The government should apologise to more than a million policyholders in Equitable Life and offer them compensation, a long-awaited report by the parliamentary ombudsman said on Thursday, almost a decade after the insurer's near-demise.

The country's oldest mutual insurer, with 1.5 million policyholders at its peak, almost collapsed in 2000 after being forced to honour unsustainable guarantees stretching back 30 years. It eventually closed to new business in one of the country's most dramatic financial scandals.

Thursday's report by parliamentary ombudsman Ann Abraham, who has been probing the case for four years, will not guarantee a payout for all policyholders and further delays are expected but it should hearten those who have campaigned for years for government compensation.

"(Those) responsible for undertaking financial regulation should act in a way that is compatible with the duties and powers which parliament has conferred on them," she said.

"Those responsible for the prudential regulation of Equitable Life failed to do so throughout the period covered in my report," Abraham said on Thursday.

Vanni Treves, who became chairman of Equitable Life in 2001, said on Thursday regulators' failure to tackle problems at the society meant the government should compensate policyholders who suffered losses as a result.

"Year after year, the regulators failed to do anything about problems that were absolutely evident to them," he told BBC Radio Four's Today programme.

"We have paid all the bills we felt we had a duty to pay. Now the government must pay the bills for its own failures."

Abraham, who leads independent inquiries into a range of public bodies, upheld a complaint blaming Equitable's troubles on regulatory and government failures.

She said bodies overseeing the insurer were "passive, reactive and complacent", allowing one person to be both chief executive and appointed actuary for more than six years -- neutralising the appointed actuary's "whistle-blower" role.

They also failed to question or resolve issues around the affordability and sustainability of the bonuses to policyholders it was declaring and did nothing to solve the issue of information left out of Equitable's regulatory returns.

The report found that even after July 1998, when regulators were aware of growing problems, their actions were "largely ineffective and often inappropriate".

As a result, Abraham's report recommended a compensation scheme to redress losses, and called on the government to act swiftly, as tens of thousands of policyholders have already died since Equitable Life closed to new business.

The report said a compensation scheme should be set up within six months of any decision by the government or parliament, and said it should take no longer than two years to determine who is eligible for compensation and how much they should receive.

Abraham said the recommendations would have "a substantial cost to the public purse", but did not detail the size of payouts or the potential cost to the taxpayer.

The Financial Times, which estimates the cost of compensation at around four billion pounds, said on Wednesday that finance minister Alistair Darling was expected to wait until the autumn before giving a view on claims for redress.