An Equitable outcome?

There has been much huffing and puffing about whether or not the government should compensate the Equitable Life victims, with many well-informed and well-meaning people taking a hardline and saying no. Others, with a more generous spiritedness, are saying yes, with the majority undecided.

But, there is clearly a case for the government to answer, both in theory and as a matter of practicality.

Take the theory: the government - or more correctly the state - has a duty of protection to its citizens and one of care through its various regulators or agents.

It is impractical for each individual, every time he or she wants to make a purchase, to seek to verify the qualifications of the product manufacturer.

So, in an advanced society, that responsibility is delegated to the state on behalf of all its citizens. The government, on its part, acts as the executive arm of the state with the civil service as the administrators.

If therefore regulators fail in their duty of care to policyholders (as citizens), either through incompetence or negligence, there is clearly a powerful case for the regulator's employers to be held responsible.

If, on the contrary, the regulators were competent and carried out their responsibilities with due diligence and the problems that have occurred with Equitable Life's guaranteed annuity rate policy were due to false promises, then society would be solely responsible.

All the evidence - so far over 2000 pages - has pointed to serious failure on the part of the department of trade and industry, the government actuary’s department and the FSA.

It is this failure, not the arrogance of senior managers at the society, nor its illegitimate promises to some of its policyholders, nor the bullying management style of its then chief executive, that underlines the case for government compensation.

To confuse the regulatory failures of Equitable Life with those of Northern Rock is to misunderstand the nature of regulation.

It is true, both cases shared certain features: chief executives with strong personalities, poor non-executive directors and regulators either intimidated by the provider or ignorant of the processes.

The bottom line is that there is no logical justification for compensating Northern Rock investors and not Equitable policyholders.