Who is holding the City watchdog's leash?

`The PIA is subject to powerful two-way pulls. On the one hand there is the industry with its vested interest in presenting matters in the best possible light; on the other are the people for whose benefit the PIA is meant to exist'

The trouble with the Personal Investment Authority, the City watchdog, is that you never quite know who's in the driving seat. Is it Britain's army of savers, whose interests it is there to protect, or is it the savings industry that funds it and still accounts for nearly half its board of directors?

The question seems worth asking again because of last week's leak to the Independent of confidential PIA papers demonstrating the industry's shameful record in dealing with the pensions transfer scandal. Of the more than 360,000 priority cases identified, the industry has assessed less than 10,000, or under 3 per cent. The record is even worse for some household names. The Pru, with the highest number of priority cases at 41,000, has processed only 10.

But for the leak, these figures would probably have remained buried behind a legal wall of confidentiality, for despite pressure for publication as part of a "name and shame" policy by elements within the PIA, it was decided to keep the statistics under wraps. Now you have to understand that this was a decision taken entirely on legal grounds. It was nothing to do with the fact that the industry didn't want to see the list published. No, siree. Actually the reason was that if the PIA published them, it would be open to legal action from life assurers wishing to challenge the validity of the figures. Er, yup. Well it convinces me, anyway.

Apparently not everyone, however, for the figures leaked. Colette Bowe, the PIA's chief executive, has reacted by ordering the appointment of "an independent person of stature" to investigate this "extremely serious breach of confidentiality". Ms Bowe, an accomplished operator in a difficult job,knows a thing or two about leaking. It was she who, as head of press at the Department of Trade and Industry during the Westland affair, famously leaked the solicitor-general's letter, culminating ultimately in the resignation of both Leon Brittan and Michael Heseltine from the Cabinet.

Admittedly she was only the conduit for a leak ordered by others, but presumably the experience was good tutoring in the arts of spin doctory. It might even be suspected that she is the source of the leak in this case, were it not for the fact it would be unthinkable for a chief executive to engage in double- dealing of this sort. No wonder she has to be seen to be vigilant in hunting the mole.

The point remains the same, none the less. The PIA is subject to powerful two-way pulls. On the one hand there is the industry with its vested interest in presenting matters in the best possible light; on the other are the people for whose benefit the PIA is meant to exist, in this case those who were misled into buying an inappropriate pension. For them, publication, albeit by the unorthodox route of an unofficial leak, is the best thing that could have happened. This affair has been dragging on for the best part of the decade. Meanwhile the industry has done its level best first to deny the problem and then sit on it. Paralysis seems to grip all concerned. At the present rate of progress, many victims will be dead by the time compensation is agreed.

To be fair on the PIA, it is not quite as much the industry's creature as might be supposed. Despite its connections with the industry, it is no longer really a self-regulatory organisation. Its authority is a statutory one derived from the Securities and Investments Board and certainly it thinks of itself as an entirely independent organisation. While its chairman, Joe Palmer, was chief executive of Legal and General at the time all those pensions were mis-sold, he's now very much a poacher-turned-gamekeeper figure. Ms Bowe herself is nobody's poodle.

All the same, the PIA remains too close to the industry it regulates. Every time anything contentious crops up, this fundamental conflict of interest shows up in sharp relief. Reform should be a priority for whoever forms the next government.

You begin almost to feel sorry for the poor old Pru. The PIA figures exposing it as the worst offender in dealing with the pensions mis-selling scandal follow hard on the heels of an equally alarming league table which shows that it offers particularly poor value to its clients on life and pension products.

In terms of investment performance, most of the big life assurers are all much of a muchness. They vary a bit from year to year, but over the long run they all generate roughly the same returns.

The difference is accounted for largely by administrative costs and charges. On this front the Pru scores particularly highly. This is partly because it is a proprietary company, and must pay some of the profits generated in the life fund to outside shareholders. But it is also because costs are simply too high.

Curiously, neither of these two things seems so far to have affected the company's ability to sell, even though industry specialists have been vaguely aware of them for some years now. Last year the Pru took more new annualised premium income than anyone else. This year it is still running Equitable Life a close second. The power of brand and marketing is a mighty powerful thing, it would seem.

It may not last, though. The public is slowly becoming more savvy in these things. It is still possible for a clever life assurance salesman to sell his client a pup but it is not nearly as easy as it was. Furthermore, reaction to adverse publicity is nearly always a delayed one. The sales figures may look all right at the moment, but two or three years down the line things could be very different. Peter Davis, the Pru's now not- so-new chief executive, would be well advised to spend less time dreaming up grand acquisition and banking strategies and more on setting his present house in order.

The Labour Party is getting its knickers in the most frightful twist over the windfall profits tax. This is the Labour Party's only revenue- raising tax proposal thus far, so come hell or high water, there is no question of it being dropped.

The difficulty comes in deciding how the tax should be levied. Whichever method is chosen, it is going to be unfair, so Goldman Sachs, which is developing an unhealthily close relationship with New Labour, has devised a way (gratis) for Mr Blair which it considers least unfair. The idea is that all privatised companies should pay about 15 per cent on any return made by shareholders over and above the stock market average. Simple.

There is an obvious flaw, however. The effect is to tax present shareholders, many of whom will be new to the company and won't therefore have benefited from the windfall gains. If Goldman Sachs cannot come up with a way that is fair on the capitalist system it makes so much money out of, then it should not be trying at all.