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Media Stories: 24/11/2002 - Equitable: Treasury feels the pressure - Teresa Hunter in the Sunday Telegraph

24 November '02 - Equitable: Treasury feels the pressure - Teresa Hunter in the Sunday Telegraph

Calls are growing louder for the Penrose inquiry to shed light on how much the Government knew about the looming crisis and to be given free rein to award damages. Teresa Hunter reports

The government came under renewed pressure last week to come clean over the Treasury's role in the collapse of Equitable Life at the earliest opportunity. MPs were also demanding that the scope of the Penrose Inquiry be widened to compensate elderly victims before they die.

Amid growing concerns that the Government-sponsored inquiry would do more to conceal regulatory mistakes than help bruised investors, Lord Higgins, the Tory work and pensions spokesman, has called for the terms of reference to be widened, giving Lord Penrose a free hand to conduct a thorough investigation, to award compensation where it is warranted and to ensure that all his findings are published.

Lord Higgins says:

"It's apparent that the Treasury has failed to regulate the company effectively, yet it has commissioned an inquiry into its own role as regulator, and established its own terms of reference."

The Conservative spokesman on Equitable in the Commons, Stephen O'Brien, says:

"There's an urgent need for Penrose to be given a clear timetable and for the outcome to be published in full."

O'Brien also highlights the potential for cover-up:

"It's imperative for the Treasury to go on record and give a categoric assurance that it is co-operating fully with this inquiry. The Treasury must be open and honest about its own role in the Equitable Life crisis."

As things stand, Penrose has no remit to establish blame, or order redress. There are to be no public hearings, and "confidentiality agreements" will prevent the inclusion of vital evidence in the report.

More worryingly, until its work is completed, the Penrose inquiry will paralyse the activities of energetic rottweilers such as the Parliamentary Ombudsman (who, unlike Penrose, can call for compensation), and the Treasury Select Committee.

The Financial Ombudsman, who has proved a formidable consumer champion, has agreed to put on ice the 2,000 complaints he has received so far until the mist clears.

At the moment, all these bodies have effectively had their hands tied until the Penrose inquiry is over - possibly at least a year hence. Much of the evidence has yet to be heard, and the report will take many months to write.

Further delays will be caused by the "maxwellisation" process, which means that anyone named in the inquiry will be given a preview, as will their lawyers. When the findings are eventually published, the best that can be hoped for under the current remit is some acknowledgment that mistakes were made, and that there are lessons to be learned.

This will do nothing to alleviate the plight of pensioners living on the breadline, thanks to Equitable's bungling. They may never enjoy the satisfaction of knowing who was to blame. Given the record of successive governments in suppressing damaging details, the public may be left little the wiser about the truth.

While the Treasury has said it hopes to publish as much of the report as is possible, the pattern in the past has been to bury sensitive material. Victims of the BCCI scandal, for instance, are still locked in litigation with the Bank of England more than a decade later.

Delays and secrecy work to the advantage of those who ultimately face paying for Equitable's failure, whether politically or financially. As Lord Higgins points out:

"Many of those involved are frail and elderly. Frankly, the way things are going, they won't live long enough to be compensated. This could drag on for years, and time is not on their side."

Treasury ministers have refused to disclose documents relating to discussions about Equitable's solvency dating back to 1998, when it is thought that officials seriously considered closing the company to new business. A tidal wave of money subsequently flooded into with-profit annuities, following high-profile television and newspaper advertising and the offer of attractive terms.

Many of the people who bought pensions at that time are now facing cuts in value of up to a third. They could have been spared a great deal of pain had the Government intervened at that point.

A Treasury letter dated December 1998, which has been made public, seemed to be endorsing Equitable's strategy of giving tacit approval to the controversial policy of differential bonuses which led to the crisis.

All of which points to the need for a truly independent inquiry to get to the bottom of these issues. O'Brien says:

"We need the speediest possible answers to many questions, not least the Treasury's involvement - particularly the letter giving support to the two-tier bonuses and how important these were in triggering the eventual crisis."

After private discussions, the Treasury Select Committee is now formally writing to the chancellor, Lord Penrose, the Financial Services Authority and the Parliamentary Ombudsman to establish whether sufficient progress is being made.

Although litigation against Ernst & Young, the auditors, is said to be continuing, any further court battles will have to await the outcome of Penrose. However, the disciplinary body for accountants is pressing ahead with its own investigations after rejecting an attempt by the auditors to delay proceedings until Penrose reports.

Those involved in the Penrose inquiry are anxious to dispel what they describe as the "myths" surrounding the inquiry - such as the fact that Lord Penrose will be prevented from apportioning blame.

Hugh Burns, the secretary to the inquiry, says:

"It's true he can't determine liabilities. These are issues for the courts. But learning lessons for the future is all about identifying what went wrong and highlighting deficiencies. This will, by its very nature, involve making adverse findings against institutions and possibly individuals.

While it will be up to the Government to make a decision on compensation, Penrose can at least make recommendations, he added.

Some say that Penrose isn't even looking in the right direction. One policyholder, who spent seven years fighting Equitable for mis-selling, finally received a full settlement last year. He was flabbergasted to be told by the inquiry that his case could not be used as evidence because it was subject to a confidentiality agreement.