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: 16/01/2009 - EMAG director Alex Henney reviews Treasury handling post the Government’s Statement

EMAG director Alex Henney reviews Treasury handling post the Government's Statement

Financial Times, by EMAG director Alex Henney
16th January, 2009

Equitable: one of Labour's shabbiest episodes

The problems of Equitable Life are rooted in the late 1980s and early 1990s and were due to the way it tried to handle generous guaranteed annuity rates. Because it ran a Ponzi-like fund, it declared over-large bonuses to policyholders so as to announce good results and promote growth. The government as regulator did nothing, but by 1998 the Treasury realised that it was in a financial mess.

The Treasury and its agent, the Financial Services Authority, first tried to pretend Equitable was viable by allowing a deceitful piece of financial flummery to window-dress the regulatory accounts. After Equitable lost a court case in July 2000 and failed to find a buyer, the problem of excessive bonuses became apparent in 2001. The Treasury/FSA then ran a campaign to cover up what had happened and to stitch up the policyholders. They aimed to expunge policyholders' rights to take legal action; to delay by inviting Lord Penrose, a judge and accountant, to write a history of what had happened, which did not apportion blame to the regulator; and to obfuscate. Ruth Kelly, former financial secretary, economised with the truth in parliament when reporting on Lord Penrose's report.

In 2004 the parliamentary ombudsman took up the cudgels and after four years - a period lengthened by Treasury delaying tactics - she reported last July on "a decade of regulatory failure". She found maladministration on 10 counts. Five related to the early Conservative years and five to Labour years. She found injustice causing loss resulting from five of the maladministrative actions. She recommended that the government apologise to policyholders and compensate them for losses incurred as a consequence of the maladministration. In December the Commons public administration committee agreed with her, stating: "Where regulators have been shown to fail so thoroughly, compensation should be a duty, not a matter of choice."

Yvette Cooper, the financial secretary, finally gave the government's response on Thursday. She apologised, but money is limited to what is called "a fair payment scheme for policyholders who have suffered a disproportionate impact". This is not compensation, but a means-tested payment that will be available to a minority of policyholders. Devising a scheme and checking paperwork will doubtless take a significant time - so more elderly policyholders will die. She justified this approach, which does not comply with the ombudsman's recommendation, with selected phrases from Lord Penrose and the ombudsman taken out of context and some dissembling claims, including that the issues are complex. They are, but the Treasury has had seven years to think about them. The first rationale for the approach is the old canard of Lord Penrose that: "Principally, the society was the author of its own misfortune." Agreed, but the point of having a regulator is to ensure management keep on the rails. Politicians who parade this argument - like most public employees, many of the retired officials responsible for the maladministration, and Ms Kelly and Ms Cooper - have pensions guaranteed by tax and ratepayers. They do not have to worry about the performance of any management or regulator.

The second rationale was that the "taxpayer should not provide a remedy for all losses every time the regulator fails to prevent a financial institution getting into trouble", a statement contrary to the Treasury's own guidance on compensation. We are not talking of an odd slip-up. We have a decade of multiple failures, including a failure by government to apply the legal regulations intended to stop such failures. Furthermore, every year we paid the government for the service. We have a right to expect it to regulate properly and not mislead policyholders.

Why pay depositors in Icesave, who went for a high-return product, and not people who saved for their pensions and relied on the government as regulator to ensure that a very complex product was secure? The approach is one of Gordon Brown's policies that have undermined private pensions and created two pensioner nations.

The treatment of the policyholders of the Equitable has been one of the shabbiest episodes of this government. It reflects no credit on the integrity of the government, let alone Mr Brown's claim that: "Fairness is the [Labour party's] DNA." Instead we have had delay and dissembling. We now hope parliament will redeem itself and insist on holding a debate; we demand justice not charity. We will look to see if we can take legal action against the government either in England or Europe.