The political fallout from Equitable Life

Earlier this week the Parliamentary Ombudsman, Ann Abraham, published her report into the near-collapse of Equitable and the resulting financial losses incurred by many of Equitable’s customers.

Her conclusion is that the regulators made repeated mistakes over the years:

I have alerted Parliament to the injustice which I have found in this case resulted from serial maladministration on the part of the former Department of Trade and Industry, the Government Actuary’s Department and the Financial Services Authority.

As a result, people lost money unfairly and she has therefore called for them to be compensated. The Government isn’t obliged to implement this, though reports from the Parliamentary Ombudsman do carry a lot of weight.

For those who had money with Equitable, the possibility of compensation is by far the most important part of this story. But what will the political fallout be?

First, it’s another high-profile and long-running story about financial mess and people losing out. The more there are these stories running on, the harder it will be for Labour to turn round people’s views of their economic competence and the current state of financial affairs.

Second, this report means that Labour will either have to find large sums to compensate people (running into the billions) – at a time when government finances are already looking very weak – or Labour will have to reject the recommendation – and rejecting an independent ombudsman report that says the public lost out unfairly and should be compensated would be far from a good news story in itself.

And third, we have the Conservatives. Geroge Osborne has tried to pin all the political blame on Labour, saying in response to the report that:

The Ombudsman rightly highlights regulatory failings, including those between 1998 and 2001, when Gordon Brown and the Treasury had responsibility for this area. He cannot escape the blame for what happened on his watch.

Now note that use of the word “including”. Because it’s true that many criticisms are made of the regulators’ activities in 1998-2001. However, it’s also true that the report makes many criticisms of their activities in 1990-1997, when it wasn’t Labour in charge but rather the Conservatives.

Osborne’s argument seems to be, “If regulators make mistakes when Labour is in power, that’s Labour’s fault. If regulators make mistakes when the Conservatives are in power, that’s er … not their fault.”

The criticisms of the regulators start with their actions in 1990, a full seven years before the Conservatives lost power. Should Conservative ministers really take no responsibility for the seven years of mistakes made under their watch?

Just to give one example, one of the findings of regulator failures is over the way key posts were doubled up by the same person:

My first finding of fact is that, in June 1991, the prudential regulators approved, when they should not have done, the appointment of a new Chief Executive without insisting that he should demit office as the Society’s Appointed Actuary and without applying subsequently a closer degree of scrutiny of the Society’s affairs.

Furthermore, for the next six years, those regulators failed to consider the use of their powers to seek the ending of his ‘dual role’, despite the assurance that had been given at the time of his appointment that he would hold such a dual role for 18 months only. (Page 224)

The detailed account of how these mistakes were made (pages 228-232) make repeated reference to the involvement of the then Department for Trade and Industry (DTI). These were not mistakes being made independent of government; they were being made by a government ministry.

The report also makes clear that government ministers were responsible for the regulatory structure with Table 5a handily described as listing “the Ministers responsible for prudential regulation during the period covered by this report.” Amongst the names listed there are not merely names from the past no longer active in politics but also Frances Maude and John Redwood.

All of which makes George Osborne’s attempts to single out part of the report and blaming Brown look like a highly misleading reading of the report.