Treasury to reject Equitable payouts

More than a million Equitable Life investors are today having their demands for compensation thrown out today by the Treasury.

Ministers are telling the policyholders that the Government has no obligation to bail them out despite the near collapse of the mutual insurer, which wiped out billions of pounds' worth of their retirement savings.

Instead, the Government is almost certain to be pursued through the courts for up to £3billion of compensation following the publication of the official Penrose report into the debacle this afternoon.

The 818-page report was set to lambast financial regulators and the Government - particularly its Actuary's Department - as well as former Equitable Life management for allowing the insurer, one of Britain's oldest financial institutions, to drift towards disaster.

However, ministers will seize on the crucial finding that the scandal was as much the result of the "hands-off " regulatory regime in the City during the Eighties and early Nineties - when the Tories were in power - as any incompetence by officials.

This will allow ministers to argue that regulators were not responsible for "missing" the growing crisis at Equitable Life.

Equitable was forced to close to new investors in 2000 after 238 years in business when it lost a House of Lords case over guaranteed annuity pension policies it wrote between 1957 and the late Eighties.

These committed Equitable to bumper payouts to around 90,000 investors that eventually blew a £1.5 billion hole in its balance sheet and led to returns being slashed for other policyholders.

As a result, hundreds of thousands now face having to carry on earning many years beyond their planned retirement dates - or the prospect of hugely reduced incomes when they stop work.

Ruth Kelly, financial secretary to the Treasury, who is presenting the Penrose report to the Commons today,

will argue that the Treasury cannot be held responsible for the failings of Equitable management. The Government also believes in principle that it cannot be held responsible every time an investment turns bad.

The Serious Fraud Office is still looking at whether there is a case for a full criminal investigation of the Equitable Life scandal. If it finds that policyholders were lied to about the true precarious state of the insurer's finances, a formal fraud inquiry is likely to follow.

Policyholders will be encouraged to dig out paperwork from decades ago to give a clearer indication of what they were told - and were not told - at the time.

The Government's rejection of compensation demands will anger policyholders, who have already waited 30 months for Lord Penrose's report to be written and published.

The Equitable Members' Action Group said today there was "no evidence whatsoever" that regulatory laws in the Eighties and Nineties were designed to be so laissez faire that a scandal on the scale of Equitable Life could just "slip through." There is also fury over the 77 days that the Government has sat on the report since it was handed over by Lord Penrose, a Scottish judge, just before Christmas.

Campaigners fear that the delay has given ministers plenty of time to put their own gloss on the report, minimising its impact. There has also been criticism of the fact that a relatively junior minister has been "put up" by the Treasury to handle the report, rather than Gordon Brown.