Government 'blinkered' over Equitable Life compensation

Group wants to force the government to follow ombudsman's proposals and set aside its 'mean' payment scheme

The government is not entitled to evade the reality that it fell "very seriously below acceptable standards" in the way Equitable Life was regulated, and that people are entitled to compensation as a result, a barrister representing policyholders told the high court yesterday.

Dinah Rose QC also accused the government of "blinkered single-mindedness" in the way it has fought calls for full compensation to be paid to victims of the Equitable debacle. The Equitable Members Action Group (EMAG) has gone to court to challenge the Treasury's rejection of a number of findings of maladministration made by the parliamentary ombudsman.

Last year it looked as if the Government would have to pay billions of pounds after the ombudsman, Ann Abraham, found evidence of "serial regulatory failure".

The Treasury apologised for the "maladministration" that led to the insurer's near collapse at the start of the decade, but rejected recommendations that it should compensate all Equitable members. Instead, a retired judge, Sir John Chadwick, was appointed to work out which policyholders had been hardest hit and what proportion of their losses could be attributed to maladministration.

Government lawyers are expected to argue it did not act unlawfully in rejecting the ombudsman's recommendations, and that the attack on its scheme is premature as it has not yet been formulated.

Rose, appearing for EMAG, asked two judges to rule the Treasury's response unlawful, "incomprehensible" and "irrational". She said the regulators that failed to sound the alert included the Treasury, the then Department of Trade and Industry and the Financial Services Authority.

EMAG claims ministers acted unlawfully in rejecting most of the recommendations made by the parliamentary ombudsman, who probed the scandal. EMAG raised several hundred thousand pounds from its policyholder members to finance the judicial review, which is likely to last four days.

Paul Braithwaite, general secretary of EMAG, said: "We are asking the court to force the government back to the drawing board to establish the independent compensation scheme the ombudsman proposed. This would set aside the government's plan for a mean ex-gratia payment scheme, estimated to pay out rather less than 10% of what's due."

EMAG claimed the government "has unlawfully rejected most of the ombudsman's findings of injustice stemming from regulatory failure throughout the 1990s", in that it failed to provide the "cogent reasons" required by law.

The judicial review will be heard by two judges, with a judgment expected in the autumn. If the government loses, it will be forced to reconsider making payouts to all policyholders.

Meanwhile, more than 320 MPs have signed Lib Dem Treasury spokesman Vince Cable's early day motion stating that "the government should accept the recommendations of the ombudsman on compensating policyholders who have suffered loss".

The Guardian by Rupert Jones, 22 July 2009