MPs in new call for Equitable compensation

The Government came under fresh pressure to compensate policyholders in Equitable Life yesterday amid renewed claims that it had failed to prevent the society's near collapse.

The Government came under fresh pressure to compensate policyholders in Equitable Life yesterday amid renewed claims that it had failed to prevent the society's near collapse.

At a debate of the recently published Penrose report in the House of Commons yesterday, opposition MPs rounded on the Government for ignoring the evidence found by Lord Penrose that points to regulatory mistakes and "washing their hands" of policyholder suffering.

"There were operational failures by regulators that were not the result of ministers or Parliament," Oliver Letwin, the shadow Chancellor, said, lambasting Gordon Brown as "disgraceful" for not attending last night's debate.

MPs have called Ruth Kelly, financial secretary to the Treasury, "callous" for dismissing policyholder claims for compensation and blaming the regulatory system set up by the previous, Conservative Government. After a two and a half year inquiry into Equitable's demise, Lord Penrose concluded that the society was "the author of its own misfortunes".

"We too agree with that point, but there were failures across two governments," Mr Letwin said. Many MPs fear that the Government will push Equitable into administration, having told policyholders to sue the company or complain to the Ombudsman in light of Penrose's findings. Equitable's finances are still precarious, and the industry-funded Financial Services Compensation Scheme would have to bail out policyholders if it became insolvent.

MPs last night demanded to know how policyholders who had suffered losses could afford to take court cases against the society and questioned whether it was right that policyholder funds would be used to compensate policyholders.

Mr Letwin drew on the serious failures of the Department of Trade and Industry, the Treasury and the Financial Services Authority that are exposed in the report. His report describes regulators at times as "wholly passive", "complacent" and "ill-equipped". But Lord Penrose has said it is for Parliament to decide whether or not to compensate investors. "No one believes that Ruth Kelly has given a balanced and frank summary of events leading to the demise of Equitable. Lord Penrose outlines how regulatory failure was a factor affecting Equitable both before and after 1997," Andrew Tyrie MP, the shadow Financial Secretary, said yesterday. "She is asking policyholders to rob Peter to pay Paul."

Pressure on the Parliamentary Ombudsman to re-open her investigation of regulators was growing last night. Her initial inquiry, published last summer, found that there were no failures in supervising the company from 1999. The Conservatives want the Ombudsman to investigate the Government Actuary's Department, which was heavily criticised by Penrose.