John Redwood’s contribution to the Equitable Life (Payments) Bill, 10 Nov

Chris Leslie (Nottingham East) (Lab/Co-op): This may be a naive question, but box 2.7 in the spending review says: “The Government expects the total amount of funding for the scheme to be in the region of £1.5 billion.” That is the envelope that we have been debating, and that figure matters quite a lot, especially for those other policyholders. However, the same box says that “£1 billion will be allocated to the Payments Scheme in this Spending Review period, which will cover…the initial costs of the first three years of WPA”- with-profits annuitants “regular payments, and all payments to other policyholders.”

Can the Minister explain the difference between the £1 billion and the £1.5 billion, and say how the timings will be affected? Presumably the other £500 million will arrive after the spending review period, but I am a bit confused on that point.

The Financial Secretary to the Treasury (Mr Mark Hoban): The hon. Gentleman makes an important point, which gives me the opportunity to clarify the make-up of the £1.5 billion. The figure includes the full cost of the losses to with-profits annuitants-approximately £620 million-which will be made through regular payments. However, taking into account the pressures on the public purse, the Treasury could allocate only £1 billion over the first three years of the spending review. That will cover two things: the first three years of payments to with-profits annuitants, and lump-sum payments to all other policyholders and to the estates of deceased with-profits annuitants.

It is important to start to pay off with-profits annuitants’ losses quickly, alongside the lump-sum payments to other policyholders. About £225 million of the £1 billion is for with-profits annuitants and their estates, leaving approximately £775 million for lump-sum payments to non-with-profits annuitants. The Towers Watson estimate of £620 million for with-profits annuity losses leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards. Those who are quicker at mental arithmetic than me will have worked out that the total comes to about £1.4 billion. The balance is a contingency, because the payments to with-profits annuitants are based on their longevity. We hope that they live long and healthy lives, and that buffer is set aside to cover this need. That is how the maths works out.

Mr John Redwood (Wokingham) (Con): Could my hon. Friend provide further clarification on the tax status of those receiving such payments?

Mr Hoban: My right hon. Friend pre-empts a point that I was going to refer to in the clause stand part debate. He gives me an opportunity to say now that the payments will be free of tax.

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  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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