Government was wrong to reject Equitable Life findings, says Ombudsman

In July 2008, Parliamentary Ombudsman Anne Abraham found "serial regulatory failures" in the way the UK's oldest mutual life assurance company was supervised in the years leading up to December 2000, when it closed its doors to new business, and in the months following that decision.

Over a million policyholders are believed to have been affected by Equitable Life's near-collapse, suffering losses estimated at more than £4 billion.

The Ombudsman's report, Equitable Life: a decade of regulatory failure, identified 10 instances of maladministration resulting in five instances of injustice to policyholders. It recommended that the public bodies concerned apologise and that the Government set up an independent compensation scheme to assess individual policyholder's claims.

In a detailed response published last month, the Government accepted four instances of injustice resulting from maladministration and apologised for those failings. But in most cases, the acceptance was limited in scope. Other findings were rejected in their entirety.

Further, instead of a compensation scheme aimed at putting policyholders back into the position they would have been in had no maladministration occurred, the Government announced a scheme to make discretionary payments to those "disproportionately affected" by losses it believes were caused by maladministration – without any admission of liability.

In a memo addressed to the House of Commons' Public Administration Select Committee, the Ombudsman welcomes the Government's acknowledgment that there had been some maladministration regarding Equitable Life and that at least some financial redress was due.

But she found it "disappointing" that the Government did not accept more of her recommendations and she criticised the basis on which many of her conclusions have been dismissed.

In particular, she believes the Government's response provides insufficient support for rejecting her findings, fails to address the basis on which she came to those conclusions and appears to suggest that, given the regulatory regime in place at the time, whatever the regulators could have done would have made little or no difference.

"If it were truly the case that the relevant regulators, acting without maladministration and operating the Parliamentary system as Parliament intended it should be operated, could have made no difference to the events covered in my report, then that would be astonishing," the   memo states.

More generally, Abraham says the response raises "fundamental" issues about the Ombudsman system.

The office of Parliamentary Ombudsman was set up forty years ago to carry out independent investigations into complaints about UK government departments and their agencies, identify appropriate redress and suggest longer-term improvements based on lessons learned.

Last December, when the Government's response to the Ombudsman's report was still awaited, the Public Administration Select Committee said it would be "deeply concerned if the Government chose to act as judge on its own behalf by refusing to accept that maladministration took place. This would undermine the ability to learn lessons from the Equitable Life affair".

Those concerns are now echoed in Ann Abraham's memo.

"Once again, the Government has thought fit to reject findings made by the ombudsman after a lengthy, detailed, complex, and rigorous investigation," it states.

"That the Government has, through its response, again sought ‘to act as judge on its own behalf’ raises questions about whether it is prepared to accept independent judgments about the actions of Government bodies. It also raises questions about whether citizens can rely on the implementation of independent adjudications of their complaints.

"Those are serious questions which go to the heart of the effectiveness of the ombudsman system and the ability of Parliament to hold the executive to account using the work that we produce.

"It does not seem to me consistent with the intention of Parliament when it established my office that Government bodies should, before such questions of remedy arise, reject my judgments on maladministration and injustice on the grounds merely that they disagree with those judgments or simply have a different view".

The Committee is now considering further evidence from the Ombudsman, Equitable Life and policyholders' action groups.

Meanwhile, the Ombudsman is considering whether to submit a special report to both Houses of Parliament, as she is entitled to do under the Parliamentary Commissioner Act if, after conducting an investigation, it appears that injustice has been caused by maladministration and has not been remedied.