Taxpayer repaid 23 years after Barlow Clowes affair

The taxpayer has finally been paid back the millions of pounds spent compensating victims of the collapsed investment broker Barlow Clowes.

The company, led by the flamboyant financier Peter Clowes, collapsed in 1988, leaving thousands of its investors out of pocket. It was one of the first big scandals to hit Britain's new system of financial regulation.

More than £150m was spent on ex gratia compensation payments after a report by the Parliamentary Commissioner for Administration, published in 1989, sharply criticised the Department of Trade and Industry for its mishandling of the affair.

However, following a ruling by the supreme court of Gibraltar, cash held in a variety of offshore portfolios was released, enabling the recovery of £120m for the Government and £36m which has been repaid to investors.

Mark Hoban, the Financial Secretary to the Treasury, said in a written statement to the Commons that a total of £156.5m had been recovered from the liquidation of a complex web of offshore companies.

Clowes lived a life of luxury before his company collapsed and his subsequent prosecution, which saw him handed a 10-year sentence. A court heard that his claims of being able to generate high income from low-risk investments in government bonds, or gilts, were fraudulent. The failed Barlow Clowes fund amounted to a "bond-washing" scheme, which involved turning highly-taxed income into lower-taxed capital gains by selling gilts before income payments were due.

When the Inland Revenue banned the tactic, the fund was forced to diversify into more risky investments which were devastated by the stock market crash of 1987. The fact that Clowes enjoyed luxury yachts and private jets only added to the anger among investors.

The then Conservative government bowed to pressure and paid compensation, but successive administrations followed a policy of vigorously pursuing all claims relating to the Barlow Clowes companies which showed any chance of cost-effective recovery.