With the Lloyd's 'refuseniks' -- as the investors who have declined to settle are known -- facing bankruptcy writs after the City institution posted losses in excess of £8 billion over four calamitous years starting in 1989, former chief executive and deputy chairman Ian Hay Davison has dropped a bombshell.

Now chairman of Sadlers Wells, chartered accountant Hay Davison, 66, is informing Lloyd's losers that the Conservative Government under Margaret Thatcher decided on ‘policy grounds' not to prosecute any underwriter responsible for the first batch of frauds in the early Eighties.

He states: "I was, and remain, extremely indignant and disappointed at this. During my time at Lloyd's and subsequently, I had a series of lengthy interviews with the Serious Fraud office concerning the various frauds. Regrettably the Government decided not to prosecute any of those involved."

A former managing partner of the world's largest firm of accountants, Arthur Andersen, Hay Davison joined Lloyd's in 1983 and stayed for three years. He told me yesterday: "I was too hot to handle and royally unpopular and resigned. During my time 60 people were disciplined involving a dozen incidents."

While the frauds during his tenure were separate from the losses at the end of the decade, he believes the seeds of the gross criminal negligence which led to the monumental losses were sown in his time.

Among those who escaped and have been living abroad in luxury ever since are Peter Cameron-Webb and Peter Dixon. Both fled the country in 1982 for America after being found to have siphoned off at £40 million from their investors.

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