Equitable Life battle lines become more entrenched

First, the Public Administration Select Committee followed up its pre-Christmas report with a second report reviewing the government's response. In this it slammed the government response to its initial report and the proposals by the Parliamentary Ombudsman, Ann Abrahams, that the committee had endorsed, as "shabby, constitutionally dubious and procedurally improper".

This was followed up by a letter to all MPs from Ann Abrahams who made it clear that she will use the full range of powers in the 1967 Act that governs her office which provide that "if, after conducting and investigation, it appears that injustice has resulted from maladministration and that such an injustice has not been, or will not be, remedied, I may, if I think fit, lay before each House of Parliament a special report on the case". I cannot find an example of these powers having been used in the 40 years since the ombudsman was created.

This row then exploded onto the floor of the House of Commons last week during Treasury questions when the government's attempts to hide behind its commissioning of Sir John Chadwick to come up with a hardship payment scheme were heavily criticised by MPs. This provoked an angry outburst by the junior Treasury minister Ian Pearson: "I am very disappointed that the Public Administration Committee should chose to obscure the real help that it accepts the government's payments scheme will deliver ... seemingly driven by an uncritical acceptance of the findings of the ombudsman's report and by its unjustifiable and irresponsible characterisation of the manner of the government's repsonse". This comment was meet by a barrage of shouts of "shame" and "withdraw" from the opposition benches and a stoney silence from the Labour MPs behind him.

The government is isolated on Equitable Life and knows it. It seems to think that by playing a delaying game the problem will go away. The cynics suggest that it is simply waiting for the Equitable Life policyholders to die which is happening as many of them were obviously at retirement age when they took out their annuities in the early 1990s. More likely it is running scared of the implications of agreeing to compensate for regulatory failure with the prospect of years of scrutiny and investigation over its handling of the banking and credit crisis. It does not want to set any precedent that will prompt the shareholders and customers of Bradford & Bingley, Northern Rock, Royal Bank of Scotland ... the list goes on and on ... to think that the government will compensate them.

I honestly believe that had the banking crisis not occurred the government would have been more generous in its response to the ombudsman's report. It wouldn't have been so acquiescent in allowing the ombudsman to investigate if its intention was to virtually stonewall on all of her recommendations. However, it now does have to accept that this issue will simply not go away or die off and find a more constructive way of engaging with the ombudsman, MPs, the policyholders and Equitable life itself: trading insults will get it nowhere.

The ball is now back in the ombudsman's court with her special report due to be delivered to MPs and peers straight after the Easter recess.