With hindsight, it is clear that the regulators supervising Equitable Life made serious mistakes. Had they acted differently, policyholders would be many millions, perhaps billions of pounds, better off.

Whether those policyholders should receive compensation from the taxpayer is less clear. And whether they will actually receive compensation is, of course, an entirely different matter.

The charge sheet in the Parliamentary Ombudsman's report published today is long and damning.

The Financial Services Authority (FSA) allowed one person to combine the roles of chief executive and chief actuary and failed to question the way the company calculated its solvency. They did nothing to raise the issue of omitted information in Equitable's regulatory returns, which disguised its true financial health.

The report is even more critical of the regulators in the run-up to Equitable's closure to new business in 2000. They failed to ensure that Equitable disclosed the potential impact of the “Hyman” case over its controversial treatment of guaranteed annuity policyholders. It was the loss of this case in the House of Lords that brought it near to collapse.

The regulators also failed to assess the true impact of allowing the company to remain open to new business after the judgment.

These failures robbed policyholders of vital information that could have changed their investment decisions.

In their submissions to the Ombudsman, the regulators attempted to defend their actions with varying degrees of success.

To argue that Equitable was treated no differently from some other companies rather misses the point. But the FSA appears on stronger ground when defending its decision to keep Equitable open to new business. It judged that it was in the best interests of policyholders to do so in the hope of finding a bidder for the company. With hindsight, this may have been wrong. But that does not mean it was obviously negligent and so an instance of maladministration.

The Ombudsman insists that she is not using hindsight in reaching her conclusion that policyholders should be compensated.

The Government may disagree. Even if it does accept the findings, it will be years before policyholders receive any money, and the amounts may be very disappointing. George Osborne yesterday committed a future Conservative government to setting up a payment scheme. But this would have to be “consistent with sound public finances”. The rate we are going that would be very far short of the £4 billion policyholders are claiming.

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