Penrose report sparks calls for Equitable compensation

Oliver Letwin, the shadow Chancellor, is to press for compensation for the victims of the Equitable Life scandal if, as expected, it is found that regulators were at fault.

A report into the collapse, written by the former judge Lord Penrose, is due to be published tomorrow. The 818-page report is expected to criticise past board members and senior executives at the life and pensions group, as well as the regulatory authorities that oversaw the company.

In the years before Equitable's collapse in 2000, it came under three different regulatory regimes - first the Department of Trade and Industry, then the Treasury and then the Financial Services Authority. Since the Equitable crisis, the FSA has recognised the failings and has shaken up the way insurance and pensions firms are regulated.

Equitable collapsed after it lost a court case against holders of policies that guaranteed a payout, which Equitable was hoping to avoid. It had insufficient reserves to cover the guarantees.

Policyholders in Equitable are pressing for the Government to compensate them because they argue that the regulators should have spotted Equitable's problems long before they became critical.

Ruth Kelly, the financial secretary to the Treasury, is expected to reject those demands. However, Mr Letwin told The Independent on Sunday that the key issue was whether regulators had failed: "If Penrose shows there was a failure, then we shall be pressing for the Government to work out an appropriate form of compensation."

Ironically, many MPs could be in line for this compensation, as the House of Commons ran an additional voluntary contribution scheme with Equitable.

Ernst & Young, Equitable's auditor, is facing legal action from what is left of the company, as are former directors. It is expected that the Penrose report may provide extra ammunition for those claims.