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Ministers to make an Equitable Life payout of £1.5 billion, according to the Daily Mail

By Paul Goodman

Screen shot 2010-10-16 at 08.00.48 Newspapers like declaring victories in the manner of Roman Emperors celebrating triumphs - and the Daily Mail finds reason to do so this morning. It reports that the Government is to pay out £1.5 billion to people who lost out in the Equitable Life debacle.  "The move represents a victory for the Daily Mail," the paper declares, below the headline: "Triumph for Mail's campaign as up to a million victims will get payouts three times as big as they expected."

Key points, according to the Mail -

  • Sir John Chadwick recommended a payout of some £400 million in his report.
  • The Conservatives suggested a sum of about £1 billion before the election.
  • "A total of £1billion is expected to be paid out up front in next week’s spending review."
  • "A further £500 million will be made available to recognise the plight of with-profit annuity holders. It will cover the total relative loss they suffered, paid through annual payments until their death. The cash will effectively replace the payment stream they have lost."
  • "It will take a few months to set up schemes for paying compensation – particularly for those who will receive regular payments until their deaths – meaning the first payouts will be made next year."
  • "The compensation package is less than the ‘relative loss’ of policyholders, meaning it is likely to be criticised by some."
  • "Ministers insist the settlement is fair in tough economic times, and point out that Ann Abraham, the Parliamentary ombudsman, in her ruling on the scandal, said it was appropriate to consider potential impact on public purse of any payment of compensation."
  • "Crucially, the Government’s compensation package will prioritise hard-working savers who invested for their retirement over wealthy speculators."

And five observations -

  • Tory backbenchers want a generous payout (as backbenchers usually do, regardless of party): Referring to a Commons debate on Equitable Life in September, I wrote: "Over 30 Conservative MPs ...called for compensation to be as generous as possible; most were critical of the Chadwick Report; many referred to pledges that they'd made to their constituents on the matter."
  • George Osborne won't want a war with his backbenches: That 30 was probably the tip of an iceberg.  George Osborne won't want trouble with Tory backbenchers on the matter (let alone the Mail).  He's probably planned the lowering of expectations in advance, followed by this announcement to exceed them, for some time.
  • The news has presumably been leaked early to avoid it being lost in the spending review: I assume that any package on this scale to be paid out in the near future has to be tied to Wednesday's spending announcements.  It would certainly have been swallowed up by the other news had it been made then or later in the week.  It's a one-off hit: the Mail will swallow its victory, and move on.
  • Labour and others will say that the news should have been announced in the Commons.  I expect that they'll say the same of Nick Clegg's "Fairness Premium", which was set out in some detail in a speech yesterday.  The Conservative front bench would certainly have grumbled about the Equitable leak had Labour made it.  But I imagine the Opposition won't demand a formal statement - this looks like a "good news" story for Ministers, after all.
  • As with Clegg's Premium, the golden rule of sudden spending announcements applies - namely, it'll be worth studying the small print closely.  The news has bought off the Mail, at least for a moment.  Will the Equitable victims take the same view?

Oh, and a last point.  The Mail says: "The move to prioritise compensation at all may prove controversial at a time of massive strain on the public finances", and adds later "Government sources refused to be drawn on where the funds had come from."  Tim writes elsewhere that the Defence budget may be spared the worst.  Clegg's new fund will cost £7 billion or so.

We all know that much of a spending review is smoke and mirrors (and that the smoke's getting thicker and the mirrors wider as Wednesday approaches) but these recent announcements bring one back to the big question about the spending review: which departments -  and, especially, which services - will bear the brunt of the coming scaleback?  We'll find out soon enough.

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