The report by the parliamentary ombudsman, Ann Abraham, is expected to lay the blame at the door of the Treasury for failing to keep the world’s oldest insurance company in check, leading to its downfall in 2000 — one of the country’s biggest financial scandals.

Abraham could also rebuke the Financial Services Authority (FSA), the City watchdog, and the government actuary’s department for being asleep on the job.

This could pave the way for up to £4 billion of compensation, but it is only the first step in a process that could take several years. Here we answer your questions:

What happened?

Equitable Life shut its doors to new business after it lost a legal battle in the House of Lords in 2000 involving “guaranteed annuity rates” which were sold as part of pension plans.

It had asked 90,000 customers with these guarantees to take a cut in their final payouts, but the Lords ruled its action was unlawful.

The decision left the insurer with a £1.5 billion liability, forcing it to close its with-profits fund and slash bonuses.

This isn’t the first report into Equitable Life is it?

No. The official report by Lord Penrose into what went wrong criticised Equitable’s former management, but also highlighted failures by regulators, which over the years have included the Treasury, the Department of Trade and Industry, and the FSA.

Abraham published her original report on Equitable Life in July 2003, concluding that the FSA had not been to blame and also ruling out the possibility of compensation.

In July 2004, however, she announced she was reopening her inquiry following pressure from MPs and affected policyholders.

In 2006, the European parliament launched a separate investigation into the UK government’s role in the affair and its report called on Britain to set up a compensation scheme.

Despite this, the government has refused calls to compensate customers.

Why is the latest report so important?

Abraham’s second report will look specifically at the government’s responsibility for what happened.

It could help policyholders who lost up to 50% of the value of their investments in their battle for compensation.

How many policyholders could be affected?

Originally, Equitable Life had about 1m policyholders. Some have subsequently received other payouts, and others might not be able to claim.

However, several hundred thousand former and current members may be eligible for compensation.

Campaigners say that the delays — Abraham originally indicated she would complete her investigation before the end of 2005 — meant that an estimated 30,000 policyholders have died in the interim.

Total compensation has been estimated at up to £4 billion.

Can the government be forced to pay out? How long will it take?

In brief, no. Abraham can only strongly recommend compensation. It is then up to the government to respond.

In a separate case, Abraham recommended in March 2006 that the government compensate an estimated 85,000 people who lost all or part of their occupational pensions when the companies they worked for went under.

However, it took two years, several court cases and a European Court of Justice ruling before the government finally offered a compensation package earlier this year.