As you will know there was a debate on this recently in Parliament.
The minister responding wanted to highlight in the debate that the Government has taken more action than any previous one. Using the ombudsman’s findings, it determined the reduced returns that policyholders received to be £4.1 billion. That is significantly more than the £340 million arrived at by the previous Labour Government in the Chadwick review, which was then dismissed.
As you will know in 2010, the Government announced that up to £1.5 billion would be made available for payments. Those payments were tax-free, which increased their value even more. Out of that £1.5 billion, following representations from groups such as the Equitable Members Action Group, it decided to pay the group of with-profits annuitants in full. The total cost of those annual payments was estimated to be around £625 million. There is also an additional £100 million contingency fund in place to provide for annuitants should they live longer than their actuarial forecast, and we expect the contingency to be drawn on from the middle of the next decade. The remaining funding was distributed pro rata to remaining eligible policyholders. The scheme operated successfully for around five years, and in 2016 the operation was wound down.
During the debate many MPs requested that all policyholder records should be retained indefinitely, in case further payments are made. There has been correspondence between the Treasury and the All Party Parliamentary Group (APPG) on that matter, and we were reassured that relevant records are currently retained and will continue to be.
Secondly, MPs raised the dissatisfaction with the £1.5 billion and suggest that it is incompatible with the ombudsman’s report. However, Members will be aware that the ombudsman wrote to the APPG on that issue and said that the Government’s decisions could not be said to be incompatible with her report. The Minister clarified that the spending decision to cease the scheme was taken in the wider context of other spending priorities. This decision needed to be fair to the taxpayer, who funded these payments, and £1.5 billion was, on balance, judged to be the most appropriate figure.
During the debate the minister was asked if this issue could be reopened and that a further £2.6 billion should be paid to policyholders. The minister highlighted that being in government is about making difficult decisions. The decision was to spend £1.5 billion, reversing and multiplying by four the previous Government’s dismissal of a commitment to £340 million. These difficult decisions are about how to be fair to both hard-working taxpayers and those in receipt of public spending and services, and where the need to spend public money is greatest. The opportunity cost to the Exchequer of paying a further £2.6 billion is funding the salaries of 67,000 teachers, or 112,000 new nurses.
Members of the APPG were unhappy with the response from the minister and this issue will be discussed again at the next meeting in terms of how to proceed.