Kelly in U-turn over Equitable inquiry

Ruth Kelly, the Financial Secretary to the Treasury, was forced to make a humiliating climb-down over the Equitable Life saga yesterday, conceding she was wrong to say that the Parliamentary Ombudsman's remit could not be extended to investigate the Government Actuary Department (GAD).

The admission, made in a letter to the Conservative shadow Treasury spokesman Andrew Tyrie, increases the likelihood of the Ombudsman reopening her inquiry into Equitable and conducting a full investigation of GAD's involvement in the insurer's regulation.

Speaking in the House of Commons on 24 March, Ms Kelly dismissed Mr Tyrie's request, insisting it was not legally possible to make the relevant changes without primary legislation.

While Ms Kelly was willing to admit her error, she remained adamant yesterday that no liability will be pinned on the Government. Her letter to Mr Tyrie said: "I remain confident that Lord Penrose's report does not provide evidence proving that any of the relevant regulatory bodies, including GAD, acted maladministratively in relation to Equitable Life."

Mr Tyrie said the fact that the Government had not even explored the option of extending the Ombudsman's remit illustrated its complete disinterest in conducting a full and fair inquiry into Equitable.

GAD was commissioned by the Government on several occasions before 1999 to examine Equitable's affairs, but failed to identify any failings within the insurer. However, Lord Penrose's report into the troubled insurer, published last month, heavily criticised GAD for its sustained regulatory failure.

The Ombudsman ignored GAD in her original inquiry into Equitable last year, claiming that it was outside her remit. But after the publication of the Penrose report, Mr Tyrie asked Ms Kelly to let the Ombudsman look at GAD - something which he said she could do immediately via secondary legislation.

He said: "The minister can now, at a stroke, give the Ombudsman power to investigate GAD and we now know that in doing so, she also empowers the Ombudsman to look retrospectively at Equitable. The fact that the Government never even checked whether it could make these changes before, shows its attitude towards this case. Its priority has always been to avoid paying compensation."

The Ombudsman is still considering the Penrose report, and last week wrote to MPs to ask whether her inquiry into Equitable should be reopened.