Taxpayers Shouldn't Be Made to Pay for Equitable Life's Mistakes

A long-awaited report from parliamentary ombudsman Ann Abraham, prepared after months of in-depth investigation into Equitable Life, found "no evidence to suggest that the Financial Services Authority failed in its regulator responsibilities".

In her conclusion, the ombudsman observed that there was a mismatch between public expectations of prudential regulation and what the regulator can reasonably be expected to deliver. Regulators can make the system 100% bullet proof if that's what people really want, but the costs of doing so are unacceptably high. What Equitable reveals are some serious faults in the regulatory system, but these do not amount to a case for compensation."It was never envisaged by those who framed the legislation establishing the regulatory regime that it would provide complete protection for all policyholders," she said.

You're probably scratching your head and wondering how this ties up with the headlines this week. Well, the words above were the conclusion of the 2003 Ann Abraham inquiry into Equitable. The highly vocal action groups such as Emag (Equitable Members Action Group) demanded that she reopen the inquiry, but she did "not believe that anything would be gained from my further intervention, nor do I believe I could meet the expectations of policyholders in terms of the remedies they are seeking". Starting another inquiry would give "false hope" to policyholders expecting her to recommend government compensation for their losses.

Foolishly, Ann Abraham went back on her words and did indeed reopen the inquiry. Maybe this had something to do with the threats by Emag to seek a high court judicial review of her first report.

I have some sympathy for Ms Abraham. I know what it's like to be in the firing line from Equitable Life campaigners. Last week in my Guardian Money column I published some of the facts about real policy payouts from Equitable this year. I pointed out that they are far from the worst in the pensions industry. Many Equitable pension policies maturing this year will have payouts just a couple of per cent lower than those of industry giant Standard Life.

The truth is that average pension payouts have fallen by 50% across the pension industry over the past ten years - not just at Equitable.After publishing these facts, Equitable campaigners and their talk boards have called me a "fascist", said that I get my orders from labor HQ, that I come from the "Potty Toynbee" school of economics, that I'm in favor of euthanasia for Equitable pensioners and that it's because of people like me that our troops in Iraq don't have proper weapons.

The last one was particularly amusing. Quite how our troops are going to be equipped with better weapons after the taxpayer has to give Equitable policyholders £4bn of our cash beats me.

May I point out that the opinions in my Money column are mine alone, not the Guardian's. My deputy, Rupert Jones, is in total disagreement with me, and believes that Abraham Report 2 is indeed grounds for compensation. And by the way, fascists suppress opinions – and I'll be publishing rather a lot disagreeing with me in this weekend's Guardian Money.

The facts remain that the management were principally at fault – but they've paid nothing in compensation. Non-exec directors were supposed to oversee the company. They have paid nothing. Auditors were paid millions to comb through the books. They have paid nothing. The actuaries were supposed to match assets with liabilities. They have paid nothing. Court case after court case has failed to establish grounds for the management and auditors to pay compensation. Yet you and me – the taxpayers of this country – are now supposed to cough up.

The campaigners today will evoke Northern Rock – rescued by the taxpayer. But let's not forget that the owners of Northern Rock – the shareholders – have not received a penny in compensation. But the owners of Equitable – its policyholders – are demanding an open-ended check, and indeed far more than the £35,000 limit currently available to savers under the Financial Services Compensation Scheme.

I'm not totally hard-hearted on this: it strikes me on reading the report that policyholders who took out Equitable policies between 1998 and 2000, may have a case for some compensation. The society entered into a reinsurance arrangement designed to shore up its finances that was spurious at best. This was at a time when the regulatory spotlight was already firmly on Equitable. But that is no argument for showering all Equitable policyholders with huge sums to meet what were completely unrealistic promises of future growth and annuity rates.

We're hearing that Alistair Darling will resist compensation as far as he can. It's not fashionable to support Mr Darling, but today I do.