Statement to the House of Commons by the Chief Secretary to the Treasury on 15 January 2009
The Parliamentary Ombudsman’s report made two key recommendations; firstly, that the relevant public bodies should apologise for the ‘justifiable sense of outrage’ that has resulted from her findings of regulatory maladministration; and, secondly, that the Government should establish and fund a compensation scheme. The aim of the Ombudsman’s proposed scheme was to put those people who have suffered a relative loss back into the position they would have been in had the maladministration not occurred. The European Parliament Committee report made similar recommendations for a compensation scheme and urged the UK Government to accept and implement any recommendations of the Parliamentary Ombudsman.
The Government has confirmed that it accepts, only in part, the findings of the Parliamentary Ombudsman and has issued an apology to policyholders who have suffered from the maladministration that has been accepted. However, there is still much uncertainty about the basis upon which the Government will ultimately respond on the question of payments to policyholders. Equitable Life has indicated that it has questioned the approach set out in the Government’s response and is seeking clarification from the Government of certain important points.
It seems certain that policyholders will not know for some time how the Government will approach the question of qualification for payment resulting from maladministration. However, in summary;
- Any payment is unlikely to be “compensatory” in nature and would appear to require
qualification for an ex gratia “hardship” payment;
- The qualifying policyholders will have to show that they have suffered a
“disproportionate impact” as a consequence of the admitted maladministration;
- The Government will not make any payment which it considers might represent loss
caused by the conduct of the former management of Equitable Life;
- The fund available to meet the qualifying payments will be determined by the
Government having regard to the competing demands on the public purse at the time
Both the Government and the Parliamentary Ombudsman considered that certain policyholders, but not all, will have suffered a relative loss i.e. a loss that the policyholder would not have suffered had they saved or invested elsewhere. However, the Government does not agree with the Ombudsman that those policyholders who can demonstrate that they suffered a relative loss should be entitled to compensation. The Government will not be
putting in place a scheme along the lines proposed by the Ombudsman and the European Parliament.
The UK Government’s alternative proposal is to set up a scheme (on terms yet to be established) to provide ex-gratia payments for those who have been “hardest hit” by events at Equitable Life. The Government has sought advice in order to be able to define the criteria by which those policyholders who have suffered a disproportionate impact can be identified and who should prima facie be entitled to payment from a Government fund. However, the
amount of any payment (representing only the extent to which any loss results from accepted regulatory maladministration, but not mismanagement by Equitable Life and others), and the basis upon and extent to which the Government should set aside funds for this purpose is subject to an on-going inquiry.
The former Lord Justice of the Court of Appeal, the Rt Hon Sir John Chadwick has been asked to advise the Government as quickly as he is able on:
- The extent of relative losses suffered by Equitable Life policyholders.
- The proportion of losses which can be apportioned to: (a) the maladministration
accepted by the Government and (b) the actions of Equitable Life and its advisers.
- Which classes of policyholder have suffered the greatest impact as a result of the
maladministration accepted by the Government.
- Factors arising from this work which the Government might take into account when
reaching a final view on determining whether disproportionate impact has been
In conclusion, the Government’s proposals are likely to result in a certain proportion of Equitable Life policyholders receiving some form of payment. However, it appears from comments made in the House of Commons statement on 15 January that, neither the criteria by which individuals will qualify for payment, nor the extent to which public finances will be available to make payments, will be settled for some time. In an effort to speed up the process, the intention is that Lord Chadwick will provide interim updates and conclusions on an ongoing basis.
The Commission welcomes the setting up of the scheme, although we recognise that this does not go as far as the compensation scheme recommended in the Parliamentary Ombudsman’s Report. We will continue to monitor the situation for any developments which might affect the interests of Guernsey branch policyholders. In addition, the Commission will be writing to Sir John Chadwick and the relevant UK Government agencies to seek confirmation that the position of Guernsey branch policyholders is fully understood and to ensure that, as was accepted by the Parliamentary Ombudsman, Guernsey branch policyholders will receive equal treatment under the scheme as ultimately formulated.