Telegraph breaks news of Government climbdown on compensation

"TREASURY FINALLY OFFERS PAY-OUTS TO EQUITABLE VICTIM.
Government compensation, ministers will announce.

The Treasury is understood to have conceded that regulatory failures were partly to blame for the investment firm's collapse and that some pay-outs will be made……………….

Yvette Cooper, the Chief Secretary to the Treasury, is expected to tell MPs that the Government will establish an independent tribunal to calculate the level of compensation that should be paid.

Ministers may also formally apologise for regulatory failings in the run-up to Equitable's collapse.

The Government announcement marks a climbdown by ministers who have argued for more than eight years that they cannot be held accountable for the failure of Equitable Life.

It will prove embarrassing to Gordon Brown since he ran the Treasury - which oversaw the regulators responsible for the crisis - during much of the period when failings were identified.

Campaigners have demanded more than £4 billion from the Government. More than one million people - mostly middle-class professionals - lost up to 50 per cent of their savings, totalling tens of thousands of pounds in many cases.

15 victims of the scandal are said to be dying every day without receiving what they are owed.

However, the final compensation payments are likely to be much lower as the tribunal is expected to rule that regulators and the Government can only partly be held responsible for Equitable losses.

As part of the announcement, the Treasury will be very careful not to admit any culpability.

Treasury sources said that they are anxious not to establish a precedent for people suing for compensation over other financial scandals particularly as the recent financial crisis has led many to question what role the authorities played in failing to spot the looming disaster.

Miss Cooper is also likely to point to the role that company itself played in Equitable's collapse. She will stress to MPs that the Treasury's role was not central to what happened.

A Treasury source said: "The company was not an innocent party. That has been established by the independent reports and is pretty much conceded by everyone.

"It was also clearly an issue for the authorities. But there needs to be a realisation that you cannot have a zero-failure regulatory system.

"We are very mindful that when you are talking about taxpayers footing the compensation bill then you need to be cautious."

There will be a detailed look at which victims are entitled to compensation…………………

However, the statement is unlikely to satisfy some policyholders who have campaigned for eight years to get their money back.

Paul Braithwaite of the Equitable Members Action Group said: "The risk of a tribunal is that we will face further delays for what is now a terribly overdue necessity. We are not seeking charity, this is about a right to justice."

Deciding on how much compensation should be paid is likely to be a complicated process. The tribunal will have to compare how much Equitable Life investors should receive if the regulatory failures had not occurred.

Equitable Life is accused of paying out too much in investment returns in the 1980s and 1990s which meant it had inadequate reserves. The firm's payouts to customers are likely to be compared against a "basket" of rival investment schemes

Last summer the Prime Minister was personally criticised by the Parliamentary Ombudsman, Ann Abraham, for failing to set up an inquiry when he was Chancellor into Equitable Life in 2001 - a decision described as "iniquitous and unfair" in the official report.

The Ombudsman ruled that the Department of Trade and Industry, the Government Actuary's Department and the Financial Services Authority (FSA) were guilty of "serial maladministration" .

Those findings have forced the Treasury to finally look at compensating victims, despite initial indications that ministers would seek to block payments.

However, the recent financial turmoil - and the bailout of savers in Icelandic banks - is thought to have led officials to advise that this position may not be tenable. But, the Treasury remains wary about setting a precedent for paying compensation for regulatory failures………

The Conservatives have already pledged to set up a compensation scheme if elected, so the announcement is likely to be welcomed.”

Daily Telegraph, by Andrew Porter and Robert Winnett 14th January, 2009