HL Deb 19 December 1989 vol 514 cc138-46

4.12 p.m.

Lord Trefgarne

My Lords, with your Lordships' permission I should like to repeat a Statement being made in the other place by my right honourable friend the Secretary of State for Trade and Industry on the Barlow Clowes affair. The Statement is as follows:

"The report of the Parliamentary Commissioner for Administration on Barlow Clowes is published today, as are the Government's observations on it. Copies of both are available in the Vote Office".

Perhaps I may add, in parenthesis, that copies are also in the Printed Paper Office of your Lordships' House. The Statement continues:

"The House will be pleased to know that, after very careful consideration, the Government have decided, in the exceptional circumstances of this case and out of respect for the office of the Parliamentary Commissioner, to make substantial ex gratia payments to all investors who have suffered loss. I shall give the details later. Equally, I want to make clear that the Government do not accept the Parliamentary Commissioner's main findings; nor are the Government legally liable.

"These are important questions upon which I want to make the Government's position clear. I am therefore publishing separately today the Government's observations on the PCA's report. I hope honourable and right honourable Members will read these observations carefully. I will not rehearse the detailed arguments here.

"There are, however, a number of unusual features which taken together distinguish this case from other business failures. Although at the relevant time the Government had started on the process of overhauling the legislative background, the regulatory machinery before April 1988 was inadequate. It is also true that a large number of investors, many of them elderly, have suffered hardship. Many believed, although wrongly, that they were investing in gilts. They were led to believe that their investment was safer than it was.

"In disagreeing with the findings in the PCA's report the Government are not asserting that the conduct of the department was beyond criticism, given the benefit of hindsight. But in the Government's view the department's handling of the case was within the acceptable range of standards reasonably to be expected of a regulator.

"For the reasons I have given the Government have decided to offer substantial payments, without admission of fault or liability, to investors who have suffered loss. The Government have decided that investors who invested up to £50,000, including reinvested interest calculated at building society rates, should be able to recover 90 per cent. of their investment. It is important to maintain the principle, which the PCA recognises, that investors should bear some of the loss themselves. This is particularly so for larger investors, who must be expected to bear a greater part of the responsibility for their own decisions. To reflect this the Government have decided that investors should be able to recover 80 per cent. of their investments between £50,000 and £100,000 and 60 per cent. of investments over £100,000. The detailed terms of the scheme are set out in the Government's printed observations.

"The scheme will be administered on the Government's behalf by the firms who are already acting in the liquidation and receivership of the Barlow Clowes businesses. A letter has today been sent to all investors giving them an outline of the Government's proposals. Detailed terms will be sent in mid-January, and we hope that processing of payments will be completed in February.

"The Government believe that there are others whose role in the Barlow Clowes affair deserves close examination and who cannot escape part at least of the blame for what happened. It will be a condition of payment that investors assign to me their rights in the liquidation and receivership and against third parties. I give notice of our intention to pursue vigorously any claims which show prospects of reducing the cost to the public purse of these payments.

"Parliamentary approval for this expenditure will be sought in a Supplementary Estimate in due course. Pending that approval, urgent expenditure estimated at £150 million will be met by repayable advances from the Contingencies Fund. Receipts from subsequent recoveries will be credited to the Consolidated Fund.

"Mr. Speaker, both recent legislation and recent jurisprudence make it clear that regulators are not liable to investors in the exercise of their regulatory functions. The Government do not believe that it would be right for this case to be treated as a precedent, and if similar proposals are made in the future they intend to respond to them in the light of the principles set out in the Government's observations. However, because of the exceptional combination of circumstances in the Barlow Clowes affair, the Government have decided to respond generously to relieve the hardship caused to large numbers of people".

My Lords, that is the Statement.

4.18 p.m.

Lord Williams of Elvel

My Lords, we on this side of the House give the Statement a broad welcome in the sense that we are glad that the Barlow Clowes investors have at long last received recognition. Though I give that a welcome it does not mean that I accept that the Government have not been tried by the Parliamentary Commissioner and at the bar of public opinion and found guilty of maladministration. There is no way that any government would give away taxpayers' money ex gratia for no reason at all. If the Government are prepared to dish out such money to everybody, I can think of many candidates who would be queueing up to receive it. Unless the Government admit that they are responsible for what has happened, the basis of their Statement is without foundation.

I have a number of questions, of which I have given the noble Lord prior notice. I wish, first, to say that I regret the fact that the Parliamentary Commissioner's report was only published at 3.30 this afternoon and that the Government have produced their response to that report before it was available to your Lordships or Members of another place. It would be normal for the commissioner's report to be published and then for the Government to give a considered response.

My first question is: does the Parliamentary Commissioner —because I have not had the benefit of his report —find that the Government are legally liable? In his Statement the noble Lord said: I want to make clear that the Government do not accept the Parliamentary Commissioner's main findings; nor are the Government legally liable". It has been pointed out to me that there is a "that" missing. Do the Government accept that the Parliamentary Commissioner has imposed legal liability on the Government or not?

My second question concerns action between intermediaries. Can we have an assurance from the Government that they will pursue as vigorously as possible in the courts action against those intermediaries who were condemned so vigorously by the noble Lord, Lord Young of Graffham, in his statement to the Daily Express last Saturday? I quote from that newspaper. The noble Lord said: What was terrible about the intermediaries was that they were not getting rich people to put their money in, they were getting very ordinary people involved". Does the noble Lord agree with that statement made by the noble Lord, Lord Young of Graffham, and what action are the Government prepared to take?

My third question relates to the timing of the payments. Will they be made immediately, in January or February? Will claimants have to wait for a long period of time? My fourth question relates to those who, alas, have passed away during the period in which the Government have been dithering about the matter.

As I understand it, many of the Barlow Clowes investors were old people investing their life savings and the fruits of their pension arrangements. What will happen to the estates of those people? Will they be paid out properly and pro rata as the Government have indicated? Is there to be any distinction between those who invested through Barlow Clowes UK and Barlow Clowes International? It was part of the Government's claim that Barlow Clowes International was in some way insulated from control by the Department of Trade and Industry and that it was nothing to do with the Government whether people invested in Gibraltar or not. Are the Government making any distinction between the two companies and, if so, on what basis? If they are making no distinction what is the justification for their previous arguments?

My main point concerns government action as the result of the Barlow Clowes affair. It was announced by the noble Lord, Lord Young of Graffham, when he was Secretary of State and graced the Dispatch Box, that there would be an inquiry which was to be headed by Sir Godfray Le Quesne. It would inquire into the conduct of the department. At the time the Statement was read out I say frankly to the noble Lord that in my view it was altered. That occurred between the time it came to us from the Government Whips' Office and the time when the noble Lord, Lord Young of Graffham, read it out. It came to us from the Government Whips' Office that there would be an inquiry as soon as possible on the department's handling of the matter.

The Secretary of State of the day, in reading out the Statement, which I accept was the final version, added the words "the facts of". So the Statement became, on the facts of my department's handling of the matter"—[Official Report, 13/6/88; col. 8.] As a result of that, will the noble Lord not accept that when the inquiry headed by Sir Godfray Le Quesne, put in the initial letter to the Secretary of State that it had no remit to make a judgment on the Department of Trade and Industry's conduct of the matter but that it only had a remit to discover the facts, that that was the point at which the Government made their first and fatal slip?

We learn now from the Daily Express of last Saturday that the noble Lord, Lord Young—and I quote the newspaper quoting the noble Lord —said: When I came to make the decision" — This is October when Sir Godfray Le Quesne reported— I was told I could not actually pay the money out. So I did the next best thing—I sent the papers down to the Ombudsman. We wanted very much to do something and I was told by my department that in the last 164 cases the Ombudsman had seen, he found against the Government 162 times". The noble Lord added, according to the Daily Express— I would have loved to have seen the Ombudsman come to a very quick decision. Unfortunately, I think, he has taken too long". That contrasts with what the noble Lord, Lord Young of Graffham, said in this House on 20th October 1988. I quote from col. 1259 of the Official Report of that day: The facts set out in Sir Godfray's report in the Government's view provide no grounds for concluding that my department's handling of the matter was unreasonable or caused the losses experienced by investors, and therefore provide no justification for the use of taxpayers' money to fund compensation". In the next paragraph the noble Lord said: I have today sent him"— that is the Parliamentary Commissioner — a copy of Sir Godfray Le Quesne's report". The noble Lord refers not to the papers, but a copy of Sir Godfray Le Quesne's report. There are several questions arising from that. Is it not the case that my right honourable friend in another place, Mr. Morris, instituted the Parliamentary Commissioner's report? It was not the Secretary of State for Trade and Industry of the day. What papers did the Secretary of State of the day send down to the Parliamentary Commissioner? Only Members of another place can refer matters to him.

Does the noble Lord agree with the statement made by the noble Lord, Lord Young of Graffham, as quoted in the Daily Express, namely, that the ombudsman, unfortunately, "has taken too long"? Which Secretary of State is now taking responsibility for this matter? Why was the whole inquiry botched in the way it was? Why should the taxpayer foot the bill for government incompetence? This whole episode does no credit whatsoever to the Government and to the successive Secretaries of State.

The Government have recognised their responsibility in this matter and they have decided to dish out taxpayers' money —our money —in order to compensate for their own failings. As a taxpayer I hope very much that the Government will ensure that this kind of episode will never occur again.

Lord Ezra

My Lords, I wish to restrict my observations to two matters. The first relates to the question of compensation referred to in the Statement and, secondly, the conduct of the department as the regulator. On the question of compensation, I wish to express satisfaction that a decision has been reached and that in very large measure those who have suffered from this series of occurrences will be promptly compensated and that they will also receive interest for the period during which they have suffered. I think that is very fair and proper. I am glad to note that this matter was agreed in the full report by the ombudsman.

I turn now to the question of the Government's conduct and that of the department as regulator. A number of questions arise. This matter is dealt with fully in the report and is also touched on in the Government's observations. We are living in an age where regulation is extending at a rate of knots. With every privatisation we are getting more regulators. Therefore, the whole way in which regulators operate must be under careful scrutiny. To what extent are regulators liable for their decisions? That is the big question. To what extent should consumers, or investors, consider that their interests are being safeguarded by regulators?

I agree with the qualification introduced in the Government's observations that if regulators' decisions were constantly influenced by the risk of liability it would be difficult for them to operate other than over-cautiously. I accept that. Nonetheless, we must be clear what safeguards consumers or investors have in the decisions of regulators. In the present case it is clear that since the end of 1984 there were doubts about the Barlow Clowes operation. These were referred to at the time when the noble Lord, Lord Young, made his original Statement well over a year ago.

The fact is that throughout the period from the end of 1984 until 27th May 1988, when an announcement was made of an investigation, no indication was given to potential investors that they were at any sort of risk, even though a number of doubts had been raised from various quarters —including the Stock Exchange —about the operations of this firm. The ombudsman has concluded that if the inquiries had been conducted more effectively during this period it is quite possible that the firm would have been closed down at the end of 1985. This is a contention that the Government rebut.

The big question is to what extent investors should be able to rely on the regulatory authority in matters of this sort. It is stated that it is the task of the regulator to establish reasonable standards in the sector; to provide a framework within which investors can make their own judgments. They have to assess as far as practical whether those who manage investments are fit and proper persons to do so. I should like to ask whether the Government really considered that in this case those conditions were met, and whether the right message was given to potential investors. I personally believe that this was not done, and I think that this whole question needs further investigation.

Lord Trefgarne

My Lords, I acknowledge the contribution made by both noble Lords in response to this Statement. The noble Lord, Lord Williams —I shall deal with as many of his points as I can —asked about the timing of the Government's decision in this matter. The noble Lord will recall —he referred to it —that my noble friend made a Statement on this subject just over a year ago. We received the Parliamentary Commissioner's report about four weeks ago, in the middle of November, and have therefore responded to it promptly and effectively.

The noble Lord asked too about the Government's legal liability in this matter. The Government do not accept legal liability. That is why we have emphasised the ex gratia nature of the payments. I hope that has cleared the point for the noble Lord. He also asked about our intention with regard to third parties. I can assure him that we shall be pursuing vigorously all the action that is necessary against any third parties who may be involved in this matter. I should perhaps add that we are aware that something in excess of £60 million ought to be recoverable without legal action as a contribution to the costs of the funds that we are disbursing. Of course we very much hope that further considerable sums will be recovered by legal action in due course.

As for the timing of the payments that we now anticipate, the firms which are acting for us will send out formal letters to Barlow Clowes investors some time around the middle of January. Investors will be required to return their claims by the middle of February, and those returns will have to include their transferring to the Secretary of State all their rights in this matter. We hope that payments can be made towards the end of February; in other words, shortly after the closing date for the return of applications by investors.

The noble Lord then asked about the position with regard to people who sadly have died since their investment in this company. I can say that it is intended that the claims of the estates of those who have died should be dealt with in the same way as the claims of persons who are still alive, and therefore their inheritors will not suffer any disadvantage by virtue of that.

It is also intended that the two separate funds —that is, the Gibraltar-based and the United Kingdom-based funds —will be dealt with in exactly the same way. The reasons for that is that it has emerged that a number of people thought they had invested in the United Kingdom fund, but it turned out that against their knowledge their funds were transferred to the Gibraltar-based fund. Clearly therefore it would be appropriate to deal with both of them in the same way.

Sir Godfray Le Quesne, as the noble Lord mentioned, submitted a purely factual report on this matter just over a year ago. It was on the basis of that report that my noble friend made his Statement at that time. The noble Lord will be aware that my noble friend has made certain additional observations since. The noble Lord is quite right to say that references to the Parliamentary Commissioner are carried out not by Members of your Lordships' House, even if they are Secretaries of State, but my Members of the other place. Indeed, a number of references to the Parliamentary Commissioner were made by Members of the other place.

My noble friend quite rightly made sure that the Parliamentary Commissioner had available to him all the documents that he could make available, and at that time sent the Le Quesne Report to the Parliamentary Commissioner for his further consideration. It was following his receipt of that report that the Parliamentary Commissioner himself decided to investigate this matter, and the length of time that he takes to reach his report is a matter for him.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord. Does he accept that my information is that the Parliamentary Commissioner agreed to investigate this matter before the Secretary of State, the noble Lord, Lord Young of Graffham, sent the Le Quesne Report to him?

Lord Trefgarne

My Lords, to be truthful, I am not quite certain about that, but the noble Lord may well be right. Certainly the decision to conduct the investigation rests with the Parliamentary Commissioner himself, upon application from honourable or right honourable Members in another place.

Turning now, if I may, to the intervention of the noble Lord, Lord Ezra, I was grateful for his complimentary words —if I may call them that —about the Government's decision in respect of compensation. The noble Lord asked me to what extent regulators are liable. I think the legal position is quite clear: regulators are not liable. Certainly the Government do not accept liability, as I have said. But of course the law has changed since the events we are describing took place. New legislation is now in place, and by and large the industries are now self-regulating, as the noble Lord will appreciate.

By and large too they have created funds for compensating investors in one way or another when they have misfortunes such as this, but that is now a matter for the industries themselves rather than for government. I hope that the noble Lord will accept and acknowledge the advantage of the new arrangements.

Lord Grantchester

My Lords, perhaps I may now ask two technical questions which arise from aspects of the Statement which I am afraid I did not understand. First, how are these ex gratia payments to be dealt with in the liquidation of these concerns? Secondly, if the Government are to get anything back from the liquidation process once the investors have been paid in full, what is the total net expected cost of those payments which are now being made after distributions in the liquidation and recoveries by the liquidator have been taken into account?

Lord Trefgarne

My Lords, I shall explain the position to the noble Lord as best I can. I hope that I shall get it right. What will now happen is that investors will be reimbursed on the basis set out in the Statement from public funds. A few of them have already received some reimbursement from intermediaries who decided that they should reimburse on their own behalf and in certain cases some distributions have already been made in the liquidation. However, the very substantial payments which are now to be made are to come from public funds.

The Government propose that all the people who are now to receive those substantial payments should make over their rights in the matter to the Government so that in the future such distributions as are made will be made to them in repayment of the money which has been dispersed from central funds. Therefore, the benefit of the liquidation in the future will fall to the Government and to the reimbursement of public funds. I hope that that meets the points raised by the noble Lord.

Lord Monson

My Lords, I should also like to put two questions to the Minister. First, what will be the position of investors who have already obtained financial restitution in whole or in part from their financial advisers? Secondly, will there be any marginal relief? From the figures given by the noble Lord it seems on the face of it as if those who have invested £50,000 will obtain £45,000 in compensation, whereas those who have invested £51,000 will obtain only £40,800. I suggest that that arrangement would seem to be extremely unfair to most people.

Lord Trefgarne

No, my Lords; that is not what would happen. The first £50,000 of any depositor's claim will be dealt with on the basis of 90 per cent. and the second sum of money will be dealt with on the smaller percentage to which I referred when reading the Statement. As regards the position of those who have already received some recompense from whatever source, the funds that they have received will be set against what they are to receive from public funds.

Lord Peston

My Lords, on page 1 the Statement ends with the words: Equally, I want to make clear that the Government do not accept the Parliamentary Commissioner's main findings; nor are the Government legally liable". My noble friend Lord Williams of Elvel asked the Minister whether the Parliamentary Commissioner's main findings included the statement that the Government are legally liable. We did not hear an answer to that straightforward question. I repeat: did the Parliamentary Commissioner's main findings include the statement that the Government are legally liable?

Lord Trefgarne

My Lords, the Parliamentary Commissioner, with all due respect to him, is neither competent nor qualified to determine the question of legal liability. However, he has said that the Government ought to repay the money.

Lord Peston

My Lords, I hesitate to interrupt the noble Lord yet again but he has now been asked a very simple question and has given 1.he answer to a different one. I did not ask —nor, indeed, did my noble friend —what in his view was the competence of the Parliamentary Commissioner. I asked for confirmation of what he actually said.

Lord Trefgarne

My Lords, the Parliamentary Commissioner's report is an inch and a half thick or thereabouts. I invite the noble Lord to study that document carefully. No doubt he will find the answer to his question therein.