Kelly washed her hands of Equitable woes, say MPs

Lord Penrose yesterday threw the door open to Parliament to decide whether Equitable Life policyholders should be due compensation, as MPs rounded on Ruth Kelly for her "callous" treatment of his findings and "washing her hands" of policyholders' troubles.

Lord Penrose yesterday threw the door open to Parliament to decide whether Equitable Life policyholders should be due compensation, as MPs rounded on Ruth Kelly for her "callous" treatment of his findings and "washing her hands" of policyholders' troubles.

Speaking publicly on his report for the first time since it was published last week, Lord Penrose yesterday told the Treasury Select Committee that the public was entitled to ask, "How could this be?", on seeing the venerated insurance company close to new business after being forced to honour guarantees for which it had not made reserves.

Lord Penrose said he could not rule out that compensation should follow his conclusions that the "regulatory system failed policyholders" and that regulators were "complacent" and operated in an "ineffective manner". But he said it was for Parliament or the courts to make that decision.

During a grilling from MPs at the same meeting, Ruth Kelly, the Financial Secretary to the Treasury, reiterated her contention that the Treasury had found no evidence of regulatory failure in his report and said policyholders should sue the company if they had a complaint.

The Labour MP George Mudie said to Ms Kelly: "You are OK ­ you can wash your hands clean of the whole situation. You have some comfort, but you are telling policyholders, who did the right thing by saving for their retirement, that they are on their own. That is a very callous way to deal with them." He called the report the most expensive history book yet written. Lord Penrose's two-and-a-half year inquiry cost £2.5m, it emerged yesterday.

Equitable is potentially open to a flood of new mis-selling claims, as the time bar that would normally restrict legislation after a certain period has been lifted by the publication of the report. Many MPs fear that Equitable could be pushed into insolvency, although the society maintains that any new claims will be limited.

The Tory MP Michael Fallon said Ms Kelly's reading of the report had been "highly selective" and asked: "Why are you continuing to wriggle out of obligations? Things happened on your watch ­ you have responsibility for them." He pressed Ms Kelly on findings in the report of regulatory failures that date from 1997, when Labour came to power, such as the crucial reinsurance treaty that helped Equitable meet its solvency margins in 1999.

Other MPs were also frustrated by Ms Kelly's refusal to accept regulatory failings were not just systemic. Norman Lamb, a Liberal Democrat MP, said: "The minister's continued silence on the process of finding redress for policyholders of Equitable Life is entirely unacceptable. Her recommendation that policyholders should sue Equitable is effectively asking them to sue themselves, and could lead to the collapse of the company.

"The Government must address the criticisms that Lord Penrose made of regulation, and a process must be created whereby the specific issue of compensation as a result of regulatory failure can be examined."