Kelly stokes up Equitable row

TREASURY Secretary Ruth Kelly fuelled the political row raging over the Equitable Life debacle today by refusing to accept any blame for the regulatory failings that contributed to the group's near collapse.

In a heated exchange with MPs, Kelly attacked the 'flawed' regulatory system of the former Tory Government for failing to spot the deep-rooted problems that have pushed the mutual to the brink of insolvency.

She insisted throughout more than an hour's testimony to the Treasury Select Committee that changes made by Labour since it came to power in 1997 meant Britain now had a world-class regulatory regime.

But, despite her attack on the Tories, the minister once more refused calls for either Government compensation or a new inquiry by Scottish judge Lord Penrose into the question of redress for savers.

Reiterating the Financial Ombudsman was ready to listen to fresh mis-selling claims, she said: 'There has been no finding of maladministration and no recommendation for compensation.'

Kelly's comments drew a fierce response from the Select Committee's Conservative MP, Michael Fallon, who accused her of 'wriggling out of any responsibility' to policyholders.

He told the Evening Standard: 'She's being completely disingenuous. There were management failings in the Treasury and the Financial Services Authority for which ministers are responsible. She's pushing Equitable towards insolvency, which is the cruellest stroke of all. She's inviting policyholders to, in effect, sue themselves and that's just criminal.'

The pressure on Kelly to budge on compensation was increased after Lord Penrose earlier indicated to Committee chairman John McFall that ministers had to shoulder some of the blame for the quality of the regulatory regime.

He said: 'Those entrusted with the regulatory function were not terribly well equipped by knowledge or skills to make a significant contribution to it.'

Kelly has been under fire since she was accused of 'spinning' the findings of Penrose's mammoth 818-page report in the House of Commons a week ago.

She said Penrose found Equitable was the 'author of its own misfortunes' and had suffered from paying out far too much in bonuses, a situation that wiped out its capital reserves.

She told MPs that the Serious Fraud Office was still looking into the findings of the report and defended the time the Government took to read through it before last week's announcement.

Penrose insisted it was his decision not to carry out his two-and-a-half-year investigation on a statutory basis, and that he had enjoyed the full co-operation of Treasury officials throughout his inquiry.

But Labour MP George Mudie argued his narrow terms of reference - Penrose was unable to consider compensation - meant that, at £2.5m, the report was the 'most expensive history book ever written'.