major responsibility for creating the sort of environment in which it was possible for so many people to be sold policies in a wholly inappropriate manner.

Perhaps I should move that the clause stand part of the Bill, because I agree with its principle. We want to see people reinstated or compensated, as the case may be. Clearly it would be wrong if innocent people then found themselves subject to income tax because of the compensation or the reinstatement that they had been given by those who had wronged them. Therefore, I welcome the clause and believe that it should stand part of the Bill. But in view of the Minister's remarks, it is necessary to push her a little further.

The Opposition have raised the matter many times in the House. It remains one of the scandals of the late 1980s that up to 500,000 people were wrongly sold policies between 1988 and the early 1990s. It is easy to say that that was all the work of one or two unscrupulous or greedy salesmen, but it was not just those individuals.

Senior management knew full well, for example, that many former miners living in constituencies such as Bolsover were not only disillusioned with their employer but were persuaded that the Coal Board pension fund and the National Coal Board were one and the same thing. It was suggested to them that they might like to get out of their pension fund and go into a private pension.

The fundamental point about occupational pensions is that two people contribute to them. As a general rule, two people contributing to a pension fund is rather better than one, which is the case in a private pension. Private pensions are appropriate for many people—I had a private pension myself in my former employment—but they are wholly inappropriate for a large number of people, and they were inappropriate for about 500,000 people who were wrongly persuaded to transfer their funds into a private pension in the late 1980s.

Mr. Skinner

My hon. Friend referred to the fact that many miners were involved at that time in what I would call the scar's of pension schemes. It was around the period when the present Prime Minister was a junior Treasury Minister. On occasions such as this, when the Government created the climate for such spivs, someone should carry the can.

That is probably one reason why the Economic Secretary is being coy about the background to the clause. She will never give us the figures. The Government gave us a figure of £21 billion for the public sector borrowing requirement, but within 12 months it had gone up to £29 billion. The Government, who created the climate in which such spivs operated, should carry the can for the resulting mess.

Mr. Darling

My hon. Friend will wait in vain. The last time we debated the matter, the Secretary of State for Social Security was present. He too knew something about it, as he was a junior Minister in the Department of Social Security when the problem first arose. Curiously, he did not want to discuss the subject. He preferred to concentrate on other matters.

All Opposition Members remember the advertisement showing a man breaking out of a straitjacket and going to get a private pension. What was so insidious about that was that it encouraged people to believe that the very act of going private was enriching, both spiritually and materially. That was not right, and many people lost money as a result.

As I understand it—the Chief Secretary may be able to obtain assistance from nearby—about 9 million pensions were sold during the period in question, about 500,000 of which may be suspect. The clause refers to the qualifying period as being between 29 April 1988 and 30 June 1994. It would be helpful if the Chief Secretary could let us know why those dates have been selected, how she can be confident that it will catch all those affected, and that there will not be people who might have been mis-sold pensions before the end of April 1988?

It is less likely that the same problem will have arisen after 1994, because—the Minister did not seem to know this—it is common ground that the regulations in force that governed the sale of pensions in the late 1980s were quite different from the regime now in force. They have been tightened up. I am surprised that the hon. Lady did not know that.

The Minister's predecessor knew his stuff. He was well briefed, and could answer such questions. We had differences of opinion about how the situation arose and what could be done to improve it, but the rules and regulations have been changed. I think that the likelihood of problems of mis-selling arising after 1994 is rather less than it was before April 1988.

People should be encouraged to use the financial services industry. More and more people will want to make provision for themselves over and above the provision that they can expect from the state. If they are to do that, however, they will need a regulatory system in which they can have complete confidence. We have proposed measures to make the system simpler and more effective, but the Minister should realise that the root cause of the problem—the reason why the clause must stand part of the Bill—is the climate created by the Government.

4.30 pm

The self-regulatory system is now wholly discredited, and regarded as one of the main reasons for the unscrupulous behaviour that we are discussing. All the problems were produced by the Government's policy. In this as in so many other contexts, they have always been more bothered about the few who stood to gain from the selling than about the many victims who suffered at their hands. No wonder the Minister is so coy about the nature of the problem.

The need for decent advice has never been greater. We should acknowledge the importance of the work done by both the Securities and Investments Board, under Sir Andrew Large, and the Personal Investment Authority, the lead regulator. When I asked the Minister about the numbers involved and the progress being made, she said that it was all wild speculation. She must be aware—such matters are hardly secret—that I often speak to both Sir Andrew Large and Colette Bowe of the PIA, and I take the trouble to try to find out about the current position.

The Minister, however, does not seem to know that. I should have thought that, between them, those at the Treasury could rustle up a meeting or make a telephone call to find out the position. The Minister may have seen the SIB review, which has been circulated to me and, I assume, to those at the Treasury. It has thrown some light on the difficulties.

Most of the life companies—the producers—have got on with the review, and are making quite fast progress. They expect to know what the problem is by the end of the year, and have probably started to compensate some people. Those who were sold policies by the independent financial adviser sector, however, may not be in the same position.

There are two distinct difficulties. First, some independent financial advisers simply do not have the resources to carry out the sort of investigation that is now required of them. Clearly, if a small enterprise is involved, someone who is examining files relating to the past six or seven years cannot be earning, and therefore will not be generating fees and commission to pay staff. I understand that problem, but there is another.

Some of the independent financial advisers' professional indemnity insurers have tried to block the review. There are legal reasons why they might have wanted to test the matter, but their actions were wholly undesirable for the industry's reputation. The Minister mentioned delays in the courts, and they can be blamed to some extent, but much of the problem has been caused by the wilful obstruction of the review.

Another reason for the slow progress is the fact that the self-regulators cannot compel the professional indemnity insurers to get on with the review. They must rely on contracts, and if there are no contracts in the self-regulation system, they are left helpless.

That problem could be remedied. If we are not to see similar clauses in future Finance Bills, the Minister must accept that she has primary responsibility for the matter, and that the present system of self-regulation does not work. As most people outside the industry realise, it has been a complete failure. It is high time that the Government faced up to that. If they do not want a repetition of the present problem, they must accept that self-regulation is ineffective, and—what is worse—is denting the confidence of members of the public whom we want to use the industry. The industry employs 2.5 million people, and many towns and cities depend on it for employment. Self-regulation is not helping the industry, and it is not helping the public.

The Securities and Investments Board review identifies another problem. Paragraph 10 makes the point that there is an element of self-selection amongst investors who respond. There is every reason to believe that, either because of delay or because of lack of knowledge among those who may have been finis-sold pensions, they will not submit their claims before they are legally time-barred. What will the Government do about that? What steps will they take?

It would be most unfortunate if, at the end of this year, when the time bar will start to bite, people have been excluded over and above those who are excluded by the clause because it affects only policies sold after the end of April 1988. Some people, however, may find that they are time-barred, and the clause cannot help them at all.

The Minister must tell us what she will do about that. She was keen to tell my hon. Friend the Member for Attercliffe that the Government were doing lots of helpful things, and that he had no cause to worry. That is one thing that the Government will have to deal with. Clearly, to amend the general law relating to prescriptions would be to take a sledgehammer to the problem—that is not appropriate—but I am just wondering whether the Government could do something in this case.

Perhaps by the time my hon. Friends have finished speaking in the debate, the Minister will have enlisted some help and be able to assist us on that important point.

Mr. Denis MacShane (Rotherham)

Is my hon. Friend aware that the Government spent about £10 billion on advertising to encourage people to withdraw from the state earnings-related pension scheme and to go into personal pension schemes? Some tiny proportion of that money might be usefully spent in the form of newspaper advertisements, first, to apologise for the negligence caused—if the Government are capable of saying sorry—and, secondly, to draw the attention of everyone concerned to the need to apply now to ensure that their claims in terms of tax relief and other applications are not made too late, and do not fall out of compliance with the final date.

Mr. Darling

My hon. Friend is on to an interesting point. He is right to say that about £10 billion was spent on advertising. It is interesting that the advertising not only encouraged people to go into private pensions, but, surprisingly, invited those seeing or reading it to believe that it all had something to do with the Conservative party. Curiously, it does not want to have any more advertisements.

My hon. Friend makes an important point, although I might differ from him in one respect. He suggests that the Government should place advertisements saying that they are sorry. I can see a compelling reason for the Conservative party placing advertisements saying that it was sorry about that. It could take a double-page spread and add a few other things besides, but, as the Government never tire of telling us—and I agree—the Government do not have any money of their own: it is taxpayers' money.

The difficulty here is not only that the taxpayer paid for the advertisements to encourage people to get into the difficulty, but that they have to pick up the pieces at the other end. The people who buy policies are having to pick up the pieces because of the compensation and all the other costs. There has been cost after cost after cost—all imposed because the Government tried to sell their dogma, and, as I said, acted in the interests of the few, as a result of which many people have suffered.

The Government have rightly tabled this clause to deal with the people who opted out of occupational pensions, but we have not begun to consider in great detail another category of people: those who were wrongly persuaded to opt out of SERPS. No one knows—I am prepared to concede on this point that I do not know either—how many people might have opted out of SERPS. I fear that many people may wrongly have been persuaded to opt out of it.

My question is simple: what will the Government do about that? Will there be a similar clause in next year's Finance Bill to deal with that problem? Perhaps, as the Minister will be dealing with that point, she will also tell us what the Government are doing about it and what inquiries they have put in hand. I know that the regulators have taken the view that they have to solve the problems in relation to occupational pensions first, and then turn to the SERPS problem.

What we have here is a cleaning-up exercise. We are cleaning up after a mess that was caused, to a large extent, by the actions of the Conservative Government in the late 1980s, and in respect of which they will not accept responsibility. Yes, there were others who were culpable. Many of them have left the industry. Others have been fined and punished. We will support the clause because we want to ensure that the people who lost money through no fault of their own are restored to the position they were in before this disaster struck them—so far as that is possible. That is only right.

The Government should do two things. First, they should accept responsibility for what they have done—something this Government have been very poor at doing. Secondly, they should take action to ensure that such a disaster does not happen again, which means—I state it once again—that they have will have to do something to simplify the regulatory system and to make it more effective. The Government will also have to investigate other spheres—such as SERPS—in which, I fear, there may be another problem that will force us to return to this matter next year.

Mr. Betts

As my hon. Friend the Member for Edinburgh, Central (Mr. Darling) just said, Labour Members welcome the clause, although we do not welcome its background or the reasons that have made it necessary. It is incredible that we have a major national scandal that is not merely a general problem but a problem for all those individuals who have suffered a great deal. They initially suffered a potential loss of their pensions, but, even now that they recognise that there may be some light at the end of a long tunnel and that the problem may eventually be sorted out with a bit of further relief provided by the clause, they have still undergone the agony of uncertainty, and the matter has still not been finalised. That lack of progress concerns Labour Members, and it is a pity that the Minister did not show the same concern when she spoke to the clause.

It is incredible that the Government blame the private sector and unscrupulous private individuals for creating the problem, while, at the same time, taking no responsibility at all for their legislation, which allowed private individuals to behave in such a manner. That is the reality. Why will the Minister not admit that and say, "The Government got it wrong. Yes, we were responsible for bad legislation and we apologise for the heartache and problems that we have created"? The legislation was wrong and, as my hon. Friend the Member for Edinburgh, Central has pointed out, the regulatory regime was totally inadequate because it was self-regulatory.

Self-regulation was of course a product of the deregulation mania of the 1980s and the Government's attempt to create the spectre of the nanny state—from which they were saving people. Whenever problems about the recession are mentioned, Conservative Members happily get to their feet and say, "It was not our fault, not as individuals. It was all the fault of Lord Lawson, in his role as Chancellor of the Exchequer. He created the boom, and he was responsible for the recession." Why do not they do the same thing with this issue? They could speak to this clause and say, "We have reached the position where we have to introduce this clause, but the problems are from way back in the 1980s. Lord Lawson, who was then the Chancellor of the Exchequer, was to blame for the scenario and for all the problems that have occurred, but we have since moved on."

Conservative Members cannot do that, however, because so many Government Members are completely and utterly tied up in this mess. When those measures were introduced, the right hon. Member for Sutton Coldfield (Sir N. Fowler), advocated the proposals and launched the advertising campaign, about which we have already heard, to persuade people to take up personal pensions. We all know that his assistant and junior social security Minister at that time was the Prime Minister.

The Prime Minister had the hands-on responsibility for creating this disaster, and it took him a long time to do it. In 1990, when the Prime Minister was the Chancellor of the Exchequer, he told the House during the Budget statement: This extension of choice is a considerable tribute to my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler). Over 3.5 million people have now taken out personal pensions. As well as benefiting the individuals concerned, in the long term this will reduce public spending".—[Official Report, 20 March 1990; Vol. 169, c. 1017.] That statement is a sick joke. That was the Chancellor of the Exchequer, now the Prime Minister, telling the House in 1990 that personal pensions were a great bonus for all those people who had taken them out. He had not a shadow of a doubt that it may have gone wrong. He spoke about a reduction in public spending, when we now know from this clause that there will be a cost, not only from the initial advertising campaign but to rectify the problems that the campaign created. It is time for the Government to admit that they and the private sector are responsible for those problems.

The Economic Secretary to the Treasury will not come clean and spell out the precise scale of the problem. My hon. Friend the Member for Edinburgh, Central has said that the PIA has estimated that 400,000 pensions have been wrongly sold in some manner. At the beginning of the investigation the Securities and Investments Board discovered that there was substantial compliance with the main conduct of business rules in only 9 per cent. of the files examined, based on the initial pensions transfer pilot studies. That does not mean that 91 per cent. were completely mis-sold, but that 91 per cent. were not conducted in a totally proper way. That is an enormous scandal because that was how things worked within the self-regulatory climate that the Government proposed.

4.45 pm

The Economic Secretary to the Treasury said that the Government still cannot discover, after all this time, how many people are involved, how many pensions were sold or how much it will cost in total in compensation. If the Government do not know, how do journalists manage to obtain figures? The Financial Times, on 17 January, was able to obtain such figures. Pension companies give journalists estimates of the compensation levels that they expect to pay out. Journalists can apparently pick up a telephone and obtain figures from Allied Dunbar of £100 million; Lloyds Abbey Life, £80 million; and Barclays Life, nearly £50 million. They can get figures from a substantial number of the pension companies. Some of the pension funds would not respond to the questions, but presumably they would have responded had the Government bothered to find out for themselves the scale of the problem. Instead, they sit back and say that they do not know and are not interested in discovering what has happened.

On 20 January, Weekend Money, a supplement of The Times, contained estimates and figures from Pearl Insurance, which admitted that it thought there would be about 40,000 opt-out cases. It said that it had sent out 300,000 letters. Companies have that information and are making their estimates. Why cannot the Government collect that information and come to an overview of the problem? The Minister has denied being able to do that.

In the end, as my hon. Friend the Member for Edinburgh, Central said, it is down to ensuring that the scandal does not happen again. Surely that would be simple to do. When we are examining a regulation, we must think of its purpose. First, regulation is meant to stop problems occurring and to ensure that things are done properly. On that first test, the self-regulation of the selling of personal pensions that the Government had in place has been an absolute failure. It is time for the Government to accept that and put in place statutory regulations.

The Government do not want to do that and choose to ignore the problem. In this case, however, they must admit that this is not a theoretical argument but a clear case with evidence that self-regulation has been an absolute failure. Secondly, presumably, recognising that whatever system of regulation one has in place things will go wrong and some people will not abide by the regulations, the purpose of regulations and a regulatory system is to be able to identify when the things go wrong. In this case, it was not the SIB or the self-regulatory organisations that discovered the problem. The SRAs were oblivious to the problem even though in 91 per cent. of cases people were not being advised properly and in 400,000 cases pensions were mis-sold. That is a scandal. So the second function of regulations failed. The Government have to accept the need for change.

The third reason for regulations is to ensure that, having identified a problem, there is a speedy resolution. No one would accept that the current regulatory system provides for a speedy resolution. Certain pension companies have said that they could not send out the letters and questionnaires quickly enough because they did not get advice from the SIB quickly enough.

I do not really want to go over the details of a financial scandal for which the Government were responsible. I am making a serious request that the Government accept that the regulatory regime failed on three counts: first, it did not stop the problem happening; secondly, it did not identify it when it had happened—indeed, it seemed oblivious to the problem; and, thirdly, it did not correct the problem speedily. Is not it time that the Government accepted that they got it wrong and joined us to find a proper statutory system of regulation that will stop such scandals occurring again?

Mr. MacShane

I have listened to the debate with some interest. I am waiting for the word "sorry" to pass the Minister's lips. After all, she is proposing to put aside an immense amount of new money—money that would otherwise be in the public coffers—to rectify the mistakes of her predecessors. We do not blame the hon. Lady because she was not in the House when the scheme was introduced. She has to come here with a giant dustpan and brush. In Paris and Orlando, the younger and more dynamic members of the Disneyworld team, wearing bright blue uniforms, walk behind the elephants with giant dustpans and brushes, trying to clear up the mess. The Minister is clearing up the droppings from the elephantine figure of Lord Lawson, so perhaps she feels she does not have to say "sorry".

The scandal has affected many of our constituents. The Government say that no figures are available, but last year Hansard reported a figure of 500,000 and the Personal Investment Authority has cited a figure of 400,000. A large amount of public money is involved and it is irresponsible of the Government not to tell the House the precise sum.

Pension companies have accepted responsibility for the mistakes. Norwich Union, Legal and General and Barclays have fired people and shaken up their systems. We may all feel that it is a little late for that, but at least they have accepted a direct responsibility and have dismissed their incompetent staff. I invite the Minister to accept some retrospective responsibility. It would not hurt her career if the word "sorry" passed her lips.

This is one of the great scandals of the last decade. As long ago as 1991—before the Minister came to the House, so it is not her direct responsibility—the SIB published a report showing that one third of all personal pensions taken out were terminated within two years. Either an awful lot of pensions were sold to 58 or 63-year-olds or it was one of the biggest financial scandals of the century. The SIB reported losses to individuals running at £250 million a year, mainly from up-front commission charges and the front-loading of monthly premiums. The money disappeared into the pockets of people whom the pension companies later had to dismiss. That is a Maxwell every year, inflicted by this Conservative Government on those who were conned into taking out personal pensions. It is all part of the wider question of how the Government relate to citizens on the question of pensions.

I welcome the forceful speech of my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts). He correctly identified the need for regulation. To place an adjective before "regulation"—for example, self, state, independent, autonomous or agency—would be a misnomer. We are talking about people's investments to provide for their old age, so the principle of caveat emptor is not good enough. We need a flexible and friendly system; it must not be onerous or devised exclusively by civil servants. We need to move away from caveat emptor and allow people to have a direct stake in their pension schemes, in the knowledge that that stake will be safe from corruption.

I feel affection and respect for the Minister. She was the minder for my opponent in the by-election that I won—and she minded him to losing his deposit with considerable charm. However, I would rather take advice from Cilla Black on a blind date than from the hon. Lady on any aspect of pension provision. I chide my children every day to teach them the magic puissance and power of the word "sorry". I use a French word because my hon. Friend the Member for Bolsover (Mr. Skinner) ranted at me yesterday in Latin.

I hope that the Minister learns to allow the magic word "sorry" to pass her lips. Many of her hon. Friends have condemned the feckless, profligate, spiv regime of the former editor of The Spectator, who was Chancellor of the Exchequer during a sad period for this country. It has done no harm to their careers. The Minister should feel able to rise and say "sorry" to those who were misled. She must not praise but bury the era of Lord Lawson. The House would welcome that and those who were misled into taking out personal pensions would feel that they had a friend in the Treasury.

Mrs. Angela Knight

The hon. Member for Rotherham (Mr. MacShane)—better known as the hon. Member for Geneva—is, as always, extremely entertaining. This is an important matter and I am glad that hon. Members are treating it seriously.

I am aware that it is part of Labour party policy to impose wholesale change on the financial regulatory system, but it is not something with which I agree or with which most of the industry agrees. It is important that we deal with the issues of today. If the hon. Member for Edinburgh, Central (Mr. Darling) talks to the industry with an open mind, rather than having already made up his mind on his policy, he will also hear that the industry does not want wholesale change of the financial regulatory system. The industry is looking for stability.

Mr. Darling

The Minister is right that the industry does not want wholesale change—nobody is suggesting that—but it does want significant changes in the various areas that I have identified. If she stays in her job for much longer and takes the trouble to speak to people, the Minister will find a growing consensus as to what form that change might take, and Labour is articulating that.

Mrs. Knight

I am sorry to disappoint the hon. Gentleman, but I have found that there is considerable concern within the financial services industry at the hon. Gentleman's proposals, which are considered to be a wholesale change.

A number of important points have been made in the debate, and I propose to reply to them. On the numbers involved, there are about 9 million personal pensions overall. Some 2 million of these relate to transfers and opt-outs, of which possibly 400,000 are in the criteria of "those to be looked at". There will be no knowing how many of those 400,000 have been mis-sold until the review is complete. I say yet again to Opposition Members that we do not know the specific figures—all we know is that people are covered by certain criteria. That does not mean that they have been mis-sold a pension.

5 pm

The date that pertains to the clause and to the review as a start point is 29 April 1988, which is when the Financial Services Act was introduced. The hon. Member for Bolsover (Mr. Skinner) made a point regarding mine workers. I can tell him that the mine workers' pension scheme is allowing victims of mis-selling to be reinstated, and miners will be put back to the financial position they would have been in had mis-selling not occurred. A number of former members of the scheme have already been reinstated. I hope that the hon. Gentleman finds at least some comfort in that fact.

The situation regarding the IFAs—the independent financial advisers—is more complicated than we have perhaps seen with life offices. The reason for that, as the hon. Member for Edinburgh, Central (Mr. Darling) outlined, is that there have been court cases relating to questions on professional indemnity insurance. Where the PIA wanted one thing and the professional indemnity insurers wanted another, the IFAs felt that they were unable to proceed with the review. That matter has now been resolved, and I welcome the agreement between the PIA and the professional indemnity insurers to enable progress to be made, as the review of personal pension transfers and opt-outs involving IFAs can now be taken forward.

The agreement clears the way for IFAs to complete a review of their casebooks and to provide redress where it is due. There is concern about the ability of small IFAs to carry out the review as it is required. Large product providers have paid for the development of computer software to enable IFAs to carry out the detailed calculations required in the review. This will be of considerable benefit to IFAs and has the added benefit of helping to ensure that the calculations are correct and compliant.

The hon. Member for Sheffield, Attercliffe (Mr. Betts) mentioned an advertising campaign. Wide coverage has been given to the Securities and Investments Board's progress reports, and similar wide coverage has been given to the matter since it started. A large amount of coverage has been given to the reviews, the progress report and the issue as a whole in the past few days. In addition, the SIB has made widely available detailed fact-sheets on the review, the PIA has set up a dedicated pensions unit and a helpline and a large number of questionnaires have been sent out. Therefore, we do not think that an advertising campaign going any further than the publicity that is currently taking place is required.

Questions have been asked about SERPS. As promised at the time of the October 1994 statement, the SIB has been working with the Department of Social Security and consultants to establish whether there has been a significant degree of mis-selling of personal pensions to people who otherwise would have remained in SERPS. Again, this is a complex task that requires a detailed analysis of a specially determined sample of a DSS database. It has taken longer than initially expected, but I am glad to say that the SIB should be in a position to make a statement within the next couple of months.

I must ask the hon. Member for Edinburgh, Central to wait for the SIB's statement to see the full results, but I can say with some confidence that the scale of the problem—if there is one—is a great deal less serious than in the area of transfers and opt-out cases. We will consider with the SIB what needs to be done once the findings of the review are known.

The point was raised about the cost of the tax exemption proposed by the clause. The "Financial Statement and Budget Report" published on Budget day suggested that this measure will have a "negligible effect" on revenue. The Committee will be aware that the continuing uncertainty about the price or the approximate number of cases of mis-selling mean that we are not able to provide precise figures. At a time when compensation payments are only just beginning to be made, it is not possible to give a more accurate estimate of numbers than that which I have given.

I conclude by referring to an article in the Evening Standard, which stated that there are two morals to he learned from mis-selling. The first was that if a person was sold a personal pension and had the slightest suspicion that mis-selling had occurred, he should start kicking up a fuss. The second moral was that anyone mis-sold a pension should not let that put them off purchasing a personal pension. These are points with which I, and I am sure most hon. Members, entirely agree. I hope that the Committee will agree with and commend the clause.

Question put and agreed to.

Clause 139 ordered to stand part of the Bill.