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Mr. Butterfill: I am grateful to the Economic Secretary for that clarification, although it does not take us much further. In my experience--she will know that I have been involved in the industry for some years--the IFA Association has probably done more to raise standards among IFAs than almost any other body that one can imagine. Of course the IFAA is a trade association and will seek to defend its members. It would not be doing its duty by its members unless it did so.
Let us examine some of the hon. Lady's accusations. First, as my hon. Friend the Member for Ryedale (Mr. Greenway) said, IFAs do not have the cash that is instantly available to the direct sellers. Secondly, the hon. Lady said that the IFAs went to court against the regulators, as though that was some appalling act. They went to court to establish whether it should be possible for the regulator to require them to go back to people who had not complained and ask to investigate the possibility that they had mis-sold a product.
That would be in direct contravention of the terms under which the IFAs were insured for professional indemnity. The hon. Lady knows that it was the professional indemnity insurers who were telling the IFAs that they would be in breach of contract if they behaved in that way. The only way for the IFAs to resolve that through the IFA Association was to seek a court ruling, otherwise they would be caught between a rock and a hard place.
The IFAs did not go to court to avoid co-operating in the review or to delay the process. They went to court to clarify their legal position because they had been put in
an impossible situation by the demands of the regulator. That does not seem an unreasonable way to behave. They need to clarify the matter, as the underwriters of their professional indemnity cover are saying, "We are in an impossible position. We will be asked to pay out on terms that are clearly in breach of the contract between you, the IFA, and us, the underwriters."
The underwriters are either refusing to give cover, which means that some IFAs cannot legally operate because they cannot get PI cover, or the underwriters are quoting such huge premiums that it is impossible for the IFA to operate. That is continuing problem which must be addressed by the hon. Lady and the regulator, in consultation with the IFAs, if IFAs are to continue to operate in the market. Clearly, as the IFAs were the least guilty of mis-selling, it is in the overwhelming interest of the public that independent advice should be available. I appeal to the hon. Lady to deal with this issue, which is vital for the industry.
The second problem, which I shall not labour as previous speakers have outlined it, is the basis of compensation. It has always been maintained in our courts that if someone has suffered damage, the measure of damages is his actual loss, as far as it can be quantified, and it is the loss at the time that the loss occurred, not the notional loss some years later.
Mr. Butterfill:
I give way to the learned gentleman.
Mr. Kidney:
Indeed, I was a lawyer before I came to this place, so may I tell the hon. Gentleman that the assessment of loss in a civil case is carried out at the time of the hearing, not at the time that the wrong was committed, which might have been many years earlier? That makes sense; otherwise courts would be in the absurd position of awarding sums of money that were completely wrong--far too large or far too small.
Mr. Butterfill:
The hon. Gentleman is partly right. The assessment of loss takes place at the time of the hearing, but the object is to put the plaintiff back in the position that he would have been in if the wrong had not been done. That is not what is being proposed. The present proposal is that there should be the benefit of hindsight and that the loss should be assessed regardless of the fact that the economic circumstances have changed--in particular, the yield on annuities has changed dramatically.
The calculation of loss is a moving target, which changes enormously depending on the date chosen to assess the loss. As I mentioned earlier, in one case the policyholder would have been £2,500 better off in 1995, but because of the changes in the annuity market since then, he is now facing a £38,000 notional loss. If he gets that money, he will be substantially better off than he would have been if he had never bought the policy. Indeed, he was better off buying the policy in the first place.
I am not sure that we should enrich people by giving them the benefit of the hindsight that we would all like to have. We would all like to own something that we could have bought, had we had the necessary information five years ago. That is surely not what the Government intend as the basis for compensation.
Several leading actuaries have examined the issue and concluded that if we proceed as the Government and the regulator propose, a large number of people will be significantly better off than they could have been if they had not taken out a particular pensions policy. As the funds of the other policyholders will generally cover the cost of compensation, we would be rewarding one group of policyholders at the expense of another, with no real justification for doing so.
The Economic Secretary referred to the PASS initiative, which was welcome. It has assisted many IFAs to deal with the problem, but I understand that that is confined to phase 1. Phase 2 is a more difficult problem because the numbers involved are much greater. That means that the cost of carrying out all the investigations in phase 2 will be much greater, although the likelihood of mis-selling is proportionately much smaller, because the people to whom the products were sold were a great deal younger. The maximum cost will be passed on to IFAs for a much lower benefit to those who may have been mis-sold a pensions policy.
I intend to press the Economic Secretary on the issue of mis-selling. A significant group of IFAs have got through phase 1 and it has been shown that they were not involved in any cases of mis-selling in phase 1.
Mr. Butterfill:
As my hon. Friend the Member for Ryedale says from a sedentary position, other IFAs were involved in a few cases of mis-selling. I am particularly concerned about those companies against whom there are no complaints of mis-selling. They will be required to sift through their entire portfolio of sales for the past 10 years at enormous cost--£600,000, on average. That is a colossal sum for some small firms. One IFA told me that it would take his whole staff three years to complete the process. He said that they would not be able to do any other work and that the company would go bust but for the fact that he was prepared to support it financially through the process. This exercise will drive an enormous number of IFAs out of business when there is little likelihood of mis-selling having been proven.
It would surely be correct in phase 2 to say that, if there are no complaints about potential mis-selling and if there has clearly been no mis-selling in phase 1, the test should be different. Will the Minister agree to the proposition that the Government should reimburse IFAs for the cost of the process if no evidence of mis-selling is found? That is another possibility: the Government could compensate IFAs for having impugned their professional integrity. I doubt that that proposition will be attractive to the hon. Lady, but it is one that I postulate.
I am very worried about the Government's attitude to this issue. They have demonstrated an extremely aggressive attitude towards IFAs, who have been the least guilty parties in this process by a considerable margin--86 per cent. compared with 14 per cent. That aggressive attitude leads one to believe--and my suspicions are reinforced by personal conversations that I have had with Treasury officials--that the Government do not care about the IFA market. They think that IFAs are a bit of a nuisance and would sooner that the public dealt with
direct sellers--we know that some of them are cronies of the Prime Minister--particularly if they happened to be selling kite, CAT or some other product.
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