Lord Penrose's conclusion that the board and management of Equitable Life were primarily responsible for the mutual's near-collapse was just what ministers wanted to hear. But Penrose is no Hutton, and his report provides plenty of ammunition for policyholders pushing for compensation.
The report reveals an extraordinary culture of incompetence and manipulation at Equitable from 1983 onwards.
Not surprisingly, Penrose concludes that the company was the prime author of its own misfortunes. That is doubly helpful to the government, which can argue that any inadequacy in the regulatory system reflects the shortcomings of the Conservative government that introduced and oversaw it; and that regulation in any case had only a secondary effect on Equitable's failure.
Ruth Kelly, the financial secretary to the Treasury, argued forcefully in the Commons that Penrose's criticisms were limited to the failure of ministers to keep the system up to date.
Her point is that there is no case for compensation if the regulatory system approved by parliament was being properly operated. But the report is full of scathing criticisms of the Trade and Industry Department and the Government Actuary's Department, which shared responsibility for Equitable.
The DTI insurance division was "ill-equipped" to be a regulator, with inadequate and under-qualified staff, misunderstood the role of Equitable members and, with GAD, failed in its duty to monitor the conduct of regulated businesses.
The GAD failed to challenge Equitable's actuarial valuations; it was complacent and hesitant in challenging Equitable management; it operated the regulatory system with "an air of unreality; it failed to spot signals of the society's weakening financial position; and its scrutiny process was slow".
The regulators failed to require Equitable to account for its with-profits fund in a way that would have disclosed a realistic position and allowed it to use financial instruments based on estimates of future profits that removed the accounts from reality, Penrose says.
The government points out, rightly, that it has taken action since 1997 to address many of the regulatory problems exposed by the report - notably by establishing the FSA as the sole regulator. But that does not weaken the argument that Equitable members were entitled to rely on the government to operate its regulatory system efficiently.
Penrose demonstrates conclusively that they were let down - by the government, not just by the Tories. No regulatory system can provide 100 per cent protection to consumers, and trying to do so would encourage both consumers and providers to take unnecessary risks.
But the public has lost faith in the financial services industry in the wake of the scandals over pensions, endowment mortgages and precipice bonds. The government wants people to save more, but they will not do so unless they have confidence in the regulatory system.
Penrose makes no recommendations about compensation. But ministers should beware of damaging their wider objectives by taking too tougher line.
Penrose shows that Equitable members were let down by their management, their board, their auditors, their regulators and their government.
In its own interest as much as that of the policyholders the government might yet wish to be more sympathetic than it currently says it needs to be.
