HC Deb 31 October 2001 vol 373 cc976-84

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Heppell.]

10 pm

Mr. Christopher Chope (Christchurch)

In this short debate, I wish to concentrate most of my remarks on one example of maladministration in the civil service: the Government's regulation of Equitable Life. I want to comment on the welcome decision of the parliamentary ombudsman to begin his investigation and I also wish to address issues of financial compensation.

When I first wrote to you on 17 October, Mr. Speaker, seeking this debate, it was immediately after publication of the Financial Services Authority report on the review of the Equitable Life Assurance Society from 1 January 1999 to 8 December 2000. That report disclosed clear prima facie evidence of maladministration by the regulator. I intended to use this debate to examine the decision that the ombudsman had communicated to all MPs in September, which was that he did not intend to investigate until after publication of the Penrose inquiry. Fortunately, that is no longer necessary following the ombudsman's announcement on Monday evening.

It is worrying that the ombudsman seems to have been given the impression by the Government when they announced the establishment of the Penrose inquiry in August that they were not going to publish the FSA report until after Penrose had reported in the second half of 2002. However, I do not blame the ombudsman, because I suspect that he was the victim of Government spin and that the Government intended not to publish the FSA report until after Penrose but then had to change tack in the light of pressure from the Opposition, the engineering union and other union interests to which they sometimes listen.

I am delighted that the parliamentary ombudsman reconsidered his position when the FSA report was published and that he has now announced the terms of his independent inquiry, which are set out in his letter of 29 October to all MPs. The ombudsman's announcement came shortly before the Economic Secretary to the Treasury gave evidence to the Select Committee on the Treasury. Naturally, the members of that Committee pressed her on the issue of redress for policyholders. After considerable prevarication—I quote not the official record, which is not yet available, but today's press—the Minister eventually said: If the Ombudsman reports that an injustice has been carried out to policy holders, then of course it is something we will look at. Today's newspaper headlines went much further: "Treasury boosts hopes for Equitable payout", said The Guardian; "Treasury may help victims of Equitable", said the Daily Mail; and "Minister to consider redress for policy holders", said the Financial Times.

The Financial Secretary's statement to the Committee was a very welcome advance on the answer that she gave to the hon. Member for Brent, North (Mr. Gardiner) on 15 October. He had asked whether the Government would establish a scheme to compensate policyholders of Equitable Life for losses sustained by them as a result of regulatory failure. The Minister replied: We have no plans to do so."—[Official Report. 15 October 2001; Vol. 372, c. 850W.] However, she did not offer policyholders anything yesterday that went beyond that which she is required to do under the Treasury's own rules on financial compensation for redress where it is recommended by the parliamentary ombudsman.

I shall quote some of the key paragraphs of the rules set out in the Treasury's own document, "Government Accounting 2000", at chapter 18, which is entitled "Losses and Special Payments". Paragraph 18.7.4 states: The question of whether financial redress should he paid may arise (a) as a result of a recommendation by the Parliamentary Ombudsman following investigation of a complaint referred by a Member of Parliament". Paragraph 18.7.5 states: If the Department concerned accepts that maladministration has occurred and that financial redress is appropriate, the general principle should be to provide redress which is fair and reasonable in the light of all the facts and circumstances of the case". Paragraph 18.7.24 states: Claims for compensation may arise on grounds other than actual financial loss or costs. These include the following … (d) Compensation for the loss of a physical or financial asset, or a reduction in its value: an example might be where it is claimed that the department had failed to carry out a regulatory function properly or that its action or inaction had resulted in the creation of a false market. Obviously, that is the paragraph under which the policyholders who will be seeking redress for maladministration will be looking.

Paragraph 18.7.27 states: Claims arising under 18.7.24d are likely to be particularly contentious and the amounts speculative. Such cases are therefore particularly difficult, potentially very repercussive and should be approached with particular care. If financial redress is felt to be justified, the approach might be a payment in general recognition of the detriment suffered as a result of official failure rather than to put the complainant into the position it is argued he or she might have been if the official failure had not occurred. Such a position is inevitably highly uncertain. The paragraphs that I have quoted should ring alarm bells among policyholders who may have had their hopes raised by some of the headlines in today's papers. I hope that the Minister will be able to state clearly and unequivocally that if the independent parliamentary ombudsman recommends financial redress, the Treasury will pay up. Otherwise, people will rightly think that the compensation regime for maladministration is grossly asymmetrical with the penalty regimes operated by the Treasury and by the Financial Services Authority.

As ever, the Treasury is quick to take but slow to give. By way of an example, this week we have seen reports that the FSA has imposed fines on Prudential amounting to £650,000. That money is to be taken from the with-profits fund of Prudential and will go straight to the Treasury. It is extraordinary that the burden is being borne by the with-profits fund of Prudential rather than by the shareholders, but that is a separate issue. That £650,000 will go straight to the Treasury as a penalty.

Every day, individual taxpayers and VAT-registered businesses pay fines and penalties imposed by the revenue-collecting arms of the Treasury. Surely the least the Treasury can do is to accept that where its own maladministration leads to loss, those losses should be met in full.

Another example of asymmetry came out before the Select Committee on the Treasury. The Economic Secretary, when asked a series of questions about what the Treasury had been doing in relation to Equitable Life in 1998, said that all the papers relating to that period had been passed on to the Financial Services Authority as part of the service level agreement, and that she did not have the information to enable her to give an answer. Mr. Speaker, you and I know that we are required by the Inland Revenue to keep our tax records going back seven years. It is a pity that those same rules do not seem to apply to the Treasury itself, so that when the Economic Secretary is asked questions, she has the resources to enable her to answer them.

The next aspect on which I hope the Minister can help is the time scale for the investigation by the parliamentary ombudsman. We are told that the average time that it takes to carry out an investigation is 43 weeks. That is for an average case. In the case of Equitable Life—where the issues are complex and the potential compensation very significant—the time scale could be far longer. The parliamentary ombudsman is so far limiting his investigation to the period from 1 January 1999 to 8 December 2000. I hope that he will extend that period in both directions.

Nobody, least of all those policyholders who took out policies in 1999 and 2000, would want a decision on their cases to be delayed because of the limited resources of the ombudsman. That is why the Government—indeed the Treasury—should give the ombudsman all the resources he needs to do his job. Last year, the ombudsman had his second-highest work load ever and, from my constituency correspondence and my experience of rapidly plummeting standards of administration under this Government, I know that this year's referrals could be at an all-time high. Individual learning accounts, naturalisation, attendance allowance, war pensions, the Public Guardianship Office, housing benefit administration, foot and mouth, the Valuation Office; all of those feature in my constituency case load.

I do not believe that a Member of Parliament's role should be that of an expensive progress chaser for Government Departments. Surely our proper role should be to scrutinise policy and legislation. In all the years that I have been in the House, we have never been so overloaded with routine administration affecting our constituents. I spoke informally to the Minister earlier about a constituency case that has involved one problem after another. I hope that, if nothing else, he will be able to tell me that that has been sorted out and that such a case will not arise again.

The parliamentary ombudsman is understandably concerned about overlap of effort between his investigations and the work of Lord Penrose, but it is becoming clear that the Treasury neither expects nor wants the latter to apportion blame or consider issues of redress. Yesterday in the Treasury Committee, the Economic Secretary used the words: If Lord Penrose decides that issues of compensation are within his terms of reference". She spoke as if she had not given him those terms of reference in the first place. Why did the Government specifically not instruct him to investigate allegations of maladministration and consider compensation?

Yesterday, the Economic Secretary even made the ludicrous suggestion that individual policyholders might take legal action against the regulators? Was she serious, one asks. It was pointed out to her that from the end of November it will not even be possible to sue the Financial Services Authority for negligence unless it can be established that there has been bad faith. The Government are putting this regulator beyond the law, and in so doing they are making the role of the parliamentary ombudsman even more crucial.

In my submission, one key issue that Lord Penrose and the ombudsman need to address is the letter issued by the Treasury insurance directorate on 18 December 1998. That guidance letter endorses Equitable's decision to seek to solve its problems by charging the costs of the guaranteed annuities to the with-profits bonuses of clients without guaranteed annuities. That was clearly a high-risk policy, given that there were two separate contracts covering with-profits bonuses and guaranteed annuities. Had the Equitable board decided in 1998 to follow a similar course of action to other mutuals with guaranteed annuity problems, such as Scottish Widows and Clerical Medical, its policyholders would now be substantially better placed.

While Scottish Widows and Clerical Medical decided to sell out to a major financial group capable of standing behind their businesses, the Equitable board decided not to do that. To what extent was that because of the Treasury guidance, which remained in place until it was suspended on 20 July 2000? It remained on the Treasury website right up to that date.

The 1 January 1999 start date for the period being examined by the parliamentary ombudsman seems increasingly artificial. The same people were regulating Equitable Life in 1998 and 1999, but from different locations. It must surely make sense to widen the ombudsman's area of inquiry.

I should be grateful for the Minister's assurance that he will look into the following specific issues that have been raised with me by policyholders. They are only some of many. Is it right that the Personal Investment Authority ombudsman should refuse to deal with complaints of mis-selling, as there may now be a compromise? The person who raised that with me invested almost £500,000 in Equitable during and mainly towards the end of 1999. He was assured by the Equitable Life field representative that he need do nothing to protect or preserve his investment. He wants his case considered by the PIA ombudsman. Does the Minister think that a reasonable request?

Is it right that the FSA should be giving no advice to individual policyholders about whether to accept a compromise? Is the FSA certain that, in the event of a compromise being accepted by the policyholders, Equitable Life will be able to withstand large class actions alleging general mis-selling of with-profits policies, brought by those who have left the society? Unless there is some certainty about that, even if the compromise is accepted, Equitable Life might go into insolvency.

What is the Minister doing about all those civil service pensioners who made investments under the civil service additional voluntary contribution scheme when one arm of Government, at least, knew that there were serious problems with solvency at Equitable Life?

One civil service pensioner has written to tell me that, as late as October 2000, Equitable Life was described in the relevant Home Office notice as a leading life assurance company. The Home Office permanent secretary told him that when his inquiry was raised with the Cabinet Office, as managers of the civil service AVC scheme, the reply was: It would be wrong and inappropriate to seek to provide information on the basis that the Cabinet Office or employing Departments are in some way entitled to privileged information that is not available to the pensions industry more generally. There is a clear difference between the role of the Cabinet Office as managers of the civil service AVC scheme and the regulatory role carried out elsewhere in Government. That may well be so, but—and this goes to the heart of the matter—why did the regulator keep to himself information that should have been shared with policyholders and investors?

The latest annual report of the parliamentary ombudsman highlights his concern at the length of time it takes Departments to respond to inquiries and to the statement of complaint which is the preliminary to an investigation, and also to resolve issues, especially issues of redress, after we have sent them a draft report on our investigation. Paragraph 1.9 of his annual report says: Among my own concerns is that Departments are putting increasing burdens upon citizens (for example, through self-assessment of income tax) with severe penalties if those burdens are not discharged, while allowing themselves generous periods of time to carry out their own functions and with perhaps only token redress if they overstep those periods". What guarantee can the Minister give that the Treasury will co-operate enthusiastically with the ombudsman's inquiry, and that the ombudsman will be allocated sufficient resources to enable him to reach proper conclusions within a reasonable time scale?

I shall stop there, because otherwise the Minister will not have time to respond. However, this is an extremely complex subject, and I hope that he will lobby his colleagues to ensure that we can have a fuller debate on it in Government time soon.

10.17 pm
The Parliamentary Secretary, Cabinet Office (Mr. Christopher Leslie)

The title of this evening's debate is extremely broad, and I congratulate the hon. Member for Christchurch (Mr. Chope) on securing parliamentary time on the subject of maladministration in the civil service—a big area to investigate. I welcome the opportunity to present the Government's views to the House.

The process of scrutiny of public service delivery often involves criticism of policy, and the assertion of different opinions and views. However, it is important at the outset to distinguish between a debate on the merits or otherwise of a particular policy, and the examination of whether a given policy has been effectively executed and administered.

Parliament has a long tradition of holding the Executive to account for administrative shortcomings, and in many ways this is as valuable as scrutinising changes in policy. Maladministration, whenever it occurs, can not only tarnish the reputation of public services in general, but cause harm and disadvantage to individual consumers, taxpayers and citizens. It is therefore vital that administrative systems are sufficiently robust and well conceived to prevent, or lessen the likelihood of, failures.

I shall touch on the existing methods by which complaints of administrative failings can be pursued, and also briefly on how the Government are working to improve both complaints procedures and the capabilities of the civil service in general.

First, however, the hon. Gentleman may find it helpful if I address specifically the points that he raised, focusing primarily on Equitable Life. I would like to express my sympathy for all the Equitable Life policyholders who have been affected by recent events. My colleagues in government and I fully understand the distress and anger that they feel. Equitable Life raises important issues that deserve consideration by a full independent inquiry, and that is why, as hon. Members will know, my hon. friend the Economic Secretary to the Treasury announced on 31 August that such an inquiry had been set up under Lord Penrose.

The inquiry will consider what lessons can be drawn for the conduct, administration and regulation of the life assurance industry. We recognise that it is important that lessons are learned from what has happened. The inquiry will allow us to do that, and Lord Penrose's terms of reference will enable him to consider events from all angles. They are: To enquire into the circumstances leading to the current situation of the Equitable Life Assurance Society, taking account of relevant life market background; to identify any lessons to be learned for the conduct, administration and regulation of life assurance business: and to give a report thereon to Treasury Ministers. It is clear that the problems at Equitable date back many years. By virtue of its wide-ranging remit, Lord Penrose's inquiry will be able to look back as far as necessary to ascertain the origin of the problems and investigate those issues that he thinks have a bearing on the subject regardless of where and when they arose. In particular, he will be able to look carefully into the actions of Equitable itself, the regulators and other key players over the years. We expect Lord Penrose to report in the second half of next year.

I understand that the investigation that the parliamentary ombudsman has announced will be limited to looking at the actions of the Financial Services Authority between 1 January 1999, when the FSA took over responsibility for regulation, and 8 December 2000, when Equitable closed to new business. The Government and the FSA will, of course, co-operate fully with the parliamentary ombudsman's investigation into the regulation of Equitable Life. I shall have more to say later about the parliamentary ombudsman, but I assure the hon. Gentleman that he will have the resources at his disposal to conduct an efficient and effective inquiry.

The hon. Gentleman raised the issue of compensation following any conclusions by the ombudsman. It does not make any sense to anticipate the findings of the investigation, but if the ombudsman were to make such a recommendation the Government would consider it carefully. The hon. Gentleman raised several other specific issues connected with Equitable Life and the FSA which I shall certainly draw to the attention of my hon. Friend the Economic Secretary.

Mr. Chope

Does the Minister understand that the Penrose inquiry has a remit to consider issues of maladministration by the regulator and issues of compensation and redress? The Economic Secretary yesterday was ambivalent on those points. If there is doubt about whether the terms of reference go that far, will he put pressure on the Economic Secretary to ensure that Lord Penrose has a specific remit to include those issues in his inquiry?

Mr. Leslie

As the hon. Gentleman knows, those are primarily matters for my hon. Friend the Economic Secretary, but my understanding is that Lord Penrose's remit is broad and he will be able to consider several specific issues. In the course of his inquiry, I am sure that he will address many of the points that the hon. Gentleman has raised this evening.

The hon. Gentleman mentioned the specific case of a constituent of his. I am grateful for the notice of that issue that he was able to give me earlier today. It is a complicated case and I shall try to give a brief outline. I understand that an appeal was due to have been heard by the War Pensions Appeal Tribunal on 6 October 1998, but that that hearing was adjourned because the pensioner concerned had presented several new pieces of evidence and the chairman wished to give the War Pensions Agency the opportunity to consider them.

Because of the complexity of the associated medical issues, the agency took some time to consider the new evidence carefully. In parallel, the appeal hearing was rearranged for 27 October 1999, but was postponed at the request of the pensioner concerned. A new date was set but the hearing had to be adjourned, again at the request of the pensioner concerned. In the interim, the pensioner lodged a separate appeal, on different grounds, but the hearing on that had to be adjourned because the War Pensions Agency had not provided full documentation to the tribunal. I understand that the agency's chief executive has apologised for that omission. He did, however, take steps to ensure that full documentation was available to the tribunal when it heard both of the appeals on 10 July 2001. The tribunal's decision was reserved, but the pensioner concerned has now been sent a copy of its decision.

I have been assured that the hon. Gentleman will receive a direct response in the near future to the particular points he raised with the Lord Chancellor's Department.

I come now to the wider issues raised by the hon. Gentleman. Most public services have well developed complaints procedures, through which members of the public can pursue a grievance of maladministration and seek redress. Increasing numbers of organisations follow consumer-oriented policies, and the Government must be no exception to this.

Progressively, many more public services consult their users and publish the standards of service that they aim to achieve. By accepting the principle that people who use services have a right to information and a right to complain, the public sector is endeavouring to focus on achieving greater consumer satisfaction.

It is clear that more work needs to be done, but proper handling of complaints is central to the Government's programme to modernise and improve public services, and greater responsiveness to people's needs is a key objective. There are also a number of statutory bodies through which the public may raise complaints even if internal departmental complaints processes have been exhausted without satisfaction. The Parliamentary Commissioner for Administration—normally known as the parliamentary ombudsman—is such a body, and assesses claims from members of the public who complain that they have suffered injustice because of maladministration by Government Departments or certain other public bodies. The ombudsman also deals with complaints about problems in obtaining access to official information.

The ombudsman is independent of Government and is not a civil servant. He is an Officer of the House of Commons, appointed by Her Majesty, and reports directly to Parliament. Complaints to him are confidential. His investigations are private, and he does not charge for his services. At present, complaints to the parliamentary ombudsman must be made through a Member of Parliament.

In general, the term "maladministration" is taken to mean poor administration, or the incorrect application of rules. For example, maladministration can usually include avoidable delay, faulty procedures or failing to follow correct procedures, and the term can also include the failure to tell individuals about any rights of appeal that they might have. It can cover unfairness, bias or prejudice, the giving of advice that is misleading or inadequate, and the refusal to answer reasonable questions. Covered too by the term are discourtesy, the failure to apologise properly for errors and mistakes in handling claims, and not offering an adequate remedy where one is due.

The ombudsman does not investigate complaints that are about Government policy or the content of legislation. Policy is for the Government to determine, and legislation is for Parliament to decide. Criminal investigations, the decisions of courts and public service personnel matters are also outside the remit of the ombudsman

In 1999, following representations from the members of the ombudsman's office, we announced a review to determine whether the present arrangements were in the best interest of complainants and others. That was against a background of moves towards more integrated public services, and an increasing focus on the needs of the people and organisations that use these services.

The review team consulted widely and its report was published in April 2000. We published a consultation paper on the report a few months later. In July this year, I announced that the Government's conclusions would respond to the consultation paper. We were satisfied that there was broad support for the review's main conclusions, and that we would therefore replace the existing arrangements with a more unified and flexible ombudsman body for central Government, local government and the national health service, other than NHS pensions. In due course, we will publish proposals for the precise powers and accountability of the new body—to which the public will have direct access—and on whether its jurisdiction should be extended beyond the bodies subject to the jurisdiction of the existing ombudsmen.

The effective design and specification of administrative systems to deliver Government policies is crucial, and there is a constant process of learning the lessons from the mistakes of the past. Clearly, Ministers have always relied heavily on the capabilities of the civil service to ensure that policies are implemented effectively, efficiently, transparently and fairly. In order to improve the capacity of the civil service to deliver improved outcomes for the public at large, a reform programme is under way, building on the firm foundations of the impartial and competent service that has served the nation so well for so long.

Under-achievement and poor performance can be tackled in a number of ways and it is clear that the parliamentary ombudsman, Parliament and the Government's reform programme all have a part to play. There have been many examples of maladministration in the past. Although we all strive to ensure that the machinery of service delivery is as perfect as possible, there will no doubt be problems in the future as well. The best that we can do is to try as hard as possible to improve our systems, learn from the past, and reform and modernise public services so that they match as closely as possible the aspirations and needs of the people whom we all represent.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Ten o'clock.