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Reporting from the Public Administration Select Committee (PASC) in Westminster, Money Management witnessed both sides of the debate for government compensation for Equitable Life policyholders first hand.

From 1998 to 2001, the insurer continued to take on new business despite a downward spiral into bankruptcy - a process parliamentary ombudsman Ann Abraham today likened to "a sinking ship that kept inviting on new passengers."

During this time, regulators were "passive, reactive and complacent," according to Abraham, acting largely under the assumption that Equitable could not possibly fail.

The Financial Services and Markets Act was implemented in December 2001 transferring the responsibilities of several other regulators to the FSA, including the Personal Investment Authority.

However, many other organisations with regulatory responsibilities, including the Government Actuaries' Department, HM Treasury and the Department of Trade and Industry will be implicated by today's decision.

Despite the duration of the investigation and the length of the 2,000 page report - which Abraham jokingly titled "The reluctant regulator" - she was unable to explain how a compensation scheme would work.

She also admitted that she has, as yet, done no calculations to determine how much compensation would cost, the number of claimants, or the number of policyholders who have died while waiting.

Still, the Ombudsman told the PASC that she is optimistic that Parliament will stick to its promise to respond to her report by Autumn, and she sees two years as a "realistic" time scale for repayment.

Abraham's report raises many questions for the public. Fining the regulator, and effectively forcing the taxpayer to foot the bill, could set a worrying precedent.

Conservative MP Charles Walker pointed out that if the government bails out of Equitable Life members, the Ombudsman will soon face a barrage of complaints from Bradford & Bingley mortgage holders.

Abraham responded that the FSA is "not my jurisdiction." Thanks to section 102 of the Financial Services and Markets Act 2000, the FSA enjoys statutory immunity through a legal loophole which may still leave many members of the public out in the cold as far as compensation is concerned.

This is the Ombudsman's second Equitable Life investigation since 2001; in the first Abraham found that the regulators were not to blame.