£1.5bn is the best deal Equitable Life policyholders will get
The compensation demanded by the policyholders has steadily crept up in the many years I have been following this scandal. When the action groups first held meetings with MPs to lobbying for a settlement they were talking about £2bn. Then, as the campaign gained momentum this jumped to £4bn, a figure which although high, seemed to find some acceptance among those campaigning alongside the policyholders and which was broadly endorsed by the Parliamentary Ombudsman in her report in 2008. Now, the demands have jumped again and £6bn is being bandied around as a 'fair' settlement.
The trouble is no-one really knows as it depends on alot of assumptions and quite a few subjective judgements, key among which is how far the old maxim of caveat emptor (buyer beware) should have applied to a group of policyholders generally better off and better informed than the average investor when buying products that had some of that "too good to be true" lustre that is frequently found on so-called top-performing financial products. Beyond that difficult question, there is the almost insoluble problem of separating how far Equitable's demise was down to bad management (not compensatable by government) and how much was down to regulatory failure, for which the government should be expected to pick up the tab.
After years of debate and delay by the last government, we do at last have a substantial offer on the table, one that is three times the size of that recommended by Sir John Chadwick just three months ago in his report commissioned by the outgoing government. It is a decent offer and one that allows both the Conservatives and Liberal Democrats to say they have delivered their election manifesto pledges to compensate the policyholders and to do so quickly. This will mean largely ignoring last week's report from the House of Commons' Public Administration Select Committee which urged the government to re-engage Sir John Chadwick with revised terms of reference based on the earlier report by the Parliamentary Ombudsman. I really can't see where this would get anyone. If asked a new set of questions, Sir John would probably come up with a higher figure than the £400m to £500m in his July report but how long would that take and, if his recommendation was significantly above the £1.5bn now on the table, how likely would the government be to throw more money into the pot? Let me hazard some answers to those two questions: it would take too long and the government will not increase its offer when it is massively reducing public expenditure.
It is time to accept that this is the closing chapter of another sad story of failure in the UK financial services market.
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