A wise move by Abraham

THE Treasury has done its best to sweep the evidence of regulatory maladministration at Equitable Life under the carpet.

It was aided and abetted in this process by Scottish Judge Lord Penrose who made a number of criticisms of government departments in the narrative of his rambling report released in March, but failed to hammer them home.

This left the Minister concerned, Financial Secretary Ruth Kelly, with the opportunity to apportion blame for the collapse elsewhere.

In laying the report before the Commons, she suggested 'light touch' regulation under the Tories and over-bonusing by Equitable's former chiefs was largely responsible for the company's problems.

All of this was deeply disappointing to the 1.2m people who held Equitable policies when the group closed its doors to new business in December 2000.

Even as recently as May, three-and-a-half years after the collapse, Kelly was still seeking to obstruct a further inquiry.

She wrote to Ann Abraham, the Parliamentary Ombudsman, suggesting that the narrative of the Penrose report did not require any further investigation. She argued that the complexity of the issues made them unsuitable for another inquiry.

Fortunately, Abraham has shown the independence of spirit to ignore this advice and to disregard a similarly negative response from New Labour's creation, the Financial Services Authority.

It is not difficult to understand why Kelly and the FSA were keen to avoid an Ombudsman investigation.

One concern must be that the FSA will come in for some stick alongside the Treasury itself, the Department of Trade and Industry and the Government Actuary's Department (which is to be brought within the new inquiry's terms of reference).

Second and most important, with the government finances deteriorating, as demonstrated by last week's public spending statement, Labour does not want to be lumbered with a potential multibillion pound bill for compensation.

This is especially true as it believes many policyholders to be middle class and capable of absorbing the losses.

The Ombudsman inquiry is essential if the cloud hanging over the private sector savings industry is to be lifted and public trust in pensions and regulation is to be restored.

Branson pickle

INVESTMENT banks need to do some rethinking about how they price future flotations after Miserable Monday.

Despite all of the denials that the offer prices for Premier Foods and Virgin Mobile would not be trimmed, they duly have been.

Virgin to all intents and purposes-found itself drowning in Premier's Branston pickle.

The effective 20% drop in the float price of Premier meant that Virgin Mobile had to follow suit.

Virgin Mobile has its own particular problems. It was not very sensible to believe that a derivative, branded product should be valued more highly than the world's market leader Vodafone.

Moreover, Sir Richard Branson is not a stock market favourite. Ironically, as a result of the latest shenanigans, new shareholders will be a minority holder in a 75% personally-owned Branson company, not 63%, putting them even more in a minority. Branson will only be able to extract £138m cash at present against the £279m hoped for initially. This will give him fewer readies to plough into his new Virgin America airline.

None of this should be taken as a reflection on the Virgin brand. Branson remains the best creator of brand value in British business. But investors, having had unhappy experiences of past Branson floats, do not want to be nursing losses yet again.

Rule Britannia

FOR much of the post-war period the conventional wisdom was that the real winners of World War II were the Germans. Equipped by the Marshall Plan with fine modern plant and infrastructure, they outperformed the rest of Europe.

So it is refreshing to learn from Christopher Smallwood, of Barclays, that Britain's gross domestic product per head is now the highest in Europe at $30,200, ahead of Germany's $29,200.

Moreover, trends in working population and productivity point to Britain overtaking Germany to become Europe's largest economy by 2024/5.

Germany has the opportunity to play some catch-up if it takes radical measures such as raising the pension age, increasing labour market flexibility and moving to adopt new technologies more quickly. But so far change has proved notoriously slow.

The prospect of Britain returning to its days of greatness, when it ruled the waves, will provide a powerful argument for those who want to resist the pull of euroland.