The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

Best Media Stories: 28/07/2008 - Personal View by Paul Braithwaite for The Daily Telegraph

28th July 2008 - Personal View by Paul Braithwaite for The Daily Telegraph


It’s time for Parliament to defend its Ombudsman

A personal view, by Paul Braithwaite of EMAG

Even when EMAG, the Equitable Life action group that I co-ordinate, was formed in the summer of 2000, the Telegraph was crusading on policyholders’ behalf. EMAG seeks to represent all investors, past and present, whatever their type of policy. Since March 2002, when I started to write my book about this ghastly financial scandal, EMAG’s focus has been the single-minded pursuit of compensation from Government for what we knew to have been serious, serial regulatory failure.

In April 2004 EMAG was successful in obtaining High Court consent to proceed with a Judicial Review to seek to quash the cursory report from the Parliamentary Ombudsman (PO) into Equitable Life Coincidentally, the Ombudsman Ann Abraham called for submissions as to whether she should look again at the Equitable. The first report had been prepared by her predecessor and it has now been withdrawn. The overwhelming majority of the 2,000 responses said “yes” but both the Treasury and the FSA argued agin. Neither cited the suggestion that under no circumstances ever should compensation be paid for any maladministration of financial services. This weasel first surfaced from The Treasury two and a half years after the Inquiry was commissioned. If this brass-neck Treasury get-out-of-jail-free card were now to prevail, contrary to all pan-European regulatory intentions, then the situation of those who saved through the 1990s, the years that Ann Abraham has dubbed as a “decade of regulatory failure”, was truly worse than “buyer beware”. Throughout the period investors trusted in the words “Regulated by The DTI/Treasury/FSA” – a service they paid for and had every right to believe assured vigilance. Indeed, from July 1994 onward, when the UK incorporated into UK Law the European Third Life Directive, there were arduous statutory obligations for the UK’s regulators to be proactive in protecting citizens from all European member states who invested in UK financial companies.

The office of the Parliamentary Ombudsman has only one task: to independently investigate for MPs whether public bodies have been maladministrative and, if so, did that lead to injustice. The Equitable Report finds ten counts of maladministration causing injustice covering the entire decade until the PO’s remit to investigate ended on 1st December 2001. Thereafter, the FSA , risibly in my opinion, became self-policing and unaccountable to anyone other than the Treasury’s loyal protector, John McFall MP, chair of the Treasury select committee.

When Dick Crossman set up the PO in ‘70s the laudable intention was for an approachable, free alternative dispute resolution service (ADR) to litigation – which is the reserve of the super-rich when taking on the UK Government. The PO was to dispense “natural justice” rather than apply the hurdles of brittle “black letter law”. In October 2007, the PO’s office produced a very clear guide to its function – “Principles for Remedy”. There in bold it states: - “We look to public bodies to provide an appropriate and proportionate remedy for injustice or hardship suffered by complainants.”

EMAG fought for this Investigation. We put in thousands of hours and tens of thousands of pounds of our members’ subscriptions into informing the PO team on policyholders’ behalf. We are delighted with the sure-footed rigorous report, which must be the soundest and proudest achievement of the office and a credit to all involved - worthy of fighting to persuade the Government to honour.

The PO’s office is under siege. The last three PO reports have been rejected by this Government. Eventually, through the determination of the protagonists and the support of fair-minded back-bench MPs and the media, those reports have been honoured by a reluctant Government. In the closely parallel case of pensioners in failed occupational pension schemes, complainants won £3bn in compensation this January – with no outcry about the public purse. There is a mis-match between what the Government says about rekindling trust in politicians and its disposition to Parliament’s own Ombudsman. What is the point of people complaining to a PO as EMAG has if the Government repeatedly shows two-fingered contempt for the office?

The 2,819 pages boils down to two crystal-clear recommendations: the public bodies should apologise and the Government should set up a compensation fund immediately under an independent tribunal.

It was depressingly predictable that the Treasury, which had the draft report 17 months ago, should play for time and say it will not respond until the autumn. I don’t think it’s coincidence that delaying and denial has been ruthlessly consistent since the Treasury itself took on Prudential Regulation in 1998. Far from protecting investors, the pattern has been cover-up and active concealment of the true parlous state of the society. It is apparent from the report’s chronology that Equitable was unequivocally insolvent in 2001 and the FSA knew it. But the Treasury was aware that the financial services industry would refuse to pay up for the industry-wide FSCS compensation scheme if it put Equitable into administration. So the strategy has been to stuff the policyholders with all the losses and spin that they were all “fat cats” who could afford it. One Labour MP is reported to having said of the report that “it’s not as if they were steel workers.”

When the society closed its doors there were two groups: one of about one million policyholders with an average of £4,000 invested in AVCs or group schemes and the other, 500,000 serious savers for retirement with an average pot of £45,000. Today, that would buy an annuity of about £70 per week – hardly fat cat. And what of those smaller investors? There were, for example, many thousands of them in the NHS’s AVC scheme with a few thousand pounds - nurses and hospital workers who could ill-afford their average loss of 15%.

Inevitably, with everyone nervous about the economy, there’s a predisposition against the public paying up, especially after the tens of billions the Government has dubiously risked in bailing out Northern Rock. It’s unfortunate timing that an investigation into regulation in the 1990s has been so delayed by Government sophistry that it has appeared only after seven years. But it’s a sad fact that the Equitable victims are ageing and dieing – 30,000 so far, with an estimated hundred more each week. This is why time is absolutely of the essence and the Ombudsman was right to emphasise the need for urgent resolution.

It’s been suggested that investors in other lifecos have equal claims for disappointing results. If so, where’s their outcry? Equitable has been subject to no less than a dozen substantial reports before the PO’s. There have been none into competitors, precisely because Equitable Life was unique. The PO’s report doesn’t concern comparative company performance. It investigated the regulators’ performance of their statutory duties and the financial consequences for individuals of regulators failing to act.

Some commentators have reproduced the Treasury’s spin, quoting Equitable’s current returns on a 25-year policy as only near to the bottom. They ignore that those policies were started in 1982 when there were barely 100,000 Equitable policyholders and those lucky ones benefited from high early guaranteed bonuses and are not the ones eligible for compensation.

Equitable grew almost exponentially through the 1990s, starting with a £6bn with-profits fund. A decade later it had over a million new policyholders and a massive extra £20bn, all invested after the regulators could and should have warned us off or closed the fund. The regulators had been aware from 1990 of the weakness, under-capitalisation, knife-edge solvency and many fudges that the society used year after year. These were spotted in the regulatory returns and questions were asked. The DTI had all the powers of intervention that it needed but it did not.

The Equitable Life was where trust in our regulators and the UK’s financial service industry broke down. If it had been addressed honestly and swiftly the Northern Wreck couldn’t have happened. The damage done is incalculable and ongoing. The Government must be made to change its policy of prevarication and face the fact it can’t go on - nough is enough. Fortunately, the Tories have finally stepped up to the plate and George Osborne has made a promise: - “It is up to the Government now to admit its responsibility, issue the apology that the Ombudsman demands and create the payment scheme. If it doesn’t, we will."

To help to bring this about, victims should not only sign up to the Telegraph’s petition but more importantly take the time to write to MPs expressing their outrage and an expectation that the MP will commit to support the PO’s recommendation on compensation. Further, readers can show support by registering with one of 20 new regional pressure groups (www.emagregional.org.uk) and by joining EMAG. Without our members' backing we certainly would not now have the real prospect of justice.

Repeatedly, I’ve been told to give up my quest for compensation because “they’ll never pay up” but eight years on and the case for compensation is now overwhelming, thanks to the PO. We need a last concerted political effort. MPs and voters need to support and defend the office of Parliament’s Ombudsman and its vital role in our democracy, because it’s under siege by a Government that has no moral compass. EMAG’s message to Parliament is simple: to start to rebuild our trust, change the record, own up and pay up.”

Paul Braithwaite
General Secretary
Equitable Members’ action Group Ltd (EMAG) www.emag.org.uk