Government disputes order to pay billions to Equitable policyholders

Ann Abraham, the Parliamentary Ombudsman, will order the Government to apologise and pay billions of pounds in compensation to the thousands of policyholders who lost out due to the collapse of Equitable Life, accusing both the current and previous governments of presiding over a "decade of regulatory failure".

In a 2,200-page report, which examines the Government's role in the collapse of Equitable Life, Ms Abraham will find the Government guilty on 10 counts of maladministration. The report accuses the Treasury and Financial Services Authority of maladministration in the final years leading up to Equitable's collapse in 2000, when Gordon Brown was Chancellor.

Kitty Ussher, the economic secretary to the Treasury, will file a letter to the House of Commons this morning, claiming that the Government will give its full response to the report when Parliament returns from recess in the autumn. However, the Government's preliminary response, which is included within the Ombudsman's report, indicates it is unwilling to meet Ms Abraham's demands, claiming it is beyond her remit to call for compensation to be paid. A rejection of the report's findings, however, is likely to spark a major political row, once again bringing into question the role of the Parliamentary Ombudsman, and the Government's respect for the democratic system.

Over the past three years, the Ombudsman has found the Government guilty of maladministration on three occasions. In the previous two instances – relating to tax credits, and the regulation of the occupational pensions industry – the Government dismissed the findings.

Vince Cable, Treasury spokesman for the Liberal Democrats, said yesterday: "If ministers choose to disregard this report, as they have done over tax credits and occupational pensions, it will be the final nail in the coffin for the Ombudsman's credibility."