Civil Liability Bill [HL]
Tuesday 20th March 2018
(6 years, 9 months ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text
Civil Liability Bill [HL]
Tuesday 24th April 2018
(6 years, 7 months ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts
Lord Keen of Elie
That the Bill be now read a second time.
Relevant document: 22nd Report from the Delegated Powers Committee
The Advocate-General for Scotland (Lord Keen of Elie) (Con)
My Lords, the Bill makes important changes to our personal injury compensation system. It is about making that system fairer, more certain and more sustainable in the future for claimants, defendants, the taxpayer and motorists. This builds on our wider reforms to cut the cost of civil justice claims and strengthen the regulation of claims management companies.
The first part of the Bill will deliver a key manifesto pledge: to support hard-working families by bringing down the cost of living through a crackdown on exaggerated and fraudulent whiplash claims, which lead to higher insurance costs. The second part of the Bill will provide a fairer method for setting the personal injury discount rate. It will, for the first time, use a new, regular, more transparent mechanism in which the Lord Chancellor consults independent experts before setting the rate. We aim to provide full compensation for seriously injured claimants while being fair to those, particularly the National Health Service, who bear the cost of paying. We believe that the Bill will provide a compensation system that meets the rightful needs of claimants while saving the public money, both as consumers and taxpayers. About three-quarters of the United Kingdom motor and liability insurance market has already committed publicly, through a letter published on 20 March, to ensure that any savings resulting from enactment of the Bill will be passed on to the public.
I begin with the issue of whiplash. DWP data shows that around 650,000 RTA-related personal injury claims were made in 2017-18. That is nearly 200,000 more than in 2005-06—a rise of 40%. If we take the 10 years following 2005-06, the rise is around 70%. We estimate that around 85% of these are for whiplash-related injuries—higher than in any other European jurisdiction —yet Department for Transport figures show that in the decade up to 2016-17, reported road traffic accidents went from around 190,000 to around 135,000—a fall of 30%. Many claims will, of course, be genuine and the Government would never seek to deny justice to those who suffer injury; it is absolutely right that individuals are compensated for genuine injuries. However, by 2016-17, there were around 670,000 whiplash claims in the United Kingdom. That number is too high and the costs to motorists and consumers too great. It comes despite major improvements in motoring safety, such as the increased use of integrated seat and head restraints. We must ask ourselves what is going wrong.
The reality is that some of these claims are not genuine. Last year the insurance industry identified 69,000 motor insurance claims that it considered fraudulent. By their very nature, these claims are difficult to detect, so I ask the House to consider that the problem goes much further than this already significant number. That the number is so high is indicative of an ever-pervading compensation culture in this country. The knock-on effect of this has been to drive up insurance premiums. I would go as far as to say that, for some, it has become socially acceptable to make a whiplash claim for little or no injury. Noble Lords may have seen examples in the media of exaggerated or fraudulent whiplash claims, such as the man making a claim after his car was slowly reversed into in a supermarket car park. It transpired that he was not in the car at the time.
As the House will no doubt agree, the purpose is to compensate those for whom genuine injury has occurred. Our reforms seek to reduce and control the costs of whiplash claims and to disincentivise people making fraudulent or unmeritorious claims. The level of compensation paid out for such claims is, in the Government’s view, out of all proportion to any genuine injury suffered, especially when balanced against its effect on the price of premiums paid by ordinary motorists. Insurance industry figures show that in 2017 car insurance premiums rose at the fastest rate ever. Though there are other contributing factors, without reform to whiplash claims those increases are estimated by the ABI to continue at an alarming rate—potentially 10% per year. For many people—particularly those in rural communities—owning a car is not a choice: it is a necessity. Higher insurance premiums hit young and elderly motorists particularly hard. That is why we pledged in our manifesto to bring down the cost of motoring. The Bill can and will do that.
The measures in the Bill relating to whiplash will therefore address a number of issues. They will introduce a ban on settling whiplash claims without medical evidence. This will discourage fraudulent claims and encourage insurers to investigate claims properly, providing fairness and certainty for claimants, so they do not feel pressurised into accepting an offer before knowing the true extent of their injuries. They will provide for a new system of fixed tariffs for payments for pain, suffering and “loss of amenity” in whiplash claims. This will give claimants proportionate compensation while controlling the costs of claims. The final tariff figures will be set in regulations to be debated via the affirmative procedure by Parliament following Royal Assent. The judiciary will have discretion to increase the compensation payable in exceptional circumstances, with the cap set in supporting regulations. The whiplash reform programme also includes measures not in the scope of this Bill, to increase the small claims track limit for road traffic accident personal injury claims to £5,000 and for all other personal injury claims to £2,000.
The measures in the whole reform programme are fair and proportionate. They will prevent fraudulent and unmeritorious whiplash claims from driving up insurances costs, allowing insurers to pass on savings of about £1.1.billion a year to consumers. This would mean an average reduction in car insurance premiums for consumers of around £35 a year. As a Government we fully intend to hold the market to account in making sure that happens.
I now turn to the second part of the Bill, the personal injury discount rate. Fairness and sustainability are at the heart of our reforms. With any change to the system for compensating the seriously injured, we must keep in mind the person behind every claim. The Government continue to support the aim that seriously injured people should receive 100% compensation to meet expected future financial losses, including medical and care costs. The way compensation is calculated must be fair to both claimants and defendants, including the National Health Service.
This Bill will reform the personal injury discount rate, which adjusts a compensation lump sum to allow for the return a claimant is expected to receive by investing it over the period of the award. Currently at minus 0.75%, we have one of lowest rates in the world. In Germany, it is 4%; in France it is 1.2%, and in Ireland it is 1%. The current rate consistently compensates for injury at more than the 100% required by law. Awards currently average 120% to 125% even after management costs and tax. This is putting huge pressure on the National Health Service in claims for clinical negligence. Last year, the NHS spent £1.7 billion on such cases, a cost that has almost doubled since 2010-11, with an unsustainable average increase of 11.5% every year.
The current legal framework requires the Lord Chancellor to assume claimants to be very risk-averse investors, and the discount rate has been set since 1998 with reference to returns on very low-risk investments—index-linked UK gilts. This is unrealistic. In reality, claimants do not behave as very low-risk investors; they invest their compensation in diversified low-risk portfolios and on average receive higher returns than is assumed under the present law. This results in inflated payments for claims which overly penalise defendants.
Every pound spent on overcompensation could instead be spent on front-line public services: in our hospitals, our schools and our Armed Forces. We will therefore do a number of things in the Bill. We will provide for the discount rate to be set in future by reference to how evidence indicates claimants actually invest, giving a more realistic rate that will mean that injured parties with low-risk investment appetites still receive full and fair compensation and ensure that defendants, including the NHS, are not left shouldering the burden of overcompensation.
We shall provide for the first time that the Lord Chancellor should set the rate regularly—at least every three years—and must do so after expert advice from an independent panel which protects the interests of claimants, as well as defendants, by ensuring that the rate is grounded in investment practices and market conditions.
Transparency and fairness in setting the rate were two of the main concerns voiced by the Justice Select Committee, and we have responded to that in setting out our position in the Bill. Changes to the discount rate will affect only lump-sum payments for future financial loss. They will not affect periodical payment orders, which account for a significant proportion of the compensation paid for future loss in the cases involving the most serious and long-term injuries.
Periodical payment orders are annual, risk-free payments providing a steady stream of income which is not affected by the discount rate, allowing claimants to plan for their long-term needs. PPOs are available from the National Health Service in all negligence cases, including those involving brain damage during birth, and in almost all cases where the defendant is insured by a UK-regulated insurer. A court is able to provide protection by ordering a PPO where it believes that it is in the claimant’s interest. In any event, for serious long-term injuries, claimants will continue to be able to rely on the National Health Service as any other person would.
These reforms will reduce spending pressure on the NHS. The NHS Confederation and other influential medical bodies have described how the change last year in the discount rate exacerbated the financial impacts of clinical negligence claims. These higher litigation costs against the NHS are now unsustainable.
This fairer approach to setting the discount rate could, assuming a rate between 0% and 1%, save the taxpayer between £250 million and £550 million per year and, in turn, mean savings to insurers of between £0.5 billion and £1.5 billion per year, to be passed on to consumers in the form of lower insurance premiums.
Alongside our wider work to reform the civil justice system and, through the Financial Guidance and Claims Bill, strengthen the regulatory regime for claims management companies and ban cold calling, the reforms contained in the Civil Liability Bill are needed to put personal injury payments on a fair, more certain and sustainable footing for the future. In turn, they will save the NHS and consumer money. Legislating to ensure that genuine whiplash claims are backed by medical evidence, and that claimants receive proportionate compensation, will reduce the number and cost of whiplash claims. This will allow insurers to pass on savings to consumers, and, as I have said, three-quarters of the UK motor and liability insurance market has already publicly committed to doing so.
In changing the system by which the discount rate is set we want to continue to ensure fairness, so that those who suffer catastrophic personal injury get 100% compensation, within a more informed and transparent system in which the rate is set by the Lord Chancellor at regular intervals, with the benefit of independent expert advice, in the interest of claimants. I commend the Bill to the House and I beg to move.
Lord Beecham (Lab)
My Lords, I begin by referring to my interest as an unpaid consultant with my former solicitors’ firm, and to a paternal interest, inasmuch as my daughter is a barrister and a part-time deputy district judge.
This Bill, as the noble and learned Lord has reminded us, covers two discrete areas of personal injury law: claims for damages for whiplash injuries, and the way compensation for financial loss in serious injury claims, by way of lump sums, is to be calculated. The former is, in effect, a response to exaggerated claims. Exaggeration is, however, not confined—as the media, the insurance industry and the Government would have us believe—to claimants and their advisers. A small number of insurance companies, operating under a variety of labels in the market, constantly claim that the number and cost of damages claims for whiplash injuries is rising, with a consequential impact on premiums, which would otherwise be lower.
We are all familiar with the benevolent intentions of the industry and its heartfelt aspiration to reduce premiums. A degree of scepticism about the industry’s case, is, however, justified. In his seminal report, Common Sense, Common Safety, the noble Lord, Lord Young of Graffham, who it was a pleasure to see in the House yesterday, declared:
“The problem of the compensation culture prevalent in society today is, however, one of perception rather than reality”.
Road traffic accident claims have fallen by 14% since 2013 and by 10% in the past year, while last year the number of claims relative to the number of vehicles on the road was the lowest since 2008. Interestingly, the latest data published—just today—by the Compensation Recovery Unit records a fall in the number of motor cases registered to the unit from 780,000 in 2016-17 to 650,000 in 2017-18. The numbers between 2010-11 and 2017-18 ranged from 828,000 to 761,000. Settlements recorded by the CRU were, at 683,000, the lowest since 2011. Moreover, the cost of such claims in the UK is in the lower half of the European league table of such costs.
There is a legitimate concern, to which the noble and learned Lord has referred, about the activities of claims management companies—and indeed of “McKenzie friends”, a growing feature in the courts these days in this and other areas—about which little or no action has so far been taken, either by the Government, or, in relation to connections between solicitors’ firms and such companies by the Law Society, which I find somewhat deplorable.
In any event, in practice the proposals will impose a tariff system for compensation for pain and discomfort ranging from £235 for up to three months to £3,910 for 18 to 24 months—respectively 76% and 49% less than the guidelines prescribed by the Judicial College. Crucially, the system is entirely based on the timescale, and not the severity, of the pain and suffering endured. These replace, for road traffic cases, payments which the MoJ—without adducing any evidence—regards as “out of all proportion” to the level of injury suffered. Having said that, I welcome the provision that no case should be settled without a medical report.
Someone suffering a comparable injury sustained otherwise than from a road traffic accident—for example, a workplace accident—with effects lasting two years, could recover £3,000 more in damages and the costs of the claim, which, in RTA cases, would in future have to be paid out of the damages and not by the defendant.
Some noble Lords may be aware that a few weeks ago I sustained an injury, which left me with a colourful presentation around my eye, when I was thrown to the floor in a Tube train that made a violent, sudden halt. It was not a soft-tissue injury but if it had been—I suppose it could have been in those circumstances—any claim would not have been affected by the provisions of the Bill, whereas it would if I had been a passenger in a road vehicle. Some friends of mine recently experienced precisely that kind of accident. The question arises: why should comparable injuries not attract comparable awards, and comparable recovery of the cost of a claim, whether they are incurred in a road traffic accident or any other accident for which a defendant is deemed liable?
There are, moreover, serious questions to be asked not just about the scale of damages deemed recoverable but about how the level of damages is to be determined and by whom. The 22nd report of the Delegated Powers Committee asks some salient questions and makes some powerful comments on the way the Government are proceeding. It poses what it describes as two central questions:
“What is meant by ‘whiplash injury’?”,
and:
“By how much are awards of damages to be reduced?”.
The answer it divines is:
“‘Whiplash injury’ means whatever the Lord Chancellor says it will mean, in regulations to be made by him or her at some future date”,
with “a full definition” emerging once the Bill is enacted and not before. It also observes:
“Given the complex physical and psychological components of whiplash injury, it is not satisfactory that these matters should be left to regulations rather than being subject to a rigorous debate in Parliament”—
a refrain all too frequently heard in this House in relation to secondary legislation. As to the second question, about the quantum of damages, the committee points out that the reduction,
“will be whatever the Lord Chancellor says it will be, in regulations to be made … at some future date”.
The Government pray in aid the need for what they say is,
“flexibility ... to reflect possible changes in society’s perception of the value of”,
pain, suffering and loss awards over time and a possible need,
“to change the parameters of the categories of the tariff to adjust or refine the approach to different severities of injury should this become necessary in future and in the light of experience over time”.
Those are two possible candidates, I suggest, for the Nobel Prize for vacuity. Unsurprisingly, the committee was less than impressed by these responses and in five sub-paragraphs it demolished the Government’s position, pointing out that the need for possible updating figures or mechanisms does not justify a failure to include them initially in primary legislation.
Rather than relying yet again on unamendable statutory instruments, Acts of Parliament are to be preferred for this, and for quantifying damages, and are equally preferable where,
“society’s perception of the value of”,
pain, suffering and loss claims changes over time. Equally, it said:
“The need to refine the tariff in relation to different severities of injury”,
can be accommodated by a new Act.
Crucially, the committee avers that the judiciary, with its long experience of personal injury claims, should determine the provision for damages or, failing that, responsibility should be undertaken by independent medical experts. Its emphatic conclusion is that,
“it would be an inappropriate delegation of power for damages for whiplash injury to be set in a tariff made by Ministerial regulations rather than on the face of the Bill”,
and that the initial tariff,
“should be set out on the face of the Bill, albeit amendable by affirmative statutory instrument”,
in the future, following further recommendations by the judiciary or an expert panel. This of course echoes repeated expressions of concern about the use, and indeed abuse, of delegated legislation, with the limited opportunities afforded to persuade Governments to think again and respond to concerns expressed in either House. Will Ministers delegate the decision on this critical issue, as suggested by the committee, albeit subjecting any recommendations for approval under the affirmative procedure? My suggestion would be that the decision should be made by an advisory panel or the judiciary. Then, if we are proceeding by the secondary legislation procedure, the Lord Chancellor should embody that recommendation in an affirmative order.
Much is being made of promises made by the insurance companies that savings will be passed on to their customers. Indeed, the Minister has repeated that today. Can he say what estimate of such savings has been made over time and what is their current level? How will we ensure that the industry delivers on the promise, and in what form? The Minister has said that it will, but how will that be ensured? Can he also tell us how much the Government have raised in the form of insurance premium tax since the standard rate rose from 5% in January 2011 to 12% in 2017, and for the higher rate from 17% to 20% in the same period? I recall once suggesting a small percentage increase in insurance premium tax some years ago to fund a reduction in the savage cuts to legal aid made by the coalition Government, but that, unsurprisingly, never materialised. The Minister may not have those figures to hand, but it would be interesting to see them in due course.
There is real concern about the pending increase in the small claims level, which, apart from the £5,000 limit chosen for whiplash claims—however loosely defined— will now be set at £2,000 by the Lord Chancellor. Below that figure, noble Lords will be aware that costs are not awarded. This is significantly higher than would be the case if the existing level was increased to reflect inflation. I have seen two suggested figures for that: £1,400 and £1,600, but these are still significantly lower than the £2,000 now prescribed. If we are to retain the system, should it not be on the basis of RPI or CPI, reviewed every three years as a matter of course? Interestingly, I understand that Scotland has chosen not to apply its version of the small claims regime, known as the simple procedure, to personal injury claims up to £5,000 such that, successful parties in these cases, described as “summary causes”, can recover their costs. Given the Minister’s role as Lord Advocate and his deserved reputation as one of the most eminent Scottish lawyers, would he encourage the Lord Chancellor to look again at the small claims limits?
In light of the current impossibility of successful claimants claiming costs or obtaining legal aid, has the Ministry of Justice made or received any assessment of the impact on the court system of more unrepresented claimants in this area of the law? There is existing concern, which has been voiced several times in your Lordships’ House and elsewhere.
Finally, in relation to this part of the Bill, I revert to the issue of claims management companies: a parasitic growth in our justice system, seemingly able to pursue potential clients via cold calling and seek disproportionately large fees out of the modest damages recovered. I understand that the Government are looking at this matter, but can the Minister indicate how this unacceptable approach might be curbed?
Part 2 of the Bill deals with the discount rate, which is, as the Minister explained, the rate used to calculate the level of damages to be awarded in the most serious cases, having regard to investment returns and inflation. We are looking here at cases of very serious injuries with life-changing consequences that might last a very long time. The Government are proposing a change from very low-risk investments to low-risk as the basis for calculating compensation. It is, however, inherently difficult to predict what future loss or cost of care or treatment would be occasioned in such cases. Greater reliance on periodical payment orders, to which the Minister referred, would help. Can he update us on government thinking on this aspect and how they might be promoted? His evidence to the Justice Committee implied support for this approach, and that is welcome.
The NHS is in a curious position on the issue of damages. Treatment in such cases can be expensive and the NHS must be compensated for costs incurred where the damage is inflicted by a third party, but sometimes the NHS is the defendant, as in clinical negligence cases, but also potentially in other cases, where the negligence is not related to clinical error. Accidents can take place on NHS premises, for which the NHS is liable.
It is in all our interests that the NHS should not see its resources reduced by the requirement to pay large sums to unfortunate patients who have suffered from clinical negligence. However, surely such compensation payments should be funded out of general taxation rather than being avoided by requiring the victims of clinical negligence to take greater risks in investing the proceeds of damages. We surely all agree that the NHS should be protected but the question is: by what method? My submission is that the method that the Government are proposing will ultimately perhaps be at the expense of the people who have been injured rather than of the community collectively, and I invite the Government to think again about that aspect.
The House will wish to give careful consideration to the changes proposed in the Bill. I trust that in doing so we will put the interests of the victims of negligence at the top of our deliberations, but also that we will ensure that crucial decisions are made not by ministerial fiat but with the full involvement of the judiciary and are subject to proper parliamentary scrutiny.
Lord Sharkey (LD)
My Lords, I will deal first with the proposal to reform the compensation for whiplash arising from road traffic accidents. Let me say at once that I agree with the remarks made by the Delegated Powers Committee in its report of last Friday. It concluded, as the noble Lord, Lord Beecham, has said, that there should be a definition of whiplash in the Bill, as should the tariff for damages. The committee says bluntly that it would be,
“an inappropriate delegation of power”,
for either of these matters to be handled by secondary legislation. The definition of whiplash is so central to any discussion of the Bill and any assessment of its consequences that I am very surprised that the Bill should have been brought before us with that definition absent. It is clear that the issue of how to define whiplash has been under consideration by the Government for some time. Surely it should be possible either to produce the definition for the Bill or to delay the Bill until the definition is available.
That is certainly a matter that we want to raise in Committee, as is the issue of the tariff and who should set it. Should it be, for example, the Judicial College? The impact assessment sets out the proposed tariff, but why is the proposed tariff not in the Bill? The structure and levels of the tariff will certainly influence our debates, and Parliament should be able to decide on the initial tariff, amendable later by secondary legislation.
In the case for reforms set out in the assessment there are many appeals to evidence, a lot of which is vigorously contested. That throws some doubt on the case for reform, but it would be very helpful if the Minister was willing to discuss these contested areas before we reach Committee. For example, there is the assertion that the number of whiplash claims is somehow too high or too fraudulent. The Access to Justice Foundation has published calculations showing that claims in total are already falling. In fact, as the noble Lord, Lord Beecham, has pointed out, CRU data for 2016-17 shows a 10% decline in whiplash or whiplash-related claims since 2012-13. The Motor Accident Solicitors Society has strongly questioned the view that a high proportion of claims are fraudulent. It has said that, when proven and suspected fraud figures are disaggregated, proven fraud drops to 0.25% of all motor claims, while fraudulent whiplash claims will be a small percentage of that already small percentage.
The principal justification in the impact assessment for reforms is economic—specifically, that there are three market failures that must be addressed. The first failure is one of asymmetric information. Only a victim can really know the extent and duration of pain or suffering caused by a whiplash injury. The Government see this as an incentive to make false or exaggerated claims but, as I have mentioned, the incidence of such claims is highly contested.
The second market failure alleged by the Government is the creation of perverse incentives. Legal costs are recoverable by successful claimants from the defendants. The Government say that if legal fees were not, or less, recoverable, claimants would bear more of the cost of bringing such claims, which would help to bring down their volume to a level that was,
“optimal for society as a whole”.
Leaving aside the question of what “optimal” might mean or how it might be calculated in this context, there is the problem of access to justice, as noted by the Law Society in its comments on the Bill. The Access to Justice Foundation has estimated that the proposed new tariff would deny 600,000 people injured on our roads each year the right to legal advice when seeking compensation. The figure comes from a July 2017 study by Capital Economics. Then there is the question of whether, or more likely to what extent, making medical report costs unrecoverable impedes access to justice.
The third identified market failure is what the impact assessment calls, “negative externality”—a phrase that is clearly weapons-grade management speak. This refers to the practice of insurance companies settling claims without medical proof of injury. Here, I entirely agree that this drives market failure, and I support the provisions in the Bill that will ban this practice.
In addition to the reduction in access to justice likely to be brought about by these reform proposals, there is the obvious issue of fairness. If someone is involved, as the noble Lord, Lord Beecham, has said, in a road accident, under the Government’s reform proposals they would be entitled to £3,500 for a neck injury lasting 24 months. They would also be unable to recover the cost of a lawyer to assert their rights. If someone suffered an identical injury at work, they would be entitled to £6,500 and would be able to recover costs. How is this fair, reasonable or coherent? I should be very grateful if the Minister could address this issue when he replies.
In all the very comprehensive information supplied to us by the Minister and his officials, I have been unable to find any mention of vulnerable road users. They are cyclists, motorcyclists, horse-riders and pedestrians. These people seldom suffer whiplash, and I have seen no evidence of fraud, yet they will all be caught by the proposed new system. I hope that the Minister will agree to remove them from the scope of this Bill.
Then there is the question of who benefits from these proposed reforms. The impact assessment estimates a total net benefit of £130 million. Within this, motorists gain £l.l billion by way of reduced premiums; insurers gain £190 million; HMT—the Treasury—loses around £140 million; and claimants lose £980 million. The impact assessment also sets out the risks assumed in calculating these figures. It explicitly acknowledges the risk that CMCs will produce more unmeritorious claims to offset the reduction in claims pursued as a result of the reforms. We all know how very vigorous and fast moving the claims industry can be, and as we speak, the Government are busy in the other place dismantling the reforms that we voted through to try to suppress cold calling.
However, the major risk surely lies in the percentage of savings to insurance companies that is passed on to motorists in reduced premiums. The impact assessment gives a figure on this and says it will be 85%, but it does not explain why. Is it, for example, that 85% of all savings will be passed on by 100% of insurers or that 100% of savings will be passed on by 85% by value of insurers? Perhaps the Minister could tell us which it is. In either case, what grounds are there for confidence that the insurers will pass on any particular percentage?
I note that the insurance companies which wrote to the Lord Chancellor in March ended their letter by saying that they,
“publicly commit to passing on to customers cost benefits arising from Government action to tackle the extent of exaggerated low value personal injury claims”.
Leaving aside the issue of whether cost benefits are the same as savings—I have no idea whether they are—is the promise to pass on all or only some of the cost benefits? Who decides what is a cost benefit for the purpose of passing it on, and how transparent will this decision be? What mechanism will there be for checking the sums actually passed on, and what remedy will be available if they turn out to be lower than expected?
I now turn to Part 2 of the Bill, dealing with the personal injury discount rate, and I should say at the outset that I agree there is an urgent need to change the basis on which the rate is calculated. But I have several concerns. The first is to do with timing. It is clear that the current discount rate needs amending, but the process proposed in the Bill means that there would be no change until 2020. This is three years after the implementation of the minus 0.75% rate, which is obviously wrong and is causing very significant financial damage to both private and public sector organisations. For example, the Minister will know that the National Audit Office has highlighted that the estimate from NHS Resolution, at the current discount rate, will add £500 million to the cost of claims in the year 2017-18 and £3.5 billion in overall provisions accrued. Clearly, it would be better to spend this money on front-line NHS services. Why wait? Surely there is enough information held by the Government and their advisers to enable a faster change.
My second concern is with the review period of three years that is proposed in the Bill. This may be too short. It may mean that a review is undertaken unnecessarily, incurring cost and creating market uncertainty. A three-year period may also create real incentives for gaming the litigation process by whichever side believes its objectives are most likely to be met by an impending rate change. A five-year review period, I suggest, would mitigate the risks associated with this. We will probably want to discuss this further in Committee.
My third concern is with having the Lord Chancellor make the decision on the rate, as at present. Under the new system, he or she will have the recommendation of the expert panel to take into account, but this will not be binding. How is this materially different from the current situation? Of course, the basis for setting the rate will have changed, but it will still be the Lord Chancellor who decides. In fact, there is a strong case for removing the decision from the political arena altogether and handing it over to an expert panel. The impact assessment reports that, of the respondents to the consultation on the matter, 35 favoured an expert panel, 17 favoured a co-decision between an expert panel and another person, and 48 favoured a Minister, based on advice from an expert panel. To put this another way, the majority of respondents to the consultation were in favour of not having the Minister make the decision. This kind of system works well for the economy as a whole, with the MPC setting the base rate quite independently of politicians. Perhaps the Minister can say whether he has considered this option and, if he has, why he has rejected it.
Finally, I would like to make a suggestion to the Minister. He will know that many Members of this House believe that we should repeal Section 2(4) of the Law Reform (Personal Injuries) Act 1948, which has the effect of greatly increasing the sums that the NHS must pay out in settlement of clinical negligence claims. The Public Bill Office has confirmed that any proposal to repeal this section via this Bill would be out of scope. Nevertheless, repeal is an urgent necessity, and suitable legislative vehicles are likely to be extremely rare. This Bill could be used for repeal if the Government were to agree to an out-of-scope amendment granting the right to repeal Section 2(4). In closing, I ask the Minister to consider this, and whether he would be prepared to meet to discuss this further with me and other interested Members.
Lord Hope of Craighead (CB)
My Lords, I do not wish to say very much about the general principle that lies behind Part 1, which deals with damages for whiplash injuries, except to make three points. First, we have been subjected to quite a bit of lobbying by those who object to the measures that it contains. Some, I have noted, say that they are punitive and arbitrary—words which I myself would not attribute to Part 1 as I read it. Indeed, the noble and learned Lord has said enough to persuade me that it is necessary to do something to try to minimise the abuse that has given rise to such a large and disproportionate number of whiplash claims. The abuse has been going on for some considerable time, and it is time that something was done to address it.
My second point is that I particularly welcome the provisions in Clause 3 for an uplift beyond the tariff amount in exceptional circumstances and the provision in Clause 2(8) which deals with the situation where a whiplash injury is combined with other injuries which also require to be compensated. Those are sensible precautions against the risk of unfairness in particular cases. Thirdly, I associate myself—at least for the time being—with the remarks of the noble Lords, Lord Beecham and Lord Sharkey, on the need for thought to be given to putting the definition of the phrase “whiplash injury” in the Bill, rather than leaving it to delegated legislation, because it is so central to the whole system set out in this part. There is something to be said for at least the starting point of the tariff to be in the Bill too, although, of course, amendable in as simple a way as possible by statutory instrument.
My reason for speaking in this debate is that I would like to say a bit more about the personal injury discount rate provided for in Part 2. My reason for doing so is that I was one of the members of the Appellate Committee which heard the case of Wells v Wells 20 years ago in May 1998. Power was first given to the Lord Chancellor to set a discount rate by Section 1 of the Damages Act 1996, when the noble and learned Lord, Lord Mackay of Clashfern, was Lord Chancellor. I very much look forward to hearing what he has to say when he contributes to the debate later. I hope to be in the Chamber when he speaks, although I have other things to do. For reasons that he may be able to explain, he did not set a discount rate before the Government changed shortly after the Act came into force.
The baton passed to his successor, the noble and learned Lord, Lord Irvine of Lairg, who was here earlier but is no longer in his place to listen to the rest of the debate. He did not indicate that he was willing to exercise that power. One might sympathise with him, because of the difficulties in finding a solution to it. In that situation, it was left to us in Wells to deal with the issue and to devise what we thought would be a firm and workable principle which the courts could apply. The solution which we derived in that case set out the basic principle which was applied by the Lord Chancellor when, in due course, the power was exercised in June 2001 and again in March last year, resulting in the figure to which the noble Lord, Lord Beecham, referred. As is stated in the Explanatory Notes, Wells provided the basis for the calculation of the discount rate which has been followed ever since.
I certainly do not wish to quarrel with the proposition that a fresh look needs to be taken at this problem. It is, of course, an inescapable fact that the lower the discount rate, the higher the award will be. So there is a tension between those who wish to raise the rate so as to reduce the burden on those who have to bear the cost of the award and those who do not wish to see a reduction in the general level of damages where the award has to provide compensation for future loss. The Explanatory Notes say that the basis of calculation which was held in Wells to be appropriate is that the claimant is a very risk-averse investor. I do not think that any of us on the Appellate Committee used those very words, but the thrust of our judgment was similar to what the Explanatory Notes say, for reasons that I will explain.
The Bill seeks to change this assumption by substituting that which is set out in paragraph 3(3)(d) of the proposed new Schedule Al to the Damages Act 1996. This is that the damages will be invested adopting an approach which involves more risk than a very low level of risk, but less risk than would ordinarily be accepted by a prudent and properly advised investor. How one reacts to that proposal may well depend on how essential it will be for the claimant to be able to rely on the award to provide for his or her needs for the rest of their life. Claims that require recourse to the discount rate vary widely, from those in which the main element is to make good a relatively small element of future wage loss to those where the award has to provide for the future care and support of those who are very seriously injured.
As it happens, the claimants whose cases we were dealing with in Wells had all sustained very serious injuries of the kind which are normally classified as injuries of the maximum severity. In one case, the claimant had suffered serious brain injuries, as a result of which she was no longer capable of working or looking after herself or her family. In another, the claimant had been injured before birth, was suffering from cerebral palsy and was very severely handicapped.
It was against that background that, in my speech in Wells, I said that the assumptions that had to be made were, first, that the lump sum would be invested in such a way as to enable the claimant to meet the whole amount of the losses or costs as they arise as the years go by during the entire period for the assumed lifetime while protecting the award against inflation, and, secondly, that the losses or costs will have to be met entirely out of the relevant proportion of the lump sum. Those assumptions indicate the challenge that lies behind the exercise that we are contemplating. I went on to say that this meant that the rate should be one that is to be expected where the investment is without risk and which takes full account of the effects of inflation.
As Lord Lloyd of Berwick, who was with us on the committee, said, if the claimant has to realise capital from investments in a depressed market—and, as we know, the markets go up and down—the depleted fund may never recover. We were aware that a lower rate of discount would lead to increased insurance premiums. We were not addressed in detail on this subject, so we were not in a position to form a view about the wider consequences of our judgment. However, it is worth noting that the noble and learned Lord, Lord Steyn—who was also on the committee—pointed out that if the right decision was that the discount rate should be modified to ensure that victims were compensated as nearly as possible for the consequences of their injury, by and large the public would have to pay for the increase in awards. He said that because he was applying the principle which lies at the heart of the assessment of damages at common law, which is to provide injured parties with a sum which will be adequate to cover their loss over the whole of period during which the loss is likely to continue: no more, but certainly no less.
The noble and learned Lord talked about transparency and fairness, but there is no doubt that Part 2 seeks to alter the balance in favour of the public and thus, to an extent, undermine the principle that lies behind the common law. Reasons have been given as to why that might have to be done. For my part, I would have been very much more concerned as to where this reform was leading us if there had not been the provision in new Clause A1 of the 1996 Act which is set out in Clause 8(1) of the Bill. This is a clause which would allow a court to take a different rate of return into account, including a lower return, if any party shows that it would be more appropriate in the case in question.
I have in mind—and I have never forgotten it—a case I once had to deal with where a highly talented young woman had been rendered tetraplegic as a result of a road accident which was certainly not her fault. The injury was so severe that she was almost totally paralysed. She could not move any part of her body below the neck. She could breathe but she could not speak. She could communicate only by sucking and blowing through a tube to spell out words on a screen in front of her. For her, the award was assessed on the assumption that it would be necessary to provide and pay for 24-hour care and attention every day, and for the accommodation and equipment she needed to sustain any kind of reasonable comfort, for the rest of her lifetime.
It would seem quite wrong for someone in her condition to be required to expose the award to risks to any degree just because, without that, her award may bear more heavily on the defendants and their insurers—and perhaps through that, on the general public. So I not only welcome the new clause as a safeguard against the risk of unfairness in these extreme cases; without it, the Bill would risk, in the more extreme cases, giving rise to an injustice which ought never to be contemplated.
Lord Hunt of Wirral (Con)
My Lords, I declare my interests as detailed in the register, in particular as a partner in the international, commercial law firm DAC Beachcroft and as chairman of the British Insurance Brokers’ Association. It is also my great privilege to follow the noble and learned Lord, Lord Hope of Craighead. Fascinated as I was to hear his explanation of what lay behind that decision in Wells v Wells—of course I shall respond in much greater detail in due course in Committee—certainly the world has moved on a long way since that original decision.
I hope that the reforms in the Bill are in no sense controversial. They skilfully and fairly balance competing interests. That is never an easy task for government but it is an essential one, and I commend the Minister on his courage and resolution.
Reference has already been made to the many representations we are receiving, and we shall inevitably hear a great deal of noise from all those vested interests on both sides. But we are not here in this House to serve vested interests. It is the public interest we must serve, and it feels as if Ministers have got the balance broadly right. This has not happened by accident, especially on the law relating to the discount rate.
The reform proposals in Part 2 address an increasingly urgent need. As noble Lords have already understood from previous speeches, the lower the discount rate, the higher the cost. England and Wales are now the sole territories in the developed world with a negative discount rate for all future loss claims. For many younger and elderly drivers alike, the consequences have already proved to be extremely costly. That has thrown out any balance of fairness. We must also, as several speakers have mentioned, be aware of the heavy burden the negative discount rate has been imposing on the National Health Service.
Competition law prevents insurers offering any collective undertaking that premiums will fall if and when the discount rate is restored to a sensible level. However, there has still been an unprecedented commitment from individual chief executives across the market that savings would indeed be passed on. I cannot think of another occasion on which industry leaders have come together to make such a public pledge. They are of course responding to a strong lead from the Government, as the Minister made clear.
The Government published Command Paper 9500, The Personal Injury Discount Rate: How It Should Be Set in Future, on 7 September of last year. The Secretary of State then wisely asked the Justice Select Committee in another place to undertake pre-legislative scrutiny of the draft clause included in the report, which would change the basis on which the discount rate is calculated. That committee, on which no party has a majority, came to a consensus, in favour of reform, with certain caveats. In particular, the committee supported the establishment of an independent expert panel—not a representative panel—to advise the Lord Chancellor on the discount rate, and any discussion on the discount rate necessarily involves making reasonable assumptions about the likely appetite for risk on the part of anyone looking to invest a sum—particularly a substantial sum—of money.
As the committee and the Government have both acknowledged, setting the discount rate can never be a precise science, but I strongly support the notion that it should have a real-world basis, which is currently rather lacking. The Government are rightly committed to retaining the principle of full compensation, which, as we have just heard from the noble and learned Lord, Lord Hope of Craighead, is so important, particularly in very serious cases.
We must not forget that this means compensation must be neither too little nor too much. In Paragraph 77 of their response to the Select Committee, I was heartened to see the Government state that they,
“will work to ensure that the panel is ready to start work at the earliest opportunity”.
That is a clear undertaking. Given the very considerable measure of consensus around this legislation, I ask my noble and learned friend the Minister to confirm that arrangements for the establishment of this expert panel can and will begin well before the legislation eventually receives Royal Assent.
I would like to mention Part 1 of the Bill. The discount rate provisions are of vital importance, but the plans for whiplash reform too should be commended as being sensible and uncontroversial. For far too long, we have as a country sustained a system in which there is an unseemly squabble over the value of soft tissue injury claims. That has been far more to the benefit of those paid to do the squabbling than it has been for their clients, the victims. What matters most to their clients is prompt and fair redress, not a mathematically precise assessment of their loss. The idea of creating a fixed tariff for such claims, while novel in common law terms, is the right way forward. It takes the mystery out of how such claims are valued and avoids the use of precious court time in arguing over valuations. It can and must create a smoother process for the claimant, who will rightly be placed at the centre of such a process.
I have been a practising lawyer for exactly 50 years next month—I started life as a claimant lawyer, acting in cases for thalidomide victims. I have to say that claimant lawyers and others with a stake in maintaining the status quo are heavily pressurising me to argue that this is unfair and ill thought through. I believe that the Government have taken account of any legitimate concerns. They have wisely dropped the notion that some claims should receive nothing at all. The sums proposed for the tariff, while low, are more in line with what society can realistically afford to pay for these claims. Let us not forget, it is the wider public who have to fund these claims through higher insurance premiums and the inflated cost of goods delivery.
There are consumers and citizens at both ends of this equation. It is the task of Government to balance the interests of everyone involved. In another place, as we have heard, debate continues today on the Financial Guidance and Claims Bill, particularly on how we will contain the excesses of the claims management industry. How many times have we said that in this place? But at last it seems that something is being done. There is a simple answer to the question: it is to contain the amount of money from which they and their hangers-on can take a cut. By their very nature, civil claims set group against group, citizen against citizen.
A decade or more ago, I had the privilege of talking to a very senior senator in Washington, who told me that a complicated and unpredictable system of redress ultimately undermines civility in society. I believe that it does, and I hope that these reforms will go some considerable way towards simplifying redress and restoring the balance of fairness in society. However, I also hope that, in what I think is increasingly an uncivil age, they will serve to restore civility and a healthy respectful relationship between the people in England and Wales.
Lord McNally (LD)
My Lords, it is always a pleasure to follow the noble Lord, Lord Hunt. As I have reminded the House before, we once sat on the same committee, which was modestly called young Atlantic political leaders—where are they now?
It is very difficult to know where to insert oneself in a debate such as this with so many expert contributors, so let me begin at the beginning. During my childhood, I had two quite serious but non-permanent injuries that could probably be pinned on the school and the building I was in when they happened. Looking back, I know that it would never have occurred to my parents to sue somebody because of these misfortunes. Yet, in preparing for this debate, I decided to Google “injuries at school” to see what would happen. Up came a whole smorgasbord of offers: “Has your child been injured in the nursery?” and “Has your child been injured in the playground?” It seems to me that the tenor of the debate so far almost accepts as a given a change for the worse in our society. I do not know whether the spokesman for the Opposition is about to sue Transport for London for his injury—he is shaking his head, which is good; he is going in the right direction—but people see compensation as being worth the risk.
When I came to this House in the late 1990s, one of my first interventions was made in shock after I had been off and spent the afternoon watching daytime television. I saw advert after advert—not unlike the adverts inviting you to play the National Lottery—saying that if you had had the good fortune to have an injury, there might be some money in it for you. I have heard the statistics that my noble friend Lord Sharkey cited; nevertheless, what has happened has cheapened our concept of justice. Access to justice is right; certainly, when we hear the example given by the noble and learned Lord, Lord Hope, of the lady who was severely injured in a motor accident, we understand that of course there must be protection. But we have to have the courage to say that access to justice is not limitless and should not lead to clogging up the courts or to cases that increase costs throughout the system.
One thing that has come up when we have debated this before is personal experience. I suppose I should therefore give one other example. A couple of years ago, my wife had a little bump at a T-junction. When she got home, she told me that she had exchanged numbers with the other driver. I said, “Oh well, if you bumped into him, you bumped into him—I’ll ring him up”. The guy was a taxi driver. I spoke to him; we had a civilised conversation. I said, “Look, get the car checked over. Send me the bill and I will settle it”. We did not hear anything for some weeks, and then we were told that the driver had sustained a whiplash injury. I live in St Albans and it was now being handled by a solicitor in an east Lancashire town and they had provided evidence from a doctor in south Manchester. I immediately said, “This is a scam”.
I wrote to the chairman of our insurance company saying it was a scam and that my wife was willing to give evidence if they wished to challenge this obvious attempt to defraud the company. A few weeks later, we got a letter saying that the company had settled the claim because it was under £5,000 and it was not worth fighting. I wonder how many claims of £5,000 and under are settled in that way. Is it a victimless crime—or one that is passed on to the consumer?
I do not accept that this is so small a problem that it should not be dealt with, and I welcome the Government’s attempt to do so. In 2010 when I came into this place, I went to the Ministry of Justice. Between 2010 and 2013 we tried to bring forward some reforms in this area. In the previous Labour Government, Jack Straw campaigned on this issue and has continued to do so. This is an issue that needs addressing. As my colleague and noble friend Lord Sharkey said, we will tease out some of the things that are being put forward to Committee, because that is what we are here for.
The noble and learned Lord, Lord Hope, set the scene for the second part of the Bill. It was one of the most difficult pieces of work that one faced as a Minister. I was greatly helped at the time by the noble Lord, Lord Faulks, who succeeded me at the MoJ, and by the noble Lord, Lord Ribeiro. It is horrible to hear a case like the one we were given and then have to bring it down to some mathematical solution to give that person justice, but that has to be done. We have to ask in the Bill whether some of those powers should be given to the Lord Chancellor alone, or if there are other ways. We hear what the Delegated Powers Committee has said about certain of those responsibilities, and it has said that a whiplash injury should be defined. We will probably bring that forward in Committee. The tariff for injury should also be in the Bill.
There will be questions about whether the definition of a minor injury being up to two years is excessive. Is the small claims limit set too high at £5,000? As has been said, how will the Government ensure that the consumer and not the insurance companies benefit from these reforms? Nevertheless, this is timely legislation.
In the past, we have managed to get a degree of cross-party agreement that reform in this area is needed, and I hope that in the great tradition of the Lords, the expertise here will be used to help the Minister carry forward a Bill that is really worth while. What he certainly has, and which I had, is the presence of the noble and learned Lord, Lord Mackay, in his regular place behind him. Throughout any difficult and torrid debates in Committee on the Bill, he will come to the help of Ministers who flounder at the Dispatch Box. It is a very reassuring thing to see and, like the noble and learned Lord, Lord Hope, I look forward to hearing the contribution of the noble and learned Lord, Lord Mackay, to this debate.
Lord Hodgson of Astley Abbotts (Con)
My Lords, like the noble Lord, Lord McNally, perhaps I may begin at the beginning. Notwithstanding some rather disobliging remarks from the Delegated Powers and Regulatory Reform Committee referred to at some length by the noble Lords, Lord Beecham and Lord Sharkey, which no doubt we shall discuss in Committee, I welcome the Bill because it has at its heart the objective of achieving the greatest possible fairness. There will be fairness on the one hand to ensure that those who suffer life-changing injuries, often through no fault of their own, are properly compensated in so far as money can ever compensate for life-changing events of that sort. There will also be fairness to the other participants in the insured class who will inevitably have to face commensurately increased insurance costs. They are entitled to reassurance that overcompensation will not take place.
Sadly, as other noble Lords have referred to, there is a darker side to all this as part of a litigious society in the form of making claims on the basis of no or fabricated evidence. The proposals in Part 1 to bring whiplash claims under control therefore seem very worthy of support. In his opening remarks, my noble and learned friend referred to some of these fabricated cases, and perhaps I may pass on to him and to the House the following example. Last Friday, I was in the north of England to attend a board meeting of a company of which I am the chairman. I took a taxi and, as is my wont, I inquired of the temperature of the taxi driver, political and otherwise. We got on to the issue of whiplash injuries. He told me that it was prevalent in this and other towns in the north of England for young men to buy a clapped-out banger of a car or van for around £200 and engineer a crash with a taxi. I asked why they would choose a taxi. The driver said that there were two reasons. First, they know that a taxi will be well insured. If it was not, it would not be licensed by the local authority. Secondly, taxi drivers depend on the good will of the local authority for the renewal of their licences and so are less likely to put up a fight, argue the case and press for compensation. That is my contribution of anecdotal evidence gathered last week in the north of England, and it is why I think the Bill is an important first step towards reining in the compensation culture.
I say that it is a first step because there are other areas which need attention. No doubt noble Lords will have received briefings from the Association of British Travel Agents about burgeoning claims for compensation for illness occurring on holiday. Moreover, one of the most depressing aspects of the reviews I have carried out of the charity sector is the way in which individuals attending a charitable event, such as a proposal to raise funds for some much-needed community project, seem quite ruthless in bringing claims against a charity. Falling over a guy rope for a tent is a very common claim, as if tents do not have guy ropes and you have no responsibility for looking where you are walking. Charities are often run by volunteers who have only limited access to legal advice. Faced with what they consider an unreasonable claim, they can only use the small claims court for personal injury claims up to £1,000. I understand that this is to be raised to £2,000. However, the £1,000 for road traffic accidents is to be raised to £5,000. I hope that my noble and learned friend the Minister will explain at some point why we are moving from £1,000 to £2,000 and £1,000 to £5,000. That would be extremely helpful, particularly for smaller charities that have to deal with these unfortunate incidents.
Turning to Part 2 of the Bill, I have taken an interest for some time in what is familiarly called the Ogden rate, including initiating a debate on the matter last July, to which my noble and learned friend on the Front Bench replied. I support the overall shape of the proposal. I note the experienced comments of the noble and learned Lord, Lord Hope of Craighead, about risk. We may be able to have some existential discussions about the nature of this in Committee.
I want to raise two issues that I hope we can explore. First, reverting to the underlying strategic aim of achieving fairness, it seems that with long-tail insurance cases, the use of lump sum damages can result in only one near certainty: that the award will be unfair to one party or another. Surely we need to do more in such cases to make better use of periodical payment orders. One of the answers to the question raised by the noble and learned Lord, Lord Hope of Craighead, on making sure that people were fairly compensated would be to make greater use of PPOs.
I am concerned that injured parties—who may or may not be financially sophisticated—may be seduced by an apparent amazingly large lump sum against which the PPO may seem fairly modest and, in reaching that conclusion, may think that they should accept a lump sum. There is a risk that the injured party may be egged on by investment managers who see a long stream of advisory fees stretching into the future, and by insurance companies who see a chance to put a pink ribbon round the file and close the claim for ever.
My second concern is the proposal for the timing of reviews, a process that—as pointed out by the noble Lord, Lord Sharkey, in his opening remarks—needs to be designed to minimise the possibility of the system being gamed. I share the view that three years is too short a period. Indeed, any fixed-term review period is a very blunt instrument. I would argue that the trigger for a review should not be time-based but result from changes in the available rate of return on our investment. Establishing such a benchmark could be problematic, though changes in the base rate would be a pretty good indicator given that these investments will be low-risk, even under the new regime. Perhaps thought might be given to extending the duties of the expert panel proposed in the Bill to include a power for it to recommend to the Lord Chancellor that the rate ought to be reviewed. I look forward to discussing this matter and others in Committee.
Finally, there is an often expressed concern—indeed, it has been expressed this afternoon—that these proposals to control the costs of claims will result not in reduced premiums for the insured but merely in increased profits for insurance companies. Those of us who have spoken up for a fairer system expect the industry to demonstrate that savings as a result of these measures are being appropriately passed on. To be candid, it will not be good enough for the industry to say something along the lines of, “It’s a very competitive industry so savings are bound to be passed on”. The public are in a cynical mood, as reflected in an article in last Saturday’s Times entitled “Insurers fail to drive down premiums”. The article quotes Mr Matt Oliver from GoCompare as saying:
“Where insurance is concerned, loyalty doesn’t pay. Companies typically use their best deals to attract new customers, so often the only option for existing customers is to go elsewhere”.
If that situation persists, it would be a sad outcome to the Bill, the purpose of which I strongly support.
The Earl of Kinnoull (CB)
My Lords, it is a pleasure to follow the noble Lord, Lord Hodgson of Astley Abbotts, who, as ever, was authoritative and full of charm. I declare my interests as set out in the register of the House and particularly those in respect of the insurance industry.
I also welcome this Bill, seeking, as it does, to tackle two distinct policy areas that are in need of reform. That reform, I believe, will benefit all in the country. I am looking forward to the passage of the Bill, which I hope will deliver these reforms in an optimal way, achieving the vital balance between the interests of all those concerned. To summarise two very interesting early speeches in the debate, from the noble Lords, Lord Beecham and Lord Sharkey, there is a great benefit to be gained from having certainty here. I do not believe that we in this House could feel that we had done our job unless we knew there was certainty on a number of the things mentioned in both those speeches. I certainly believe certainty will help.
The Explanatory Notes for the Bill point out that the UK generated 780,000 whiplash claims last year, which is one in 83 of our population. That is now down to one in 100. However, even the one in 100 statistic is worrying. In preparing for today, I came across a Daily Telegraph article entitled “UK ‘whiplash capital of Europe’”. The first paragraph says there are,
“one out of every 140 people claiming for a whiplash injury each year”.
That article was published in May 2011, so one in 140 has gone, via one in 83, down to one in 100. I am obviously delighted that it has come down, but one has to feel, as a bit of a cynic about the claims management industry, that at least part of that is probably due to its spending so much of its energy on some of the new and wonderful things, such as the holiday sickness scam. However, the figures are too new, and I would like to probe them. I have no doubt we will come back to those in Committee. The point is that it is a vast number of people.
We should also take a look here at other countries. I have run personal lines underwriting businesses in continental Europe, so I have some experience on the ground of what in other countries the number of whiplash claims should be. It is a heck of a lot less. Sometimes—for instance, in France—that is due to impediments, which I think are unfair, that are put in the way of allowing people to claim for whiplash injuries, but in markets such as Germany the number is remarkably less. I certainly remember going to meetings and spending the day with Munich Re, a major reinsurance company, in Munich, and people pulling my leg about what they call “the British disease”. It is one reason Munich Re was pulling back from reinsuring British motor insurance.
The noble and learned Lord the Minister, in his speech at the Association of Personal Injury Lawyers conference on 17 April said:
“The number of road traffic accident related personal injury claims remains around 70% higher than in 2005/06 and around 85% of these claims are for whiplash related injuries. This is despite extensive improvements in both vehicle safety and a decline in the number of reported accidents in recent years”.
That decline, in the past 10 years, was 31%, according to the Department for Transport statistics. So 31% fewer accidents, in safer vehicles, are producing 70% more whiplash claims.
All this whiplash-claims activity produces loss cost to the insurance industry. We in the industry of course reprice our products annually, so that cost is therefore charged on as a problem to you and to me. The removal of non-bona fide whiplash claims is estimated in the impact assessment to be worth £1.1 billion a year. The ABI has probed how much of that goes into the pockets of those who have had the whiplash, or allegedly so, and how much goes into the pockets of claims management companies and specialist solicitors firms. The answer is that about 50% goes into the pockets of those assisting the whiplashed people.
Our task, then, is complicated. We are aiming for a £35 a year reduction in annual premiums. We will need to come back to this in Committee, as I do not understand what the promise really is from the insurance industry in respect of the £35 that could be there for the saving. I am sorry to disagree with the noble Lord, Lord Hodgson of Astley Abbotts, but the industry is incredibly competitive, so I cannot believe that at least some of that will not naturally come back through competitive pressures. It is also true that people have been making these promises to their regulator, the FCA, which—I speak again with experience—is one of the toughest regulators in the world. It would certainly be pretty displeased with someone who had breached a promise to the general public and was not treating customers fairly. The fines for not treating customers fairly are very large. There is a certain amount of carrot and stick there.
On the personal injury discount rate, we have much to thank the House of Lords judges for in the case of Wells v Wells. They laid out the law with great clarity, a clarity that the noble and learned Lord, Lord Hope of Craighead, exhibited earlier in his seminal contribution. As ever, I learnt a lot; the noble and learned Lord never gets up without me learning. In March last year, the discount rate was lowered from 2.5% to minus 0.75%.
Oddly, this is the second time this year that we have spoken in this Chamber about discount rates, the other occasion being the debate on reconstruction and renewal, where we talked about discount rates in respect of the financial modelling, which gave very surprising numbers as to how expensive it would be to repair the Palace in some of the options being considered. That discount rate came from the Treasury Green Book and was 3%. I noted in that debate how sensitive things were and have looked for a precise example.
In the educational section of the Chartered Insurance Institute website, there is a worked example which is very instructive. It notes that when the discount rate was 2.5% the lump-sum settlement for a 20 year-old man who requires £100,000 of care per year for his lifetime was £3.2 million. When the discount rate changed to minus 0.75%, that £3.2 million rose to £8.9 million, almost three times the amount. That demonstrates just how sensitive it is.
That is why, in its latest annual report, NHS Resolution moved its reserves for past losses up by £4.7 billion and stated that it expected £1.2 billion to be added annually to the budgeted cost going forward for clinical negligence. All that is money coming out of the front line of the health service. This year’s budget for clinical negligence excluding the PIDR change is £1.95 billion, so the extra due to the change represents an increase of more than 60% in the cost for clinical negligence to the NHS.
The insurance industry, naturally, has had to increase its reserves. Noble Lords will have read all about the one-off pain of that, but the industry has the opportunity to reprice, so for classes of insurance such as employer liability and public liability the industry is now repriced and whole again.
Had Wells v Wells been heard in 2018, instead of 1998, a lot of argument would have been presented concerning the lessons learnt in the aftermath of the financial crash and, in particular, the effect that quantitative easing has had on the gilts markets. According to the Bank of England website, the Bank has bought £435 billion-worth of gilts and £10 billion-worth of corporate bonds. To put that number in context numerically, that is about 25% of today’s gilt outstandings. Quantitative easing was unheard of in 1998, and it has certainly had an effect on the very part of the investment market that Wells v Wells is tied to; indeed, that effect has been to depress the PIDR to its current level of minus 0.75%.
I accept that, mechanically, this number is what Wells demands but, like many noble Lords, I feel that it is completely wrong. I could say a lot about that at a high level, but it implies that investors will pay the Government to house their money over the decades ahead. I do not believe that that is credible or the lesson of history. The equivalent of the PIDR in France is 1.2%, in Ireland 1.5%, in Spain 3.5% and in Germany 4%. Britain is an outlier, as other noble Lords have pointed out. Rethinking the PIDR, therefore, is an idea whose time has come.
The Bill makes a good stab at things, but could the Minister give us a bit of colour on what,
“more risk than a very low level of risk”,
means? Indeed, I worry, as others do, that the whole of paragraph 3(3)(d) of new Schedule A1 on page 9 of the Bill is none too legally certain. Also, what timeframe does the Minister have in mind for when the expert panel will have reviewed the PIDR and the level either affirmed or changed? I am thinking, in particular, of the £1.2 billion clock that is ticking for the NHS.
I make one short final point concerning Scotland and Northern Ireland. Section 6 of the Bill refers to the role of the FCA, yet it applies only to England and Wales. I am concerned that this could create problems for the UK market and present a potential for the ever-creative claims management companies to arbitrage regulation between the different parts of the UK. The interests of the UK in this regard would be best served by having a single market and regulator. Is the Minister in touch with the devolved Administrations to ask whether they would be willing to make use of this primary legislation to improve the situation generally? I close by welcoming this Bill.
Lord Mackay of Clashfern (Con)
My Lords, this is an extremely interesting Bill for me, for reasons that I will explain in a moment.
I will not say much about the first part of the Bill and the types of injury it deals with. That is because long ago, when I was in practice in Scotland, the system was still that juries awarded damages in personal injuries cases. I acted for the defendant in a case of whiplash injury. The lady came to the jury to explain how bad her injuries were. We had put in an advance offer—as was usual—for what we understood, from the medical evidence, was a reasonable estimate of the worth of the injuries. At the jury trial the lady was very good at explaining how bad the whole thing was, and she got an award considerably above our offer. My reputation as an estimator was, therefore, adversely affected by that experience.
I had the great advantage, however, that the late Lord Fraser of Tullybelton—as he became—was the presiding judge. In those days the judge was not supposed to give much indication: it was a matter for the jury and he was not supposed to intervene to say it should be this or that. Lord Fraser—as those who knew him will remember—was an excellent judge who observed that requirement meticulously. He came to me afterwards and said that he thought I had been very badly treated by the jury, which shows how difficult it is to estimate genuinely on this type of injury. I have no doubt that there may be some question about precisely what the rate should be when the whole thing is lumped together as if it were a reasonably common experience, with reasonably common results.
However, I want to speak primarily about Part 2 of the Bill, because I am in the remarkable position of seeing that this part would amend a Bill that I introduced, and which became an Act, in 1996. My recollection of that—it is over 20 years ago, as your Lordships will quickly be able to observe—was that the judges were having a lot of difficulty in assessing damages, particularly for the whole of life, as some cases required. They were of course experiencing the benefit of actuaries and other people who ran investments, and so on. This involved a very large amount of work in the individual cases and the judiciary were anxious—I am subject to correction by members of the judiciary who may remember this situation—to avoid the necessity for this repeated excursion into financial administration. The other thing is that at that time, in 1996, the markets were probably a bit less volatile than they are now.
Eventually we passed that Bill, which required the Lord Chancellor to fix the discount rate. Fortunately, I had managed to retire before I had to do it so it fell to the noble and learned Lord, Lord Irvine of Lairg, to fix it, which I am sure he did to the best of his ability. He had to take the advice of the Government Actuary but he was not confined to that. He fixed the rate and that rate has lasted until 2017. The great thing about that matter is that if it changes after such a lapse of time, it is going to be quite a change and the effect on the estimates within various bodies, particularly public bodies such as the National Health Service, is terrific. I entirely agree that something more regular is required and that it is a difficult task, because the effects of the kind of injuries that may come before the court can vary tremendously, from those which will last for a lifetime to those which are much shorter.
I want to look at the assumptions that the Lord Chancellor is required to make under the Bill and I venture to suggest that they form a bit of a challenge. The Bill says in Part 2:
“The Lord Chancellor must make the rate determination on the basis that the rate of return should be the rate that, in the opinion of the Lord Chancellor, a recipient of relevant damages could reasonably be expected to achieve if the recipient invested the relevant damages for the purpose of securing that—
(a) the relevant damages would meet the losses and costs for which they are awarded”.
That is fairly easy to say on a day-to-day basis. But Part 2 then says that,
“the relevant damages would meet those losses and costs at the time or times when they fall to be met by the relevant damages”.
These will be years ahead in some cases, so it is quite an assumption that the Lord Chancellor has to make. The last provision is really crucial. It says that,
“the relevant damages would be exhausted at the end of the period for which they are awarded”.
When I chaired the Select Committee that looked into the Assisted Dying Bill, one thing we learned was that doctors had great difficulty in assessing the length of life. One of the great difficulties is to assess when the damages should be finished, because in the life cases, which are now a very substantial part of the damages that have to be paid by the National Health Service, life expectancy is very difficult to estimate. Even as you get near the end of life, life expectancy seems to be very difficult to estimate. When a baby is born and the results affect that baby for the rest of its life, you can imagine the difficulty of trying to determine that.
The Lord Chancellor has to go on, having made these assumptions, to assume,
“that the relevant damages are payable in a lump sum”.
He is not allowed to take account of the fact that you can now pay in instalments. The second assumption is,
“that the recipient of the relevant damages is properly advised on the investment of the relevant damages”.
That seems a fairly easy assumption to make. It is not so easy to know what the right advice would be. The third assumption is,
“that the recipient of the relevant damages invests the relevant damages in a diversified portfolio of investments”.
You would think that might be covered in proposed new subsection 3(b), but for clarity it has been separated out. Proposed new subsection 3(d) is the one I want particularly to draw attention to because we may want to look at it in some detail in Committee. It says:
“The assumption that the relevant damages are invested using an approach that involves … more risk than a very low level of risk, but … less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims”.
I assume these are different aims from the people who are investing the damages award for the injured party.
The assumptions that have to be made by the Lord Chancellor on this basis all seem very reasonable, but I think it would require the Lord Chancellor to have a certain element of the prophet about him or her to enable these assumptions to be taken with any degree of accuracy—we really need to look at this. I imagine that the promoters of this Bill have looked at this very carefully and if it is going to be accurate from the point of view of awarding damages, these conditions have to be fulfilled. The difficulty about it is how you satisfy yourself that that will be true. That is what I would like to hear a little about.
The expert panel included an actuary, but my understanding of actuarial science—it is a limited understanding—is that it is very much based on the statistical evidence on length of life. The trouble is that each case is separate; it is not the average, it is an individual case. How do actuaries go about doing this? I am interested to know. The Government Actuary has to do all that kind of thing and does it extremely well, but it is not by any means easy. Getting an expert panel to agree—it includes an actuary and investment people—will be very difficult.
The Bill deals with making fair the system of awards in civil liability. Two distinct aspects are covered in the Bill—the particular kind of injuries are dealt with in the first part and the discount rate in the second part, but the system is bigger than that. One of the important elements in the present system is an Act of 1948 in which Section 4(2)—I am sorry, Section 2(4); I had better get them in the right order—indicates that the damages are to be calculated on the basis that the medical attention is given on a private basis. I can see that in 1948, when the health service was very young, that might be appropriate, but I think modern times have crept up on that and it is rather doubtful whether that is a good basis.
There is another point in relation to that. One of the biggest areas of claim for the National Health Service is in obstetrics. The trouble with an obstetric injury is that it is likely to have effect for the rest of the person’s life and, as I say, you have to forecast what that is. My understanding is that the amount of private practice in obstetrics has almost disappeared for the reason that the premium for an operator in obstetrics is so large as not to be worth while; he is better to be in the National Health Service. I am not sure about that but it is what I understand to be the case. If so, it strengthens very much the need for a revision of a rule that requires you to assume what is not there as a basis for damages. Assessing damages is difficult enough without trying to assume what now is no longer practised.
Lord Monks (Lab)
My Lords, I start by declaring an interest as a member of the board of Thompsons Solicitors, the largest trade-union-oriented firm of solicitors and a big firm in the personal injury world. I serve on the board with my noble friend Lady Primarolo, who is sat behind me.
We are concerned with the victims but also with abuse of the system. No one on our side supports abuse, and we have heard some examples of that. No one doubts that there is quite a lot of it, but nor should anyone doubt where the primary blame for some of this lies. The key to the answer to that question is in the example given by the noble Lord, Lord McNally: the insurance companies have been extremely weak. If you can concoct a claim, you get £5,000 or maybe something near it. That did not just go around one northern town; it spread like wildfire. I believe that the insurance industry bears a lot of the responsibility for the situation we are in today. Add to that the claims management industry, which has been fostered by the opportunities that have been provided, and it seems to me that as lawmakers we should be looking very much at their activities as well as remedying any abuses that are around. My worry about the Bill, particularly with the increases in the cost limits and so on, is that the blame is being put on the victims and they are the people who will lose out. I will develop that thought in a moment.
The Bill is intended to reduce motor insurance claims first and foremost and, more generally, to reduce the number of claims for personal injury at work. The increase in the small claims limit is being introduced as a package with the Bill, and of course it can be done by statutory instrument. As has been mentioned, the current small claims limit for all personal injury claims is £1,000. It is proposed to double that amount, which is well above the levels recommended by Lord Jackson as recently as 2013. Others here who know more about this subject than I do will recall that Lord Jackson was proposing that when his package was introduced in 2013, the small claims limit should be increased only when inflation had taken it up to £1,500, and thereafter in blocks of £500. He did not contemplate a doubling for personal injury cases.
A justification for the hike is that the £1,000 figure requires revision because it has not been increased since the 1990s and an inflationary rise is therefore necessary. However, an increase of sorts was made in 1999, when the limit was restricted to general damages. That was the year Lord Jackson took as the base year for his recommendations. One of the unions that has submitted information to the House, the retail union USDAW, has calculated that if the CPI had been applied from 1999 to the present day, the limit should be increased to £1,440 and on current CPI rates would reach £2,000 only some time at the start of the 2030s.
The effect of this increase on non-road traffic personal injury cases—an area where the abuse is a lot less than in road traffic claims—will be profound. At present, very few are dealt with in the small claims court, but under the proposed new regime many more would fall into that court, where legal costs are not recoverable. As a result, a lot of claimants would be unrepresented or would have to find their own resources. For union members that is probably fine, as the union would cope with that; for a sound case, that is what we do; it is a core job that we have. But the many others not in a union will be made much more vulnerable. The result is deprivation of legal representation in recovering damages for injuries and losses. The number of workplace PI cases is reducing annually, and USDAW, from its own experience, calculates that the number of cases captured by the proposed lift in the small claims limit would increase fivefold. As I say, if people are in a union, that is not such a problem, but for others, it is a big problem.
As we have heard, extra costs will accrue to the Government as well. The impact assessment acknowledges that the changes will cost the NHS £6 million, and public funds generally £140 million each year. The impact assessment goes on to confirm a benefit of an extra £1.3 billion to the insurance industry. The Government are hoping that 85% of this windfall will be passed on to the consumer in reduced premiums. I note the guarantee that the chief executives have given, so let us hope that that bears out and they live up to their promises. But they will have to forgive me for being a bit sceptical. The Association of British Insurers has admitted that the insurance industry saved more than £8 billion over five years a result of earlier government changes, yet there is no sign that insurance premiums have declined at all. Indeed, they have continued to rise. Other factors tend to crowd in on these kind of promises, and they must be held to account in keeping this guarantee. I hope the Government will confirm that they will do that.
A further worry is that the decreasing presence of lawyers will leave a vacuum into which could sweep unregulated case management companies. They are always on the lookout to increase their business, and some of them are prepared to use highly questionable methods to persuade vulnerable people that a “lottery win” is within their reach if they just listen and leave it to them.
A word on the road traffic cases. The Government’s justification for raising the small claims limit to £5,000 is that there is an epidemic of fraudulent claims. Yet that evidence should not just be taken at face value or anecdotally borne out by stories that we all tend to tell. The Association of Personal Injury Lawyers has made it clear that it believes that the figures the Government are relying on are exaggerated. The figures for actual proven fraud are rather low. All this shows that there is perhaps a need to spend a little more time checking each other’s figures because, on the current proposals, perhaps as many as 96% of all road traffic claims will be captured by the increase to £5,000.
It is therefore undeniable that hundreds of thousands of genuinely injured people could risk losing the basis for their claims being proceeded with effectively with legal representation. It should always be remembered when the House considers such things that legal claims are the primary driver for retaining and improving health and safety standards in the workplace, and that the massive reduction in the number of claims that is likely to be occasioned by these changes will have an adverse effect on health and safety standards. Deregulation in this area increases the risk of injury at work, and the Bill simultaneously would restrict the ability to seek redress. I hope we will have some substantive debate and see substantial changes to this Bill in Committee, and I look forward to getting into the detail to see whether we can make it better.
Baroness Berridge (Con)
My Lords, it is a pleasure to go down memory lane to the nine years I spent as a personal injury and licensing barrister at Kings Chambers in Manchester. During my time as a junior barrister, dealing with road traffic accidents seemed to be compulsory basic training, rather akin to the traffic list in a magistrates’ court for the criminal Bar of this era. I should state that I was a member of the PIBA, and I am grateful for its briefing, as well as the advice of the now head of the personal injury department at my old chambers, who happens to be my former pupil mistress, Fiona Ashworth.
As is the nature of the independent Bar, I represented both claimants and defendants, the latter being legally represented through insurance companies as a result of the statutory obligation for drivers to have third party, fire and theft insurance. It is important to note at the outset that it is claimants who are legally unrepresented, unless they have fully comprehensive insurance or free-standing legal expenses insurance. Of course, a claimant may be a passenger, who is obviously under no duty to be insured. This statutory obligation of third party, fire and theft created a huge market of customers for insurance companies, and the quid pro quo of creating this market at that time was the Motor Insurers’ Bureau, which the insurance companies paid for to deal with claims when the defendant driver was uninsured. Underlying all of this is the foundational principle that if you drive your car deliberately or negligently so that you damage someone else, in terms of their property or personal injury, you must compensate them. How sad it is that the term “compensation culture” has come to be seen only as derogatory. It is an important plank of any mature justice system. I must state at the outset that I agree with the tenor of the comments of the noble Lord, Lord Monks, and I ask my noble and learned friend the Minister to comment. In my experience, the overwhelming majority of claimants are genuine.
The mischief that the Bill seeks to address seems twofold regarding whiplash claims, and it is to Part 1 that I will limit my comments. Her Majesty’s Government have two laudable desires: to reduce insurance premiums and to reduce exaggerated and fraudulent claims. While I believe, along with other noble Lords, that the obligation to obtain a medical report will serve the useful purpose of ensuring that claims are dealt with thoroughly and will help to reduce the possibility of fraudulent claims, I currently have reservations about the introduction of the Lord Chancellor as the creator of a new tariff, the separation out in the personal injury system of compensation of one discrete form of claim, and the proposed levels of the new tariff. I also mention the oddity of the codification of the duty to mitigate.
First, I will address the separation out of one type of claim. I spent more hours than I care to remember poring over what was then the Judicial Studies Board guidelines to assess the value of someone’s personal injury claim. After a while, it was described to me that you get a feel for cases, but it is important to remember that the guidelines do not seek to compare apples and pears. There is no mystery to the assessment. These guidelines are based on reasons and analysis as to why certain injuries merit more compensation. Importantly, they enable claimants—perhaps chatting about their injuries in, say, the office or the pub—to have confidence that they can compare, for instance, why a visible scar is worth more than one that is not visible; or why, in general, a fracture will merit more compensation than a soft-tissue injury.
The guidelines hold together as a body of reasoned assessment, and it these guidelines that the Bill seeks to substantially change. It is important to remember, as the noble and learned Lord, Lord Judge—who is not in his place—stated in Simmons v Castle, that the Court of Appeal has the power and a duty to review the guidelines. I would be grateful for confirmation from the Minister of whether the insurance companies maintain that these tariffs are too high for this type of injury, have raised these arguments in the courts and have been unable to persuade them.
I note that my noble friend used the word “proportionate”, which is a legal term that could be subject to test in our courts, to challenge these guidelines. Is it that the courts have said that the guidelines are a matter for Parliament to legislate on—to take one section of injuries out of the guidelines as they decided they were unable to do so? Is that also why we have the Bill? Also, am I correct in my reading of the Bill that a whiplash injury to a cyclist, motorcyclist or pedestrian falls outside the tariff? Does a whiplash injury fall outside the Bill if you fall over in the street or are a passenger on a train that stops suddenly? Even a motor vehicle accident on a private road might be treated differently. These would then be assessed on the Judicial College guidelines, not the Lord Chancellor’s fixed tariff. This matters enormously as the amounts of compensation that Her Majesty’s Government are proposing in the tariff, in the consultation and the impact assessment, are so much lower than the Judicial College guidelines. How can this be just to a claimant?
I had the privilege, mainly due to court listing procedures on the northern circuit, to sit in waiting rooms for hours talking to genuine claimants. So often, the few thousand pounds of compensation for pain, suffering and loss of amenity was going to have a substantial effect on their finances, enabling them to buy a car, pay off a debt or pay for education, as well as make windfall purchases such as holidays. Why does a car passenger not deserve the same whiplash compensation as a cyclist for the same injury? I could perhaps understand this part of the Bill more if the savings to the insurance companies of reducing motor car whiplash claims had to be passed on through insurance premiums. A mere pledge is just not good enough. Why do Her Majesty’s Government think that genuine claimants should not get this compensation and that the insurance company should have the money instead? As the Personal Injury Bar Association briefing states:
“Further, if a claimant is going to be fraudulent or exaggerate a claim, there will be a large incentive to describe symptoms lasting for longer than the tariff provides so as to bring their claim out of the tariff and more than double the amount of compensation they receive. The greater the disconnect between the tariff amounts and the judicial college guidelines and court awards, the greater the incentive to exaggerate the duration of symptoms. Such an approach would undermine the stated goal of the Bill”.
Of course, if the tariff is to be the same as the Judicial College guidelines, the statute is superfluous.
Surely such irrational differences between the tariff and the Judicial College guidelines will somehow be justiciable. Maybe someone will now say that the European charter, on which I so happily voted with the Government yesterday, might be the solution. I am not in principle against a tariff system: we currently have one called the Judicial College guidelines and we also have one for the criminal injuries compensation scheme, but the tariff has to apply to all cases so that people can readily understand the fairness of their compensation. Also, why does the government tariff say that a 10-month injury and a 12-month injury merit exactly the same amount of compensation? There is not even a bracket of figures in the examples of the tariff I have seen. How can this be just?
There are other, more complicated, cases that we also need to consider. While the overwhelming majority of soft-tissue injuries caused to the neck, shoulder and back by the forces of deceleration on impact recover within six to 12 months, a small minority of claims—perhaps around 5%— leave permanent damage. Long-term effects can range from ongoing twinges, to accelerating the onset of arthritis, to the more complicated but well-recognised fibromyalgia and chronic pain syndromes. The latter will command substantial levels of compensation. Although these will, of course, fall outside the new tariff outlined in the Bill, it is important to realise that pressure may be put on unrepresented claimants to settle their claim too early, relying on only a basic GP’s medical report. Such a report does not even require a GP to have seen previous medical records. People will often need advice to wait and see. I sent back so many claims, saying, “Don’t settle now. Wait.”. However, we all know of the type of pressurising phone calls that can be made. Are Her Majesty’s Government going to make the quid pro quo of these savings to insurance companies that those companies must provide legal advice to an unrepresented claimant? How else will there be equality of arms?
In relation to the Lord Chancellor as the creator of the tariff, I would be grateful if the Minister could clarify whether the Lord Chancellor will have to consult the Lord Chief Justice on Clause 2(2), or even have to consider the Judicial College guidelines when deciding on this tariff. It is hard to imagine that the tariff, if at the levels outlined in government consultation, will not impact on other forms of compensation. Is it the Government’s intention to bring down compensation on a whole range of injuries by the use of this statute? Will not insurance companies be able to raise non-tariff injuries and use this legislation to say the Judicial College guidelines are too high overall, trying for a revision of the whole system?
I turn briefly to the duty to mitigate, outlined in Clause 2(1)(b)(ii). It refers to,
“the claimant's failure to take reasonable steps to mitigate its effect”,
thereby bringing their case in the two-year period. It seems this might encourage defendants routinely to argue that earlier treatment would have led to lesser injuries so they would be in the tariff, and that is a difficult argument for litigants in person to meet and argue against. I would be grateful to know why the Government are putting the common law duty to mitigate on a statutory footing only in this area and inserting a section that will lead to an increase in the complication of litigation, which I was pleased to see in its briefing that the PIBA did not want to encourage.
In conclusion, the Minister said that three-quarters of the insurance companies have signed up to a pledge. I am surprised that it is not more. Why are we relying on only three-quarters? Will there be a strategy to ensure that the entire industry signs up to pass on these savings? In relation to the abuse correctly outlined by the noble and learned Lord, Lord Hope—I practise in this area—yes, there is an abuse, but the intended, not unintended, consequence of the Bill is to have a significant effect on genuine claimants. Is that a fair balance to strike? There will be an effect on genuine claimants: they will not benefit from the Bill. I fear we are hearing too loudly from the lawyers and the insurers, and I have yet to see any representation purely on behalf of genuine claimants from an organisation with no other vested interests. I hope the Minister will be open to listening and meeting to deal with the concerns that I have outlined.
Lord Thomas of Cwmgiedd (CB)
My Lords, I will address only Part 1 of the Bill, following on from the very eloquent remarks of the noble Baroness.
It seems to me that there are four problems that will have to be addressed, and I will briefly mention them and suggest some solutions. The first is the need for advice and who is to pay for it. This is a problem that runs right across the whole of the legal sector at the moment, and gets more difficult by the day. We need to deal with small claims— small areas where advice is needed—in a proportionate manner, but one that does not incentivise people to bring litigation for the sake of litigation.
Secondly, it cannot be right to categorise a claim as for the fast track or a small claim, simply to enable fees to be recovered. Those are different points: the point of a track is the difficulty of the case.
Thirdly, I welcome the principle of a tariff; this is a novel departure. We ought to look at this and I very much take the point made by the noble Baroness about why we are doing it in this one sphere, which could be met with the remark, “Well, you should pilot it”. There is much to be said for setting a simple tariff, for two reasons: one, it gives certainty and two, it enables claims to be settled more easily. I shall return in a moment to the way in which that should be set.
Fourthly, there is the problem of fraud. In my own experience, the insurance industry—not merely in large claims but in small ones—crusades or works very hard to suppress fraud. In the instance mentioned by the noble Lord, Lord Hodgson, what are commonly known as “cash for crash” cases, the insurance industry has instigated significant prosecutions and has made use of the contempt of court rules to seek the imprisonment of those who have brought false claims. It would be helpful to know what the issues and difficulties are, and the proportion of cases where the insurance industry feels there is a fraudulent claim but cannot prove it. It is important when setting the tariff to have some clear idea of why and how you are setting it. Are you setting it to stop fraud, or on the basis that people should be more stoic and should not be paid so much for a bit of pain? What is the basis?
I will return to each of those four points. First, on the provision of advice, it seems that we need to look at this issue more broadly and not separate out those who suffer this type of personal injury. It is wrong that the energies of claims managers and the legal profession should go into this kind of claim and not the much more important types of small claim. If resources are to be used, they should be used for the vindication of serious rights. It is, I think, the experience of everyone that many people have rights they cannot vindicate because they cannot get legal advice. I hope that the Government give serious consideration to funding the Courts & Tribunals Service or some other body to provide proper online advice in this area, in which a great deal can now be done. Last year, City university and others sponsored a hackathon where people tried to create this kind of legal advice online. I hope that efforts will be made to pursue that.
Secondly, on the allocation of tracks, whether a small claim or fast-track claim, it is essential that the courts have the right IT. If they are to have litigants in person, the IT must be designed to deal with those.
Thirdly, on setting the tariff, I listened with great interest to the noble and learned Lord, Lord Mackay of Clashfern, explain the task the Lord Chancellor would have in setting the discount rate. The task of setting the tariff rate, although dealing with much smaller sums, poses some difficulties. He is given no committee—although a committee is provided for in the other part of the Bill—and no guidance as to what he is to take into account. It would be helpful to look in Committee at assistance that could be given to the Lord Chancellor. Certainly, as has been suggested, maybe the judges could give advice, or the Lord Chief Justice could appoint people who can give advice. It is wholly wrong in principle that this should be set by a government Minister without proper legal advice and medical advice, because no doubt over the next few years, medical science will improve so that we have a much clearer idea of how you prove or show that such injuries have been sustained.
Finally, we must address a fundamental problem: what is this compensation level to be set at? Is it to be set to deter fraud, or is it a matter of compensation? If it is the latter, and assuming that an ordinary individual needs advice, who is to pay for the advice? Is that part of the compensation or not? That point must be addressed. You cannot say we are offering fair compensation unless you are clear about the various objectives. I warmly support this Part of the Bill—as I do the other Parts, on which I could not better the comments already made. It has the right principles, but a great deal needs to be done to improve it.
Lord Faulks (Con)
My Lords, I begin by declaring some interests. I am a practising barrister, and Part 2 of the Bill, relating to the personal injury discount rate, is relevant to the size of the awards in cases in which I am instructed by both defendants and claimants. In particular, I declare an interest as acting for the National Health Service and for various medical defence unions in claims of the utmost severity. I should also declare an interest as having being a Minister in the Ministry of Justice between 2013 and 2016, immediately following the noble Lord, Lord McNally, from whom we have heard. During that time, whiplash reform was frequently discussed. However, during my time in the Ministry of Justice, neither Lord Chancellor changed the discount rate.
The Bill, or something like it, has been a long time coming. Noble Lords may remember that in the Queen’s Speech a Bill was foreshadowed which would,
“ensure there is a fair, transparent and proportionate system of compensation in place for damages paid to genuinely injured personal injury claimants”.
The scope of this Bill, which is,
“to make provision about whiplash claims and the personal injury discount rate”,
is much narrower, although I anticipate that the aim of the legislation very much reflects what was said in the Queen’s speech. I hope that, at the very least, we will be able to debate the future of Section 2(4) of the Law Reform (Personal Injuries) Act 1948, as referred to by my noble and learned friend Lord Mackay and the noble Lord, Lord Sharkey.
I imagine that most noble Lords will agree that many whiplash claims have contained a strong element of a racket. There may well be a dispute as to how much of a racket, but very few of us will have escaped invitations to commit a fraud, usually on the telephone, inviting us to say that we have been involved in an accident. There is also the sort of fraud suggested to the noble Lord, Lord McNally. There is such an accumulation of anecdote that it becomes beyond anecdotal evidence. I regularly used to receive telephone calls when I was a Minister, inviting me to participate in these frauds. When I identified myself and invited further information to be provided to me, the phone suddenly went silent.
The difficulty, or perhaps the advantage, to some people with whiplash is that it is neither provable nor disprovable by any scans or investigations, and so provides an opportunity for those who wish to participate in a fraud, or simply wish to exaggerate the impact of a particular accident on their neck or back. I agree with the noble Lord, Lord Monks, that insurers have played their part in what has been this racket. The inclusion of pre-medical offers precluding settlement is definitely a step in the right direction and it is important that it should remain in the Bill.
Part 1 reflects a strategy to restrict the level of damages and to discourage these ambitious, or fraudulent claims. It has been criticised, and I quote the briefing from the Law Society as “arbitrary, disproportionate and wrong”. It said that the Bill ignores genuine claimants, and even that the evidence of fraud is very slender. It is true that the existence of a tariff will mean smaller claims for pain, suffering and loss of amenity, although when a scheme of this sort was originally announced, not by the Ministry of Justice, but by the Treasury, it was suggested that no damages at all would be paid for pain, suffering and loss of amenity. However, in this scheme, what are known by lawyers as special damages will be recoverable—that is, loss of earnings or medical expenses attributable to the injury. There is a power, subject to the regulations, for an uplift on the tariff for damages in exceptional circumstances. It is said that this will give rise to litigation—that the changes and the proposed increase in the small claims limit will result in a proliferation of litigants in person. I am sure these and other criticisms, which we have already heard canvassed in the course of these debates, will be debated in Committee. My view is that this part of the Bill is aimed in the right direction and is a necessary correction to the whiplash claims racket.
By contrast, I do not think that there should be much real debate about the need to change the discount rate, which was dramatically reduced as a result of a decision of the then Lord Chancellor, Ms Truss, from 2.5% to -0.75%. Even cautious wealth advisers have described this rate as “incredibly generous”, and this is borne out by relevant international comparisons. As we have heard, the Government’s proposal is to change the assumption. The result should still be a generous discount rate from the point of view of claimants and should result in fair compensation to them. The Government could in fact have gone further in relation to the assumptions, but have been rather conservative—with a small “c”.
I do, however, have a number of issues with this part of the Bill. The first is that it could be some time before it takes effect. The cost to the taxpayer of a change in the discount rate is very high indeed. The Department of Health is a particular loser. The suggestion is that the recent changes may result in a loss of as much as £1.2 billion a year. Furthermore, the cost of clinical negligence claims generally, as revealed in the recent National Audit Office report, has got completely out of hand. Every day that -0.75% remains the discount rate will be a further blow to government, both national and local, as well as to those affected by increased premiums.
There is a 180-day turnaround period between the Lord Chancellor deciding to commence a review and the expert panel reporting back. But the obligation to commence a review begins only after commencement of the Act, and we do not know when that will be. As I understand the Bill, he or she has 90 days after commencement before the 180-day turnaround period even begins, and perhaps my noble and learned friend will confirm my understanding of this. The commencement date—see Clause 11 in Part 3—is on such a day as the Secretary of State may appoint, and so the period does not begin automatically once the Bill is passed. The Lord Chancellor must be ready for these changes. Why can the initial 90-day period in which the Lord Chancellor has to commence a review not be curtailed to, say, 30 days? Surely preparation should be under way for at least some preliminary work on the composition of the panel. I hope my noble and learned friend will be able to reassure the House that the Government intend to get on with this as soon as possible.
My other main concern is the frequency of the review. My experience as a practitioner is that, pending a probable change in the discount rate, parties on both sides, particularly in substantial cases, will inevitably and legitimately seek to game the system. Indeed, I can tell the House that that is going on at this very moment, depending on when trials might take place in relation to anticipating forward changes in the discount rate. If the review is every three years, there will be a constant exercise in guessing whether the discount rate will go up or down. By complete coincidence, the period of five years that was suggested by the noble Lord, Lord Sharkey, and my noble friend Lord Hodgson, is one to which I adhere. I respectfully suggest that it should be five years. What is important is that there should be regular reviews, as opposed to no reviews at all or very infrequent reviews, which, as we have heard, has been the position since the Damages Act came into force.
I am also concerned about the recoverability of investment advice as a separate head of damages. My construction of Clause 3(3) of Schedule A1 inserted by Clause 8 leads me to think that this should not be a separate head of damages as is now the case following the decision of Eagle v Chambers—here I have to declare an interest, as I was involved in that case. Given that the discount rate reflects a degree of advice—or at least proper advice given to a claimant—then surely he or she cannot recover the cost of additional expert advice as once was customary in large cases.
Finally, I want to say something about periodical payments. I entirely endorse what a number of noble Lords, including my noble friend Lord Hodgson, have said about periodical payments. I read the Government’s response to the House of Commons Select Committee in which they said that they would investigate, either directly or with the help of a third party, whether there are any ways in which the present law and practice regarding PPOs could be improved to ensure that any avoidable obstacles to their use are removed. It seems to me that periodical payments are often much more satisfactory than lump sums and are a clear indication that a claimant is not interested in gambling on the uncertainties of the market or indeed his or her life expectancy, but simply wants to make sure that damages are available, as and when needed, for the rest of their lives.
In this context, I will comment briefly on the speech of the noble and learned Lord, Lord Hope, who was one of the judges in the case of Wells v Wells. He spoke of the power that always existed for having varying rates, according to different heads. I agree with my noble friend Lord Hodgson that some of his anxieties would be and are satisfied by the regular awards of periodical payments, particularly cases of cerebral palsy for example, where life expectancy, even in the time of my practice, varied considerably. It is now very much longer than it was, because of improvements in medical science.
I have thought carefully about whether it ultimately should be for the Lord Chancellor to decide these matters or if there should be a panel, taking it out of the political sphere entirely. Indeed, the political pressures on a Lord Chancellor not to do anything are plainly there in the existing legislative framework. Ultimately, it is appropriate that a Lord Chancellor should decide, albeit with the obligation regularly to review on advice, because ultimately it is a political matter. This was one of the difficulties that the Supreme Court faced because, as the noble and learned Lord, Lord Hope, said, it did not have all the evidence that one might have to come to its conclusion. The Supreme Court does not have what the Supreme Court in America has, so-called Brandeis briefs, with all the information enabling you to make an almost economic or socioeconomic decision. Politicians make what legal academics call polycentric decisions about the appropriate discount rate or any other factor. That is not something that courts in this country are able to do.
In my view, subject to hearing further argument, the structure of the Bill in this respect is right. We want a fair system of compensation for both sides in litigation, and one that commands public support. The Bill, though capable of improvement, should do this.
Lord Hayward (Con)
My Lords, it is always a daunting task to follow my noble friend, who is such an expert in this field. I intend to raise three non-legal points on the Bill, in the view that it pursues the right course, but there are certain questions that are worth raising.
First, I fall into the category of the noble Lord, Lord McNally, as the insurance industry settles too often, too quickly and in too many cases. I disagree with the observations of the noble and learned Lord, Lord Thomas, but that does not necessarily mean that I disagree with either the noble Lord, Lord Monks, or the noble Baroness, Lady Berridge, in their comments, because those that are settled too early do not necessarily go to lawyers to be dealt with.
I will cite two personal circumstances, as others have done. First, when I was chief executive of a business, we were confronted by a malicious claim in relation to racial discrimination. I referred it to my chairman, who said that he wanted us to fight it because it impugned the honour of a number of members of staff, including me, and we were in a financial position to do so. We fought the case and it was settled the day before it went to court by the individual making the claim withdrawing. We paid not one penny, but there was a cost.
There is a clear message for the insurance industry: it is about time it fought a few more cases. I say that because the first time I ever asked a Question in this House was in relation to the case of Mr John Elvin. Rather like the noble Lord, Lord McNally, he was involved in a false claim. He identified it to the insurers on the Monday, because it had happened on a Saturday. He said, “I am convinced this is a false claim”. The insurers, esure, chose to do nothing. It settled it.
The community at large suffers, not only the individual, because we all have to pay for that. The insurers should challenge a few more cases. As I say, in this case the individual had absolute chapter and verse in relation to what had happened and warned the insurance company before it was even contacted by the other party that this was going to be a false claim. It could and should have pursued it. Having cited it in this House, did the insurers come back and say, “You have cited an incorrect case and you haven’t got the facts right”? No, they were absolutely silent. The insurance industry has a lot to improve on, because this should not be a “protect the insurance industry” Bill, it should be a “protect the consumers” Bill, which overall I believe it is.
The noble Lord, Lord Sharkey, and others have identified concerns about what can be taken at face value from the insurance industry. Those are quite reasonable questions to ask. I for one have experience of discussing this issue with representatives from insurance companies, not only as regards individual cases but in terms of their general approach. Around a year and a half ago I listened to the evidence given by the ABI to a Select Committee in the House of Commons. The association blamed everyone else, even to the extent of when explaining the difference in practice in other European countries saying, “Oh, there is a different driving style there”. Well, people drive on the other side of the road, but I am not sure that there are that many other differences in driving style that would result in us being identified as the crash claims capital of Europe. The insurance industry has something to answer for in this area.
One other area that has not been touched on during the debate in terms of its implications, although it has been identified, is the ramifications for the health service. If we are to ask people to get signed documentation in one form or another, by implication that will result in an increased burden on the health service. I am not sure how well it will cope with the extra demand and I am also concerned about the prospect of people pressurising GPs and hospital specialists by saying, “Please sign me off for six months. No, I would like nine months. No, I would like 12 months”. People will push it up in one form or another. It is right to go for some form of medical certification, but we should recognise the implications of the burden it will place on the NHS.
Thirdly, I look forward to the future possibility of other similar legislation. If we do not resolve the problems in relation to the insurance industry, claims companies and others pursuing this matter, as the noble Lord, Lord McNally, implied, we will be back in this Chamber considering a “civil liability (schools injury)” Bill, a “civil liability (visiting public buildings injury)” Bill and a “civil liability (travel industry)(sickness on holiday in Benidorm)” Bill. We have to recognise that if this issue is not tackled properly at its source—I believe that the different participants are all responsible—we will need many more pieces of legislation to resolve the problems that we are currently trying to resolve in one field.
Lord Cromwell (CB)
My Lords, it is a tradition in this House to say what a privilege it is to follow the previous speaker. As the 15th speaker in this debate, I have to say that I have enjoyed and learned from all 14 speeches so far. It has been a real privilege to listen to this debate because it reflects the House of Lords at its best: terrifyingly well qualified; taking a roughly hewn Bill and making it even better, and I am sure that the Minister is extremely grateful for all the questions and advice that he is receiving. Well, all good things must come to an end.
I intend to speak on the personal injury discount rate, and in particular the panel that is being established to advise on it, about which I have some questions for the Minister. I wish first to make a general point. It is essential that in a Bill that combines whiplash claims, an area that is infamous for mischief, and the discount rate for personal injuries as a whole, we are not tempted into viewing all claims, or even most claims, as excessive or fraudulent, a point made powerfully by the noble Baroness, Lady Berridge. There are, of course, opportunistic claims and, in some cases, a collusive sub-industry seeks to profit from them, but there are also many injury claims that reflect tragic and agonising circumstances for individuals and their families. It may be that it is too easy for false claims to be effective, but that is wholly separate from determining the value of compensation claims that are found to be genuine and on which the discount rate has a profound effect.
In swinging the pendulum away from apparently excessive claims, we must not allow it to travel so far that it treats genuine claims unfairly or distorts their real value. As the Justice Select Committee reported,
“it may be simply increasing levels of under-compensation for claimants who were already under-compensated”.
The noble and learned Lord, Lord Hope, also touched on the difficulty for a claimant who, in a depressed market, has to eat into capital and is thereby unable to recover their position later. We need to be mindful of such unintended consequences. As the Minister reminded us, there is a person behind every claim.
Turning to more specific matters in the Bill, relating to the changed approach to the discount, who are the winners and losers? The winners are those who save substantial sums through reduced payouts: the Government, the NHS and insurers. Some might say that this not a bad thing, particularly if the results in reduced premia are passed on—something that a number of speakers have touched on and expressed a certain amount of cynicism about. However, the losers are people whose lives may have been damaged or curtailed, who may be in lifelong pain and who have to make the payout last them to the end of their days. The winners win at the exact expense of the losers.
I invite the House to consider the question of the inequality of arms between the winners and the losers. The winners are large, well-organised, well-connected and articulate bodies with financial interests in the outcome; they are able to draw on a depth of expertise in the rather arcane world of predicting investment returns far into the future. Contrast that with the losers of the new arrangement. These are typically individuals who have suffered an injury. We cannot assume that they are well resourced, that they are acting collectively, that they are familiar with theories on investment returns or that they are erudite in subjects such as yield curves or risk profiles. I note that the Justice Select Committee report contained these words:
“We advise caution in considering evidence of claimants’ investment behaviour to set the discount rate. Investment by claimants in higher risk portfolios could indicate they are under-compensated and forced into higher-risk investments to generate sufficient return for their future living expenses”.
In the same report, the committee highlighted the inadequate evidence of real behaviour of people seeking to invest safely for their future—a future of uncertain duration, as pointed out by the noble and learned Lord, Lord Mackay of Clashfern, uncertain health and uncertain investment returns. The government response to that report accepted that the evidence is indeed limited.
In short, these people need protecting. I do not think that there is any disagreement about that. They are wholly dependent on the Lord Chancellor and the panel set up to determine the discount rate. I am concerned that both the panel and the Lord Chancellor have an incentive, perhaps even a temptation, to keep the discount rate just a shade higher than it should be—what the noble and learned Lord, Lord Hope, referred to as a “tension” in the arrangement. I note that in the Ministry of Justice impact assessment, 45% of the 92 respondents favoured retaining a very low-risk approach, so I do not think that we are looking at unanimous support for the new approach to a higher discount rate.
In its equalities statement, the Ministry of Justice concludes:
“The proposals will therefore be likely to reduce the amount of compensation that claimants receive unless they can demonstrate that a different rate should apply”.
Does the Minister really think that a claimant will be able to persuade a court or the Lord Chancellor that a rate should be changed? Currently, I believe, courts can vary the rate but never do so. I look forward to him correcting me or confirming that.
My second question is: can the Minister tell the House how the powers of the Lord Chancellor are to be contained such that he or she is prevented from perhaps guiding or even overriding the panel, especially as the panel is chaired by the Government’s own actuary, and that person will have two votes out of a total of six?
Turning to the panel itself, it has five members, quorate when only four: the Government Actuary, another actuary, an economist, an investment manager and a person familiar with,
“consumer matters as relating to investments”.
Those are four very clearly technical roles, although getting an economist and an investment manager to give an unambivalent view or one consistent across their professions is always something of a challenge. Each of these four panel members will be aware of the background to their appointment—that rates have been too low and need to be increased. Any dissent from raising rates may be considered too soft-hearted or too pessimistic about future economic growth, which itself is often a matter of political perspective. In short, there may be subtle pressure to pitch the rate a bit higher. Only a small adjustment in the rate will save the winners many millions but could spell a lifetime of struggle and hardship for the losers.
That leaves one role, which, by contrast, sounds to me pretty vague. I note that they are the last person listed as a panel member, and it feels slightly as if they have been bolted on as an afterthought, but perhaps I should not read too much into that. It would appear that this person is almost expected to sign off on behalf of consumers—in other words, on behalf of those receiving these payments. That is going to have to be a person who is not only extremely robust in negotiation but also multi-skilled in the technical areas represented by those who outnumber them, in vote terms, five to one. Otherwise, they are likely to find themselves outgunned or simply overwhelmed by the views of the other committee members, to say nothing of having only a single vote. My third question to the Minister is: can he tell the House whether, and on what basis, he feels that the last panel member is sufficient to counteract an inherent tendency for the panel to adopt a perhaps marginally overoptimistic view of the economic future? I say again that even the smallest tweak upwards in the discount rate will have a very significant negative consequence for the claim.
My final question to the Minister is: can he look again at the composition of the panel and the roles of the panel members so that he can assure the House that there is a fair balance of representation, both numerically and in terms of firepower? So often it is possible, in seeking to right one wrong, unintentionally to create another. This Bill in large measure seeks to prevent false claims of overpayment, but we must not in the process end up with a system that could deprive of adequate compensation those who need and deserve it.
Lord Ribeiro (Con)
My Lords, I find myself not only at the end of the list of speakers but surrounded by lawyers and other more knowledgeable people than I on this subject. The Bill affects patients—those who have been injured and those who seek compensation. As a clinician, I have witnessed some of these injuries, which range from merely a stiff neck to a quadriplegic patient, as was mentioned by the noble and learned Lord, Lord Hope of Craighead.
I have also despaired of the length of time it takes before cases are settled and compensation made. Sadly, in some instances the patients involved receive substantially less than their lawyers and claims companies. Unlike car or house insurance, in which the insurer knows the accident falls within the terms of their policy, clinical negligence poses a unique problem. The doctor often does not know that there has been an incident that might result in a claim for negligence. Clinical negligence cases have a long tail. The doctor is often notified three to five years after the incident.
The Medical Defence Union, to which I am grateful for providing some of the data I will be using today, noted 1,000 claims since 1995 with more than ten years between the incident and the notification. The limitation period on claims is three years from the date of the incident or three years from when the patient was aware that the alleged negligence had occurred. The long tail means that indemnifiers need sufficient funds to pay claims years into the future.
As we have heard from many speakers, the drastic change in the discount rate from 2.5% to 0.75% from 20 March last year has had the practical effect of inflating substantially awards to patients and litigants. I shall give one example from a surgical context. Before the discount rate, the MDU’s highest payment on behalf of a consultant member was £9.2 million to a patient with a spinal injury, who would be expected to live for many years. After March 2017, a similar claim would cost £17.45 million. With children, it is even worse, because they have a much longer future ahead of them. In one case involving a GP, a child aged 14 with a 50-year life expectancy would have expected to receive £8.4 million at the 2.5% discount rate. That same patient would now receive £17.5 million at the 0.75% rate.
The financial crisis related to this policy is huge. When inflation is added to a claim—let us say at 10%; I know that the rate is lower at the moment—claims double every seven years. The National Audit Office produced a good report on this matter in September 2017, Managing the Costs of Clinical Negligence in Trusts, where it recognised the problem and noted that the drivers of the cost of clinical negligence claims are related to the legal and economic environment and are not linked to patient safety—I shall return to patient safety later and how the health service safety investigations body legislated for last year can help reduce litigation through a learning culture.
The spiralling cost of claims is beyond the control of doctors and other healthcare professionals. Paragraph 16 of the NAO’s report states:
“There is no evidence yet that the rise in clinical negligence claims is related to poorer patient safety, but declining performance against waiting time standards is one factor which increases the risk of future claims from delayed diagnosis or treatment”.
The NHS Resolution annual report for the financial year ending 31 March 2017 focused on the impact of the discount rate and the financial crisis that it had caused for the NHS. It stated:
“The liabilities arising from incidents up to 31 March 2017 for all types of claims have increased significantly, with the provision reported in our accounts increasing from £56.4 billion in 2015/16 to £65.1 billion in 2017/18. In addition to the changes in discount rate factors, these increases are due to continued inflation for damages awards and legal costs, and the growing number of cases where we provide for the cost of care for life”.
In a letter to the Lord Chancellor in January 2018, the NHS Confederation raised the issue of rising costs and the impact of the discount rate. It noted that the Chancellor of the Exchequer’s Budget speech of March 2017 had indicated that the Government had put aside £5.9 billion for three years to 2020 to protect the NHS from the effects of the change in the personal injury discount rate. My question for my noble and learned friend the Minister is: what happens after 2020? If the problem is not resolved by then, costs will surely rise. Perhaps the Minister can say where we are with the consultation on the discount rate being carried out by the Ministry of Justice and when we can expect to learn the results. What progress are the Ministry of Justice and the Department of Health and Social Care making on the recommendation of the National Audit Office that a co-ordinated strategy is required to manage the growth in clinical negligence costs by September 2018?
One major block to reducing clinical negligence costs to the NHS, as was mentioned earlier by the noble and learned Lord, Lord Mackay, the noble Lord, Lord Faulks, and other noble Lords, is Section 2(4) of the Law Reform (Personal Injuries) Act 1948. I look forward to hearing more about this, and I hope that the Minister will be in a position to provide an amendment in Committee so that we can explore it a bit further.
There is no doubt that Section 2(4) was enacted in good faith at the birth of the National Health Service—70 years ago in 1948. It completely ignored care that could be provided in the NHS. One wonders whether this might have been—it is just my thought—because few lawyers in those days would have considered seeking treatment in the new health service, preferring to stay with what they knew best. Currently, however, bodies such as the Medical Defence Union, the Medical Protection Society and NHS Resolution are prevented by Section 2(4) from compensating patients on the basis of care provided by the NHS—even if that care is of a high standard and has been provided before the award. Thus, billions of pounds of taxpayers’ money earmarked for the NHS finds its way instead into the independent care sector.
Currently, a claimant awarded damages on the presumption that he or she will pay for care and treatment privately is not precluded from using NHS care. Some claimants, having been awarded compensation, have admitted that they have gone on to use the NHS. That seems like a double whammy if ever there was one.
Surely it is time to stop robbing Peter to pay Paul. It is time that Section 2(4) of the 1948 Act was repealed. Unless we do that, I have great concerns about the long-term sustainability of the NHS and social care, a subject that we shall debate on Thursday. I have grave concerns that we will not be able to fund the NHS if it continues to incur the liabilities so graphically described by many speakers today. The NAO report shows that in 2016-17 10,600 new clinical negligence claims were registered with NHS Resolution under the Clinical Negligence Scheme for Trusts—CNST. Furthermore, NHS Resolution spent £1.6 billion on claims in 2016-17 and there is a £60 billion provision to pay for the future cost of claims arising in 2016-17.
This is unsustainable. As in the film “We Need to Talk About Kevin”, we need to talk about repealing Section 2(4). Although the scope of this Bill is tight, I am sure that there are enough noble and noble and learned Lords here to make it possible to include this.
Finally, the proposed health service safety investigation body will provide an opportunity to address the rising cost of litigation and a safe space for healthcare professionals to meet and discuss healthcare issues—and near misses—that could lead to litigation. The NAO proposes a safety and learning team to engage with trusts on patient safety issues, but I believe that in the HSSB we will have a force for good that could do much to reduce the cost of litigation and at the same time improve patient safety.
More medical input has been suggested, and I agree with my noble friend the Minister of State that no settlement should be possible without a medical report. I agree, too, with the views of the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Faulks, that a committee—advisory or otherwise—supporting the Lord Chancellor should include a medical expert, for the reasons the noble and learned Lord, Lord Thomas, gave. Medical knowledge and diagnostic assessments and skills are improving continuously and we may reach a point when we can set a timeframe for how long an injury may last.
Lord Marks of Henley-on-Thames (LD)
My Lords, we have had an extremely strong debate with important contributions from all noble Lords who have spoken, which has delivered much to consider in Committee.
I will begin with whiplash claims. There has plainly been an explosion of such claims over recent years, many of them exaggerated, unnecessary or fraudulent, even if the last few years have not continued that upward trend. My noble friend Lord McNally and the noble Lord, Lord Hayward, made the point that not only false whiplash claims but other claims have mushroomed. There can be no doubt that the ban on solicitors paying referral fees has helped to restrict the trend but there is considerable evidence of the ban being circumvented, particularly with the help of claims management companies.
Cold calling generates a great many claims—the noble Lord, Lord Faulks, is not the only Member of this House with repeated experience of this—but the very fact that this practice is so widespread suggests that not everyone responds with a rejection. I understand that it is difficult to control cold calling by claims management companies operating from abroad but there is no excuse for our not doing everything we can to stop this direct incitement to fraud. We agree with the Government that we must try to stamp out unmeritorious, exaggerated and fraudulent claims.
If I may be permitted to add to the accumulation of anecdotal evidence, my wife had a similar experience to that of Lady McNally when she hit the back of a car that was in front of her, ever so gently—so she tells me, anyway. Out stepped five strong young men, on their way to a paintballing and laser-gaming session. They were polite, charming and concerned as to whether my wife was all right, and they all assured her that they were fine. So off they went to their paintballing and laser gaming; a week later, my wife received a claim for some £13,000 in respect of their five alleged whiplash injuries. She told our insurers that she did not believe any of them were genuinely injured and that they had all told her they were unhurt. We have not found out whether the insurers paid out but, since we have heard nothing further, I suspect that they did. This illustrates a major problem, which is that it is often easier for insurers to give in and pay small claims than to investigate and fight them—a point made by the noble Lord, Lord Monks, and others. It is a point that will not be assisted by reducing the amount payable in such claims.
However, while we must do everything we can to stamp out false claims, in so doing we must take care not to prevent those with genuine claims recovering fair compensation. I reiterate the point made by a number of noble Lords: it is unfortunate that this legislation is being dealt with separately from the Government’s proposals to increase the small claims limit, with which this legislation is closely connected and which will have a number of significantly unjust outcomes.
First, increasing the small claims limit for personal injury claims to £5,000 would prevent cost recovery for claims below that sum. It would thus deny very large numbers of genuine claimants legal advice and representation because the only way they can afford lawyers in these cases is by relying on conditional fee agreements and the recovery of costs from insurers—a point well made by the noble Lord, Lord Monks, and the noble Baroness, Lady Berridge. This will affect not just road traffic accidents. My noble friend Lord Sharkey mentioned the plight of other vulnerable road users, including cyclists and pedestrians, who will find it difficult to bring claims without legal help. Many other claims will be affected as well.
The increase in the small claims limit will increase the number of litigants in person and reduce access to justice in general, hitting, as always, the most vulnerable citizens the hardest. Furthermore, the increase will take the vast majority of whiplash claims outside the pre-action protocol for low-value personal injury claims in road traffic accidents and the portal associated with it, which, for all its faults, has provided a route to settling many of these claims quickly and economically. If the small claims limit is to be increased, then I suggest the scope of the portal and the protocol should be broadened, or at least we should have a new parallel protocol to assist claimants in person in these cases. I draw some support from the speech of the noble and learned Lord, Lord Thomas, in that regard, but I regard £5,000 as simply too high for the small claims limit and would endorse the £3,000 figure proposed by the Bar Council and the Personal Injuries Bar Association.
Turning to the detail of the Bill, I share with my noble friend Lord Sharkey and the noble and learned Lord, Lord Hope, the view of the Delegated Powers and Regulatory Reform Committee, expressed in trenchant terms, that it is inappropriate that whiplash is undefined on the face of the Bill and that the initial tariff for damages is left to be determined by regulations. We hope that the Government will follow the usual line and conventional course of accepting the committee’s recommendations before the start of Committee on 10 May and put down amendments defining whiplash injury and spelling out the initial tariff in the Bill. As to the figures suggested for the tariff in the impact assessment on the whiplash proposals, included in the information pack helpfully provided by the Government, table 6 on page 26 says it all. The Government have in mind to reduce the damages for pain, suffering and loss of amenity for injuries of less than three months’ duration from £1,800 to £235, and for injuries of three to six months’ duration from £2,250 to £470 and so on. These are drastic reductions indeed. It is pretty clear that the intention is to make such claims not worth bringing. We are all for getting rid of fraudulent and unmeritorious claims; we are not for denying honest claimants reasonable compensation for genuine injuries.
We can see the reasoning behind the proposal that claims should not be settled without medical reports, and I should add to my registered interest as a practising barrister—I am not sure this is a declarable interest—in that I have recently represented an insurer in a case involving such settlements. We can see why making medical reports compulsory is likely to deter false and inflated claims. I do, however, stress the need for reporting doctors to question claimants’ accounts of whiplash injuries closely in order to weed out inflated or false claims. One of the difficulties with whiplash injuries is that generally, all the doctor has to go on is the account of the patient. Another, is that the estimation of duration is usually carried out in advance and is notoriously both difficult and variable.
However, to avoid unfairness to genuine claims, the cost of medical reports—which I understand from MedCo to be some £180 plus VAT—must be recoverable. I have asked the noble and learned Lord to find out about that, but have since noted that in paragraph 5.121 on page 33 of the impact statement, an expectation is noted that:
“Insurers will have savings for 120,000 medical reports they would no longer be responsible for of around £22 million per annum, and associated medical report VAT of about £4 million per annum”.
Doing the maths, 120,000 multiplied by £180 is £21.6 million. So it is pretty clear that whoever compiled the impact assessment expected claimants with injuries likely to have a duration of less than three months to pay £216 including VAT for a medical report in the hope of recovering £235, leaving the princely sum of £19 to represent compensation for the injury. The tariff proposed in the impact assessment is far too low, and in this I am afraid I disagree with the noble Lord, Lord Hunt of Wirral.
Furthermore, I can see no reason why the tariff should be set by the Lord Chancellor. If there is to be a tariff—though I agree with the noble Baroness, Lady Berridge, that flexible guidelines may be better, and I agree with the observations of the noble and learned Lord, Lord Thomas—is not the sensible proposal that any tariff should be established by the Judicial College? Why should damages for whiplash injuries not be comparable to damages for other injuries? The Government have made no convincing case on that.
My last point on whiplash is that all the savings from these reforms should be passed on to policyholders. I am not convinced by the Government’s touching faith in the insurance industry, nor even by the regulatory stick mentioned by the noble Earl, Lord Kinnoull. I would like to see a healthier scepticism on the part of the Government and, if need be, a clear statement that if savings are not passed on to policyholders then the industry may be subjected to a tax penalty on a windfall saving.
I turn, more briefly, to Part 2, on the discount rate. We support the move from a very low-risk to a low-risk investment assumption, principally for the reason given by the Minister that in practice the investment of damages is not generally undertaken on a very low-risk basis. In particular, we fully accept the need, on which the noble Lord, Lord Ribeiro, expounded, to reduce the cost to the NHS of catastrophic injury clinical negligence claims. I urge the Government to accept the suggestion made by my noble friend Lord Sharkey and the noble Lord, Lord Faulks, that we try to move faster in implementing the first change of rate, as the present negative rate is so plainly wrong, as the noble Earl has persuasively argued. Defining the level of risk is difficult, though, and I join the noble and learned Lord, Lord Mackay of Clashfern, in seeking more guidance from the Government on their approach; there is too little at present.
We are also unclear as to why it has to be the Lord Chancellor who determines the discount rate. The Government have said this is a political decision, but are they really right about that? Why should the expert panel not report to a judge or judges or to the Judicial College, taking on an expanded role? The speech of the noble and learned Lord, Lord Mackay, illustrated the difficulties facing a Lord Chancellor in this task.
I am also unpersuaded that a fixed period of three years for the time between reviews is appropriate, but I do not accept the point made by the noble Lord, Lord Faulks, and others that a fixed five-year period should be a substitute. Interest rates change fast in some periods and very slowly in others. Would it not be better for the expert panel to meet annually or every two years to consider whether the discount rate needed changing in the light of circumstances? If the panel’s view were that no change were needed, the rate would be left unchanged. If the panel thought the rate did or might need to change, it could conduct a full review and produce a report, which, as I say, I suggest could be to the Judicial College.
On the composition of the panel, I accept that an independent panel of experts is intended rather than one representative of either claimants or insurers. However, I suggest that to meet the point made by the noble Lord, Lord Cromwell, the legislation should include a requirement that the panel consider the interests of claimants and insurers even-handedly. I also accept that it should include a medical expert.
Lastly, I turn to periodical payments in cases where there are long-term elements to awards, often for the long-term care of the catastrophically injured, of whose claims the noble and learned Lord, Lord Hope, spoke so movingly. Unfortunately, the take-up of periodical payments orders has been low. This may be partly because the discount rate has been very low so that lump sums have been unduly high. I suggest, or suspect, that many claimants and their families are also attracted by lump sums even where periodical payments would be more suitable. The problem with lump sum awards is that expectation of life is actuarially determined and, as the noble Lord, Lord Hodgson of Astley Abbots, pointed out, it can therefore never be exactly right. Some claimants die earlier than expected, leaving a windfall inheritance for their heirs. More seriously, others live longer than expected so that their damages run out well before they die and they are left without the lifelong support the court intended them to have.
Will the Government make proposals to encourage greater use of periodical payments orders? I note the support for them expressed by the noble Lords, Lord Hodgson, Lord Beecham, and others. They provide some answers to the point made by the noble Lord, Lord Cromwell, on the need to protect claimants from the effect of a raised discount rate. I am entirely unimpressed by the argument that defendants’ insurers, the Medical Defence Union or others prefer to pay out lump sum. These parties after all represent the tortfeasors and if they are required in this sophisticated economy of ours to reinsure so as to pay out what are in effect annuities in place of lump sums, I see no reason why they should not do so.
I also join the noble Lords, Lord Sharkey, Lord Ribeiro, Lord Faulks and the noble and learned Lord, Lord Mackay, in inviting the Government to revisit the basis on which medical treatment is costed under the 1948 Act. If a way could be found to do so, it would be a beneficial use of this House’s time.
I close by expressing my gratitude to the Minister and the noble Baroness, Lady Vere, for arranging a very helpful meeting of all Peers to discuss these reforms and to consider amendments. I look forward to working with the Government and others to improve this Bill.
Baroness Chakrabarti (Lab)
My Lords, one noble Lord’s declared interest is perhaps another’s experience and expertise, or perhaps even better put, interests and experience can sit simultaneously with a noble Lord. Perhaps uniquely, in what has been an incredibly thought-provoking debate, I seem to be without interest or expertise. However, I have listened with enormous care to the wonderful tutorial that noble Lords have given me. I have read, as have so many other noble Lords, many submissions to which we have had access in this House. Just as I respect the interests and experience of those debating inside this Chamber, I do not think it is completely fair to suggest that everything from outside is, as one noble Lord suggested, noise.
The noble Lord, Lord Faulks, said that there are some real polycentric issues at stake and important, occasionally competing, concerns. I do not accept that all insurers are unscrupulous, nor do I accept that all claims are fraudulent or indeed, that all professional legal practitioners who are trying to do their best for their clients in this area are ambulance chasers. Further, I too have had the benefit of meeting the Minister, so nor do I believe that Her Majesty’s Government are somehow completely captured by the insurance industry in what they are trying to do in this Bill. However, to improve it requires listening to some of the concerns that have been expressed both inside and outside the Chamber.
The Bill addresses its purported targets by—how can I put it?—circuitous routes. It is concerned with, at worst, fraud and, at best, inflation of, for example, whiplash claims. I agree with, I believe, the majority of noble Lords, that compulsory medical reports before settlement must be a good idea. It would be good to see clear provision in the Bill for the cost of such reports to be met by insurers where settlements are made. That seems completely fair, and might be something we could look to. But, essentially, the Bill does not directly deal with fraud.
Another stated target is unscrupulous claims managers and McKenzie friends. Again, there is nothing in the Bill about that public policy problem and social evil. These problems have been pointed out by a number of noble Lords, including the noble Lords, Lord McNally and Lord Hodgson, the noble Earl, Lord Kinnoull, my noble friend Lord Monks and the noble Lord, Lord Faulks. We know that there is some level of problem here; I do not think anyone doubts that.
Another target is the unfairness of overly high insurance premiums. Again, the Bill does not directly regulate insurance premiums. We are told that industry leaders have made a public pledge to pass on the benefits of limiting claims to insured persons, but there is nothing in the Bill at the moment to give teeth to that promise. It would be helpful to so many people to hear from the Minister about the teeth in that promise.
Finally, a target of the Bill is said to be devastating pressures on the NHS, and perhaps on social care, too. Again, this is a very indirect approach towards the devastating pressures on the NHS and on social care in this country at this time. I echo the sentiments of my noble friend Lord Beecham—perhaps other discussions need to be had about the 1948 Act and so on—that that devastating pressure has ultimately to be met with a more honest conversation about taxation with a country that loves its NHS.
Those are the targets. But, instead of the direct approach, the Bill approaches these problems somewhat indirectly. First, in relation to whiplash injuries in Part 1, it does this by limiting damages in a particular class of claims. I have to say that, on a day when there have been very special celebrations in Parliament Square, I was a little sad to notice that I was to be just one of two noble Baronesses speaking in this Second Reading debate. But that disappointment began to fall away when I heard the extraordinary, eloquent and principled speech from the noble Baroness, Lady Berridge. She spoke of the need to hear the voice not of lawyers, insurers or any other professionals and experts but of victims. I can only tell her that we heard that channelled through her voice today, and I am sure that people outside will be very grateful for that. She pointed out with particular clarity the problem of principle in singling out one class of victims—not even a whole class of victims but a class within a class of victims—and saying that they must have their damages limited by the Bill and by regulations under it, as opposed to other victims, who may also be inflating or misstating their claims.
That is a matter of principle and will be a concern for people on the outside who are looking to understand what is behind this legislation. It is important to address that principle if we are to retain the public’s trust in the legislative process and in public policy making. I moved closer and closer to the noble Baroness’s devastating logic when she spoke about the role of the Judicial College and her concerns about why these particular damages should be set by the Lord Chancellor, not by the judges, as with all other tortious damages in our law. The Minister will, no doubt, address her concerns.
The second circuitous route, and a matter of enormous concern expressed on all sides of the House, is the incredibly broad delegation granted to the Lord Chancellor in defining whiplash and then setting the level of damages. The Delegated Powers Committee’s findings on this cannot be easily ignored. We listened to the concerns and I hope we can take them on board in amendments as the Bill progresses. The noble and learned Lords, Lord Hope and Lord Thomas, the noble Lord, Lord Sharkey, and many other noble Lords pointed out that to give the Lord Chancellor the defining power over the problem and then the further power to set the damages is a step to far. It is a precedent that we do not want to set in any Bill. It is a wider constitutional point that applies to this Bill and we do not want to be doing it in future. It is a problem in relation both to the rule of law—and clarity and certainty in law—and to parliamentary sovereignty as opposed to ministerial fiat. I hope that the Minister will take that on board and that there can be further clarity and definition on the face of the Bill.
The third concern that has been expressed is about inequality of arms and, in particular, the effect of combining measures in this Bill with the increase in the small claims jurisdiction. As the noble Baroness, Lady Berridge, pointed out, in practice even amounts of money which are small to the ears of those of us in this Chamber are incredibly important to a lot of people who will hear about, and perhaps read about, this debate. Small amounts of money can be life changing for people. To leave a greater number of people who have been the victims of even relatively minor injuries unrepresented, with no means of recovering costs and, therefore, no means of getting proper representation, is an affront to access to justice. In the civil sphere in particular, that has already been diluted, if not positively undermined, in recent years.
The Bill attempts to nudge victims, even those with quite serious injuries, into becoming slightly higher-risk investors. Some on the outside have suggested that they are to become stockbrokers and have the confidence and expertise to become more adept at investing and managing single lump-sum payments. Noble Lords will have read the argument against that. Equally, the noble Lords, Lord Hodgson and Lord Faulks, and others have pointed to the inescapable logic of the preference for periodical payment orders. Yet there is nothing explicit in the Bill to incentivise those orders, as opposed to encouraging slightly higher-risk investments or discouraging playing it safe. In the case of an ordinary lay person who is not used to managing investments, particularly if they have had a serious personal injury, one can understand the instinct for playing it safe. Again, that was pointed out by several noble Lords. The point about lack of representation was mentioned particularly by my noble friend Lord Monks and the noble Lord, Lord Marks. I agreed with so much of what he said.
It is always worth listening very carefully to the noble and learned Lord, Lord Mackay of Clashfern, on matters of this kind. As I heard references to the discount, the complex nature of this decision, what is being asked of the Lord Chancellor in Part 2 and the prophet-like powers that the noble and learned Lord described, echoed by the noble Lord, Lord Marks, and others, I really thought that we might give further thought to how we could achieve greater clarity, transparency and accountability in the Bill for this incredibly complex decision over which so much might turn for victims and claimants on the one hand, but also, as the noble Lord, Lord Ribeiro, and others pointed out, for the NHS. I hope that on that matter, as well as on so many others in this Bill, there will be real room for the kind of thoughtful debate and constructive collaboration to improve what I believe to be a genuine attempt to balance a number of important societal interests.
Lord Keen of Elie
My Lords, I thank the whole House for all the contributions on the Bill today. I might not answer every query posed during this stage of consideration, but—and I hope this reflects the steps that we have taken already—I would be perfectly open to, and would welcome, meeting any of your Lordships who wish to engage with me and officials prior to Committee to discuss particular issues. That is an invitation I hope at least some noble Lords will consider taking up if they have any queries.
Clearly, there are different views about the state of the Bill at this stage, but I could not accept the observation made by the noble Lord, Lord Cromwell, that it is rough-hewn. Respectfully, it appears to me that a great deal of work has been done to prepare for the issues that we shall have to address. I will look at those issues in two parts, as does the Bill, and begin with whiplash.
The noble Lord, Lord Beecham, took issue with some of the statistics and suggested that perhaps matters had turned, but let us be candid. I shall not use some of the terminology used by noble Lords about a racket or anything else. What we have is a very obvious and clear trend in the development of claims for road-traffic-based whiplash injury. It has been going on for more than 10 years. The consequences are very clear and obvious; it may well be that we should have considered acting sooner to address this issue, but act we must and that is what we intend to do.
The New England Journal of Medicine recently carried out an analysis of the incidence of whiplash injury and the availability of compensation. It discovered a very obvious correlation between the availability of compensation and the incidence of whiplash claims reported in road traffic cases. The noble Earl, Lord Kinnoull, observed that when he attended meetings with the reinsurers Munich Re in Germany it had alluded to the situation in the United Kingdom, which is quite exceptional. Unless Scandinavians have much thicker necks than us in this part of the world, there is little to conclude except that a claims culture has developed, because the incidence of these claims in that part of the world is very different from our own.
We therefore have to address how these claims will be contained in the wider public interest and, ultimately, in the consumer interest. However, I do not suggest that any one part of the community is wholly or solely to blame for the situation we now find ourselves in. For example, I do not demur from the suggestion that insurers have been complicit in the development of this claims culture over the past 10 years or more in their willingness to avoid undue expense and simply to settle claims without the necessity for any form of real evidence. Many noble Lords have experience of that themselves.
However, there is some rationale to the way in which we are attempting to approach this matter, and it includes the reference to proposed changes in the small claims limit as well. The idea of a tariff is not entirely novel; such an approach has already been taken in Italy and in Spain, where they faced a similar claims culture. We are, first, bringing together a tariff and, secondly, making it a requirement that no claim can be settled without a medical report, or MedCo report. I discern that there is almost universal approval for that step. Thirdly, we have agreed that the claims portal for small claims will be reviewed, which the noble Lord, Lord Marks, suggested would be required, to make it accessible to claimants themselves when they come to make claims. It will of course be simpler for them to make that claim in circumstances where they know that there is, beyond the issue of liability, a tariff that determines the damages for pain and suffering. I emphasise those damages because this does nothing in respect of the claims for wage loss and other outgoings incurred by claimants in the circumstances.
I will also take up a point mentioned by the noble Lord, Lord Marks, with regard to the cost as compared with the tariff of damages at the very lower end. I understand that where liability is accepted, the cost of the MedCo report will be a relevant recoverable cost, no matter whether this is in the small claims court or otherwise. Another question that has been raised is how the original cost of the MedCo report is funded, and we are looking at that and discussing it with interested parties at present. However, there will be no material issue over the recovery of the MedCo report cost itself, which the noble Lord identified as in the region of £180 plus VAT.
That, then, is the background. There are other potential targets. The noble Lord, Lord Beecham, referred to the conduct of claims management companies, and I will say a little about that. As noble Lords will be aware, we are already taking steps through the Financial Guidance and Claims Bill, which is making its way through the other place, to address some of the difficulties that arise with regard to claims management companies. First, their regulation will go to the FCA. As the noble Earl, Lord Kinnoull, observed, that is a regulator with teeth, and we consider it properly positioned to deal with claims management companies. There will also be the means to limit the percentage that claims management companies can take from a claimant when they deal with a claim, to try to control their activities in that regard.
We have of course been concerned with the issue of cold calling, which I suspect has bedevilled virtually all of us at one point or another. The Information Commissioner is concerned with that as well. One of the difficulties, and this was touched upon in the course of debate, is how to regulate the unregulated. One of the real difficulties is that in the context of cold calling, we have seen the claims management companies, or those who carry out this cold calling, move out of the United Kingdom and carry out this conduct from abroad. It is a very simple thing for them to do, and it is a very difficult thing for us to stop. That is why you have to look at alternative routes to addressing the wider issue that we have to deal with. We are certainly concerned that we need to control the activities of the claims management companies, although they alone are not responsible for the way in which this whole industry of whiplash claims has developed.
I notice that the noble Lord, Lord Monks, who I appreciate is not entirely sympathetic to the Government’s position on this, did make a passing remark in the context of other claims, such as workplace claims. He said the abuse was a lot less than in road traffic accident cases, but implicitly he accepts the existence of abuse in the context of RTA cases, and I believe that is almost universally acknowledged. We seek to address that in Part 1 of the Bill. We consider that we are taking a proportionate approach. Yes, it distinguishes whiplash-type injuries that occur in a road traffic context from other forms of accident or injury, but that is because we have to address a particular mischief. That is what we are doing with Part 1 of the Bill. It appears to us that this is the sensible and considered way forward in order to control this situation.
I note that the Delegated Powers Committee has made a number of recommendations with regard to Part 1 of the Bill. We do not entirely agree with its recommendations, but I have noted the concern expressed by noble Lords about the question of defining whiplash injury. The intention was to have a degree of flexibility, so that if the claims industry developed in a particular direction in response to legislation, we were equipped to deal quite rapidly with that. It may be that noble Lords would like to see rather more in the way of definition so far as whiplash is concerned, and I take on board the observations that have been made.
There is also the question of the tariff, and of course an illustrative tariff was provided in the papers that were produced along with the original Bill and to which reference has been made. We consider that being able to regulate the tariff by the affirmative procedure is a more flexible way of being able to respond to changes. But, again, I hear what noble Lords say and we will have to consider that going forward.
I would like to respond to a number of points made by the noble Lord, Lord Sharkey. First of all, I hope I have made clear that medical report costs are recoverable. There was a suggestion that they were not. He referred to the position of other parties such as cyclists being caught, but they are not brought within the tariff on the basis of Part 1 of the Bill. To answer that particular point, they are specifically excluded at Clause 1.
I would like to move on to Part 2, the question of the discount rate, and address a number of points. First of all, it appears to be generally understood that we do need to put in place a means by which the discount rate can be determined and reviewed on a regular basis in order that we do not encounter the sort of situation we had in 2017, when we saw it go from 2.5% to minus 0.75%. I wholly agree with the observations of the noble Earl, Lord Kinnoull, that the present discount does not realistically reflect the way in which a party—any party—is going to invest funds going forward. Therefore, we have to bring this back into a realistic scenario.
The objective—here I address a number of points made by the noble Lord, Lord Cromwell—is not to have representatives of various interested parties partaking in an exercise of trying to agree a rate. The whole point of the structure in Part 2 is that there should be an expert panel, not a representative panel. The noble Lord asked about there being a fair balance of representation on the panel, but that is not the intention or the objective. The idea is that we should have an expert panel to advise the Lord Chancellor.
The intention is that that should be an open exercise so that, for example, the way in which the expert panel reports to the Lord Chancellor will be open. Indeed, in our response to the Justice Select Committee, the Lord Chancellor observed that he would be publishing the recommendations of the panel’s report in circumstances where he received it and was to act upon it. In due course, he will also be required to explain the way in which he fixes the discount rate. Indeed, he will be amenable to judicial review in carrying out that function, so that there will be ultimately an oversight of the way in which he discharges that duty. We consider it appropriate that that should be done openly and effectively in that way.
Clearly, it will be important that the discount rate should be reviewed at regular intervals. We have alighted upon the period of three years for review after considering various representations, but I have heard the references to five years as a review period and the interesting alternative mentioned by the noble Lord, Lord Marks, of essentially having an expert panel meeting at regular intervals to consider whether there are circumstances that might require a proper review of the discount rate. We would be open to discussing these alternatives to see how we can effectively ensure that the discount rate continues to reflect the reality of investment.
On the point of investment, I believe there is general consensus that we should move from the very-low risk level to the idea of a low level of risk for investment. That is not to suggest that claimants are going to become stockbrokers—I really do not feel that that is a proper reflection of the situation at all. The intention in Part 2 of the Bill is to bookmark the place in which the expert committee will address the question of how the discount rate should be fixed. It is to give the panel a degree of flexibility in that context between, at one end, very low risk and, at the other end, low risk by an investor who is not concerned about having to provide for their future care.
On the question of future care, which arises most particularly in the context of clinical negligence cases and the subsequent cases of severe injury that very often arise from that, there is always the difficulty of determining not only what the appropriate discount should be but, as noble Lords have observed, what life expectancy may be. That is always an estimate. You could almost say that you invariably get it wrong; you can never be sure that you have got it right. That is why we consider that PPOs are a very important option available to claimants. Looking at the data that has been gathered in arranging guidance for the Bill, we have noted that their use is essentially limited to cases where claims exceed £1 million, and more generally £5 million. They are not always taken up, and one of the problems with the present discount rate is that it would tend to discourage claimants and their advisers from taking up PPOs. But clearly, if you want certainty with regard to future care, one way to secure it is to agree to a PPO, and we would wish to encourage them.
We have to underline, however, that PPOs are not universally available. For example, I understand that the Medical Defence Union, which is a mutual, is not in a position to guarantee future payment of a PPO and therefore not in position to provide them. However, that may alter as we look at the question of indemnity arrangements—for example, in respect of general practitioners—which we are doing at the present time. We certainly wish to encourage the use of PPOs and are looking at providing guidance to claimants and their advisers, in order to ensure that they are taken up in appropriate circumstances.
One further issue that has been raised by a number of your Lordships is Section 2(4) of the 1948 Act. We recognise the question that is being raised about this and the appropriateness of maintaining that. Presently, Section 2(4) of the 1948 Act would not fall within the scope of the Bill. I appreciate that, if we were to amend the long title of the Bill, we might be able to bring the matter within scope, but there is a concern that the repeal of Section 2(4) potentially raises issues that will have to be the subject of consultation with interested parties. We are concerned that we need to act promptly, particularly with regard to the discount rate, and it would be unfortunate if that process was materially slowed because of an attempt to bring Section 2(4) and its repeal into the present Bill. I hear what noble Lords have said and am not unsympathetic to the suggestion that the time has come to revisit that provision and understand why we need to maintain it. My concern is that attempting to bring it into the Bill at this stage could have unfortunate consequences for the way in which we are trying to deal with the discount rate.
On that last point, I appreciate the concern about the delay in respect of the discount rate. We are proposing to carry out the first review as swiftly as possible. I understand that we are aiming for April 2019, not 2020 as has been suggested. There is a 90-day period and then a 180-day period. There is a need to have an expert panel in place, but considerable steps may be taken in anticipation of the Bill passing to ensure that we have the machinery in place for the swift appointment of an expert panel, so that the review can be carried out as soon as possible. I will take further advice from officials on the question of how far we can go with that sort of preparation prior to Royal Assent of the Bill, in order to move swiftly on that matter.
I appreciate that I have not addressed all of the queries that have been raised this afternoon. In the time available, I regret that I will not be able to do that but, as I said at the outset, I am open to meetings with noble Lords who wish to raise questions on the Bill prior to Committee, and I would welcome the opportunity to engage with them. I beg to move.
Civil Liability Bill [HL]
Thursday 10th May 2018
(6 years, 7 months ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 90-I(b) Amendments for Committee, supplementary to the marshalled list (PDF, 54KB) - (10 May 2018)
The Earl of Kinnoull
“(1) In this Part, “whiplash injury” means an injury or set of injuries resulting in soft tissue damage, usually of the neck, back or shoulder, arising out of a motor accident, which presents symptoms which may include pain and aches (including pain of the jaw, neck, back, and shooting pains in the neck, shoulder or arms), headaches, stiffness, fatigue, dizziness, swelling, bruising, tenderness or muscle spasms.”
The Earl of Kinnoull (CB)
My Lords, in moving Amendment 1, I declare my interests as set out in the register of the House, in particular those in the insurance industry. I am going to speak briefly to three propositions. First, a definition of “whiplash” should appear on the face of the Bill. Secondly, that definition should be wide. Thirdly, it should be amendable without having to resort to primary legislation, but with parliamentary oversight.
I turn to the first of those propositions. My work has been made much easier by the 22nd report of the excellent Delegated Powers and Regulatory Reform Committee. The committee is excellent as well as the report. It says at paragraph 9:
“We take the view that it would be an inappropriate delegation of power for ‘whiplash injury’, a concept central to a full understanding of the Bill, to be defined in regulations made by Ministers rather than being defined on the face of the Bill”.
I very much agree. It is particularly curious to me that there is no definition, because there are so many definitions of whiplash floating around, not least in the pre-action protocol for low-value personal injury claims for motor accidents and indeed in the draft regulations that appeared within the last 48 hours for this Bill. I therefore can see no reason why there should not be a definition on the face of the Bill. I am looking forward to hearing from the Minister whether he might see that one was, in fact, appropriate.
There are two problems with the width issue. The first is that, if the width is narrow—and a whiplash motor accident normally involves several minor injuries to the person involved—we are in the position where a tariff applies to a selection of injuries but maybe not all of them. That would be to the advantage of what I call the claims industry. Aviva, in its briefing to all Peers before the Second Reading, estimates out of whiplash alone to make £500 million a year. It is unbelievably inventive and supple. This morning, I was looking at one of the principal websites, and I will read a bit from it out as it will show just how much the meaning of the word “whiplash” has been stretched:
“Symptoms can include dizziness, blurred vision, disorientation, tiredness, poor concentration, memory loss, nausea, pins and needles in the arms and hands, muscle spasms and pain in the lower back”.
Later on, there is a rather curious sentence:
“Even if you don’t experience any symptoms straightaway, don’t rule out the possibility that you’ve suffered this type of injury”.
That is the sort of entity that, in fact, is doing great damage to the general population. It has increased motor insurance premiums. They are highly intelligent and well funded. I really feel width is important.
There is a second point on width. For the honest claimant, having clarity—so there is one tariff for one sum of money, and so they can fill in the online portals for a claim—is greatly to their advantage. If they have to fill in one online portal to sort out part of their heads of claims, and then no doubt head off to the one of the companies I was referring to, there would be greater chaos and we will not have tried, through legislation, to improve society.
I turn quickly to the point about the importance of it all being amendable. I regret that we will always be playing catch-up with the claims industry. This is not the first attempt to cope with the burgeoning whiplash problem. I remind the House that, even today, 1% of the population every year has a successful whiplash claim, on average—that is 30 times what happens in France. It is a problem that is out of control; we heard many examples of that at Second Reading. There is an enormous prize in having flexibility and, accordingly, I beg to move.
The Lord Speaker (Lord Fowler)
My Lords, I should inform the Committee that if Amendment 1 is agreed to, I will be unable to call Amendments 3 to 5 by reason of pre-emption.
Lord Hodgson of Astley Abbotts (Con)
My Lords, Amendment 2 in this group, which is in my name, tackles the same issue. The noble Earl, Lord Kinnoull, has laid out the background and reasons why this House and the country should be concerned about whiplash—false whiplash—and what are rather inelegantly called “cash for crash” events. I do not propose to weary the House by running over those issues again, which we discussed quite a lot at Second Reading.
Amendment 2 addresses the point made by the Delegated Powers and Regulatory Reform Committee about the lack of a definition in the Bill and does so in a slightly wider way than Amendment 1, moved by the noble Earl. It proposes a definition in proposed new subsection (1) but, at the same time, proposed new subsection (2) recognises the need for flexibility, in the sense that medical technology and medical sciences are always changing and there will need to be some flexibility in keeping the law up to date with those developments. Amendment 2 therefore aims to create an overarching definition, clarifying what is included within a soft tissue injury, but then provides room for flexibility, so that new ways of describing these injuries do not result in them falling outside the definition. At the same time, it allows the definition to be changed to reflect improvements in diagnosis and prognosis of these subjective injuries.
I should say that I was somewhat concerned that, having got a definition of whiplash in the Bill, a definition gap might have been left by not defining soft tissue. But the insurance industry tells me that this term is well understood and does not need a detailed definition here; the noble Earl referred to that. What I understand is called the pre-action protocol for low-value personal injury claims—I am reading this carefully because I am not entirely familiar with it myself—uses the term to define the scope of powers and has been in force since 1 October 2014, apparently so far without challenge or the need for a judicial ruling on its meaning. I hope that this amendment will be a useful contribution to the debate on this important topic.
Lord Sharkey (LD)
My Lords, Amendment 3 in this group is in my name and those of my noble friend Lord Marks and the noble Baroness, Lady Berridge, for whose support I am very grateful. Following the two preceding and eloquent speeches, I can be very brief. The point of the amendment is simply to put a definition of whiplash in the Bill. There are rival definitions in various other amendments, and there is now also a government definition contained in the draft SI published yesterday. At first glance, this government definition seems to provide a sound basis for discussion, but it is in the wrong place. It should be in the Bill.
As the noble Earl, Lord Kinnoull, has already said, our Delegated Powers Committee said clearly in its 22nd report that,
“it would be an inappropriate delegation of power for ‘whiplash injury’, a concept central to a full understanding of the Bill, to be defined in regulations made by Ministers rather than being defined on the face of the Bill”.
At Second Reading, many noble Lords strongly agreed with this conclusion and it is disappointing, now that they have a draft definition, not to see the Government bringing forward an amendment to put this in the Bill.
In his Second Reading reply and in his subsequent letter to us of 30 April, the Minister did not respond substantively to criticisms of using secondary legislation to define whiplash. He merely noted that he did not entirely agree with the DPRRC recommendations and that noble Lords were anxious about the definition of whiplash.
In fact, the Government had already set out elsewhere in correspondence with the Delegated Powers Committee their case for using secondary legislation. The DPRRC helpfully summarised this by saying that, first, whiplash must be defined accurately; secondly, there must be extensive consultation; and thirdly, the definition must remain accurate. The Delegated Powers Committee agreed with these propositions but said,
“it does not follow from them that the definition of ‘whiplash injury’ should be contained in regulations rather than the Bill. Neither the Lord Chancellor nor the Ministry of Justice is best placed to make this determination”.
We agree with the conclusions of the Delegated Powers Committee and invite the Minister to explain why the Government have rejected them and are still pursuing the statutory instrument route.
As to the Government’s definition itself, as I have said, it seems to provide a sound basis for discussion but we have not had enough time to make a proper assessment and to canvass the opinion of other stakeholders. We will want to return to this issue on Report.
Lord Blencathra (Con)
My Lords, as chairman of the Delegated Powers Committee, which published a report on this Bill, I would like to make a few comments. First, I have a purely personal comment. Colleagues may be interested to know that I have made a full recovery from the serious accident I had in the last few days—not that I recall having had a serious accident, but my mobile phone tells me that I did and that I should pursue a claim. I say to my noble friend the Minister that this racket is still happening again and again. I had thought, as a passionate supporter of the Government, that we had nailed this down and stopped the grabby racketeering lawyers pursuing these claims. I hope in future we will be able to put a stop to it.
Going back to the Bill and the amendments, the Delegated Powers Committee looked at this and said we were becoming rather familiar with skeletal Bills. By any standards, this Bill is skeletal. Then we went on to say, as the noble Lord, Lord Sharkey, so very kindly pointed out—the noble Earl, Lord Kinnoull, also paid tribute to our work—that:
“In this Part ‘whiplash injury’ means an injury, or set of injuries, of soft tissue in the neck, back or shoulder”,
and then the description stops to say that the rest of the definition will be,
“specified in regulations made by the Lord Chancellor”.
I am not revealing committee secrets but half of us on the committee thought that the parliamentary draftsman had been distracted—he was half way through writing the definition and stopped and forgot to complete it—because it seemed an elementary thing to complete.
I have not seen last night’s regulations—I shall look at them carefully—but I did a quick Google search last night on the definition of a whiplash injury. Even the NHS website states that:
“Whiplash injury is a type of neck injury caused by sudden movement of the head forwards, backwards or sideways”.
Wikipedia has a much more detailed definition, which I assume from some of the spelling is an American one. There is a fascinating point in it:
“Cadaver studies have shown that as an automobile occupant is hit from behind, the forces from the seat back compress the kyphosis of the thoracic spine, which provides an axial load on the lumbar spine and cervical spine. This forces the cervical spine to deform into an S-shape where the lower cervical spine is forced into a kyphosis while the upper cervical spine maintains its lordosis. As the injury progresses, the whole cervical spine is finally hyper-extended”.
That is not skeletal. It may be a bit too much fat on flesh on the bones but I quote it because I think it important that we have a technical medical definition, by physicians, relating to the distortion and flexing of the spine and not just a list of symptoms. If we merely make a list saying that people feel dizziness, nausea, headaches and so on, we could include everything. After a good night’s dinner one could feel those symptoms and not necessarily have been involved in an accident. If it is simply possible to get some definitions from Google and to look at the excellent definition from the noble Earl, Lord Kinnoull, and from my noble friend—who is not a lawyer—these definitions seem to me to be a very good starting point. If the Government’s definition in the regulations is even better, let us go with that. My committee was at an absolute loss to understand why it was not in the Bill. There is no justification for it not being there. Of course, there can be an order-making power for the Minister to tweak or amend it in due course as medical science changes.
We said that there should be extensive consultation. If I go outside the Chamber right now and phone the Royal College of Physicians, within 10 minutes it will give me a pretty good definition. The doctors who deal with this issue are the experts, not the Lord Chancellor or the lawyers in the Ministry of Justice. We must let the doctors come up with the definition and put it in the Bill so that we have complete certainty in the future.
Lord Ribeiro (Con)
My Lords, I agree entirely with that last point. I too searched on Google and Wikipedia and saw the rather extensive definition of the diagnosis. That makes the point that none of these claims should be accepted unless a medical opinion has been sought and a report given. It is for the physicians to make the diagnosis. This Bill is very clear about confining the list to motor vehicle accidents rather than all the other ways in which whiplash injuries can occur. In the context of a motor vehicle accident, the very injuries that have been described and the mechanisms and consequences relating to those injuries can be defined only through a proper medical assessment. As explained in the Minister’s letter to us all after Second Reading, it is essential that a medical report is provided before taking this matter further.
Baroness Berridge (Con)
My Lords, I have added my name to the amendment in the names of the noble Lords, Lord Sharkey and Lord Marks. I agree with the comments of the chairman of the Delegated Powers Committee, although obviously I cannot comment on the legal qualifications of the person who telephoned him. As I outlined at Second Reading, I have practised in this area and have dealt with these claims, and I know that it has become something of a fashion to be quite derogatory about the role of advocates and lawyers. When I joined the Bar, it was one of the proudest moments of my life. People becoming lawyers and acting as advocates so that someone is not a litigant in person is an incredibly valuable part of our system, and as we discuss further amendments we should all bear that in mind. Having an advocate when you are an ordinary person—potentially with three part-time jobs on the London living wage—so that you do not have to deal with such calls is valuable, and I implore us to look at our lawyers in a better light than is often the case in our culture.
Lord Judge (CB)
Perhaps I may add a few words. Of course the definition of whiplash has to be made by doctors—that is how the world works—but we are engaged in legislation. This word must have a legal meaning and it must be enshrined either in a statute or in regulations. The Bill approaches the problem by putting the legislative cart before the legislative horse. If we are being asked to enact legislation in which we do not know precisely what the word means, we are being asked to do something that we should not be asked to do.
Lord Marks of Henley-on-Thames (LD)
My Lords, perhaps I may add to what the noble Baroness, Lady Berridge, has just said. I agree with her and stress that this is not just a case of racketeering lawyers. One problem that we need to grapple with at this stage of the Bill is that the cold-calling racket and the encouragement of claims comes from claims management companies as well, often from abroad. They can also come from those who offer free hire cars to those who will pursue claims, and they can add a personal injury claim. The same applies to people who repair cars. There is all that potential for racketeering to jack up these claims, and we accept that there is a very serious problem.
I come back to the point about the definition. I agree with all those speakers who have said that the definition has to be in the Bill. The noble and learned Lord, Lord Judge, very concisely just explained why it has to go in the Bill and why it is insufficient for it simply to be in draft regulations at this stage.
Perhaps I may say a word or two more about the Delegated Powers and Regulatory Reform Committee, chaired by the noble Lord, Lord Blencathra. I served on it for three years when my noble friend Lady Thomas of Winchester chaired it. The general practice then was for the Government to accept the recommendations of that committee. We took the responsibility of considering the delegated powers in every Bill that came through this House extremely seriously and in an almost entirely non-partisan manner. We were guided and assisted by clerks who were astute to ensure that their advice was based on precedent and on principles, and the principles were published.
Baroness Butler-Sloss (CB)
My Lords, this is a good Bill but it is incomplete. As the Minister will have noticed, every single speaker has said that, to be completed, it requires a legal definition. Individuals who say that they have a whiplash will have to have a medical diagnosis, but in a Bill of this sort, which is intended to deal with fraud, there absolutely has to be a legal definition, for the reasons given by my noble and learned friend Lord Judge, which I entirely support.
Lord Faulks (Con)
My Lords, I declare an interest as a racketeering lawyer, as my noble friend Lord Blencathra would have it, although it has been some time since I was involved in whiplash claims.
I accept that there are genuine whiplash claims and that some whiplash problems last for a considerable time and can cause difficulties that continue well beyond six months, 12 months or even two years. The majority do not. However, the legislation we are concerned with here ought to be clear—I agree with all noble Lords who have said this—which would mean a definition in the Bill. This has been a problem for this Government and previous Governments and we have to accept that we are dealing with a slippery and powerful opposition in trying to pin down this racket.
Whiplash injuries have an attraction for fraudsters because, as no doubt my noble friend Lord Ribeiro will confirm, they are difficult to prove or disprove on medical analysis—they do not show up on scans of any sort—and doctors have to rely on the veracity of the patient to satisfy themselves that they may or may not have whiplash symptoms.
We do not want to pin down a definition of whiplash injuries and the nation’s necks appear to improve, only for its lower backs to deteriorate, and suddenly we are invited to consider claims in which, as a result of some movement of the thorax, lumbar or cervical regions in an accident, all the symptoms are referable to the lower back, which is outside the definition and would be equally difficult to prove or disprove. I therefore counsel the House to use caution in saying that we must pin down the definition. As legislators that is of course desirable but we want to help the Government to deal with this problem.
A similar issue arose during consideration of the Psychoactive Substances Bill, when everyone in the House said that we must be clear as to what the substances are and put them in the Bill. However, the conclusion was that we should not do this because of the infinite adaptability of those who produce such substances. While I sympathise as a matter of principle with those who have spoken—I will listen with interest to what my noble and learned friend says—we should be careful not to do anything which may assist those who have perpetuated this racket.
Lord Trevethin and Oaksey (CB)
My Lords, I support everything that has been said by every lawyer who has spoken this morning. Clearly, the Bill needs a definition. However, I also agree with what the noble Lord, Lord Faulks, has said about the difficulty that has arisen in constructing the definition.
The House will not be able to tell whether the Bill will work as a matter of practical justice until we see the definition. It will need to be a broad definition for the reasons given by the noble Lord, Lord Faulks. It is easy to foresee that when the Bill passes into law, as it probably will, there will then develop heavy tactical warfare between those acting on the claimant’s side and those acting on the defendant’s side, which will be focused on the precise wording of the definition. If there is undue looseness in the definition, that warfare will clog up the courts and be generally undesirable.
In short—I do not disagree with anything I have heard this morning—it is clearly necessary for the Bill to contain a definition and for this House to consider the proposed definition in minute detail and with great care to ensure that the Bill works when it passes into law.
Lord Hunt of Wirral (Con)
My Lords, I agree with the noble Lord, Lord Trevethin and Oaksey, and my noble friend Lord Faulks. In doing so, I declare my interests as set out in the register.
I too have sympathy for my noble and learned friend the Minister. This is a good opportunity to remind ourselves why we need this legislation. Late last night, at a most inconvenient time, I received a call urging me to bring a claim. I do not know how many noble Lords have had the same but there is an industry out there. That is why working out a definition will be quite a challenge.
This problem needs urgent attention. Noble Lords may know that I have been pursuing this line of argument for 15 years. I have watched this claims industry grow and make life intolerable for so many people. In the last 10 years, the number of reported road accidents has gone down by 30%, but in the same period the number of injury claims has gone up by at least 40%. We have a problem.
I received copious briefings from vested interests who are completely opposed to any whiplash reform on the basis that it threatens access to justice for injured people, but a lot of these briefings come from companies with a commercial interest in the presentation of these claims. I think that the threat is more to their income and profits than they are prepared to admit. I want to quote Sir Rupert Jackson, albeit from seven years ago:
“There is currently far too much money swilling around in the personal injuries system and the beneficiaries are not the claimants, but usually the referrers and (when no referral fee is paid) the lawyers”.
He made that point in a different context but it is a good reminder that we are dealing with a pretty serious problem. Governments have tried before to reduce the cost of whiplash claims but the measures used, including the banning of referral fees, have not succeeded in bringing the number of claims in check.
Some noble Lords will try to argue to the contrary although they have not participated so far in the debate, but any reported decrease in the number of whiplash claims is probably because they are being described as something else. A neck injury becomes an injury to the spine or the shoulder or the back. As my noble friend Lord Faulks pointed out, this is a moving target. I have a great deal of sympathy for my noble and learned friend the Minister.
I suppose that this set of reforms is different from what has gone before. It is targeted specifically at reducing the number of claims. In view of the reduction in accident numbers, this must surely be the right target. That is why we have provisions such as a tariff set by the Lord Chancellor. This is a socio-political problem, not a medical or even a truly legal one. It needs a political policy steer, not just to be handed back to judges to exercise controls. Indeed, the Judicial College has acknowledged that this is not its role:
“We stress again that we do not attempt to prescribe what levels of damages ought to be awarded”.
In truth, judges assess very few of these low-value claims; when they do, it is usually because there is an unusual factor involved.
The industry—it is a commercial industry—that brings these claims is highly adaptive. I welcome the opportunity given to us by the noble Earl, Lord Kinnoull, and my noble and learned friend to look at the definition. The reforms in 2013 led to an early move by road accident solicitors into industrial deafness claims and clinical negligence claims, and the call that I received last night urged me to bring a claim because of some alleged sickness I had suffered on a holiday I never took. Let us not avoid the fact that we need to confront these waves of claims. There is time for more drastic action. Of course, I agree with the Delegated Powers and Regulatory Reform Committee. Noble Lords are well-versed in arguments about Henry VIII powers but in this case, with due respect to the committee, the concerns may be misplaced.
The action that the Government need to take must be radical but also fleet of foot. That is the key to understanding why the majority of the measures are subject to regulations. It is also essential that this Bill does not stray into narrow, overly medical or overly legalistic terms that are easily circumvented. Having said all that, I can hardly wait to hear what my noble and learned friend the Minister has to say.
Lord Beecham (Lab)
I must apologise to the noble Lord for delaying his expectations slightly, and declare my interest as an unpaid consultant in my old firm of solicitors.
It is clear that we must have a proper definition. It is equally clear that the definition ought to be provided by a medical source. The groupings of this rather long day are such that the recommendation that I shall be making in the next group is relevant to this first group, in that the responsibility for defining a whiplash injury should be on the Chief Medical Officer and the definition incorporated into primary or secondary legislation. That takes the decision away from politicians. I disagree with the noble Lord—I do not think that the definition should be a political decision: it should emanate from the medical profession and be embodied in legislation. An amendment to that effect on Report would perhaps be helpful.
It is clear that there are problems; nobody denies that. There is an argument about the extent to which the current system is being abused, but any abuse is unacceptable and reflects on innocent people who have suffered genuine injury. Their cases need to be dealt with properly. So there has to be change. However, with due respect to those who tabled these amendments, who may well have drawn on medical advice, we should at some point incorporate a requirement for that medical advice to emanate from a medical source—I have suggested the Chief Medical Officer but it could be another source—rather than be determined by politicians.
Lord Faulks
The term “whiplash” is pretty loose. What is the noble Lord inviting medical experts to do to interpret a term that is not really medical?
Lord Beecham
There surely has to be a medical definition—and where better to get it from? The medical profession deals with injuries that are labelled “whiplash injuries”. There may be some argument about the definition, but surely it can be decided only on the basis of medical skills.
Lord Mackay of Clashfern (Con)
My Lords, I thoroughly agree with the proposition that is highly desirable for the definition used as the basis for later provisions in this part of the Bill to be on the face of the Bill. The difficulty I have had so far is in identifying what we want to do. It is the area of exaggerated claims, or something of that sort, that underlies the Government’s proposals. I agree that it must be, ultimately, a medical definition, because a medical report saying that you have this injury is an essential requirement for you to come under this part of the Bill.
The difficulty, however, is that the doctors have to know where these exaggerations take place. I have been instructed by people who suggest that if you go for the back, and the rest, you are extending the thing beyond the real position. I have, therefore, some sympathy with the amendment restricting that, which I think is to be moved or spoken to later. I do not, however, profess to know exactly what the problem is, in the sense of the area of medical expertise that is being used by the claimant industry to exaggerate claims. That is their idea: to exaggerate these claims and ask for more than they are worth. As I said at Second Reading, I have some experience long past of the difficulty of actually quantifying the correct amount for these injuries, particularly if they are serious—and they can be quite serious, I think. This is my problem and I would be glad of help when the Minister comes to speak.
The Advocate-General for Scotland (Lord Keen of Elie) (Con)
My Lords, I am obliged for all the contributions that have been made so far this morning. I observe that it appears to be generally recognised that the Bill is addressing a very real issue about which policy decisions have to be made and implemented. I quite understand the question raised about where the definition of whiplash injury should appear. The definition in the Bill seeks to limit injuries to those soft tissue injuries that affect the neck, back or shoulder and arise from road traffic accidents. The vires in the Bill are tightly drawn to enable regulations to be made by the Lord Chancellor that would apply only to a discrete number and type of injury.
It is interesting to see the diversity of amendments that have come forward this morning. That may underline the particular challenge we face in arriving at a suitable definition, be it in the Bill or in regulation. We have sought to address an issue that involves reconciling a legal understanding of this matter with a medical definition—one which covers both injury and the symptoms of injury. That involves us engaging with not only medical expertise but a degree of legal expertise. In addition, while I am not going to go through the detail of every amendment, because I understand what lies behind them, I will note this much. The noble Earl, Lord Kinnoull, set out three points for consideration, and in doing so underlined the very real problem that we need to address here. It was emphasised by the suggestion that if you go to a particular claims management site you are encouraged to believe that even if you have no symptoms you may still have a claim.
I was reminded of an incident some years ago where I was acting for an American pharmaceutical company. The US attorneys showed me a photograph of a genuine roadside sign that had been erected in the state of Mississippi. It said, “If you’ve taken drug X and suffered a fatal heart attack, telephone this number”. The lengths to which we lawyers will go know no bounds, and our belief in the Almighty is always there. There is a very real industry out there. I do not use the term “racket”, but others have—and with some justification.
Looking to the current position, the noble Lord, Lord Sharkey, correctly observed that the regulations that we have produced in draft to elaborate the definition of whiplash injury have only just appeared. I quite understand the need for noble Lords to consider those regulations in more detail. In turn, I will consider in more detail whether we should incorporate a more precise definition in the Bill. But I stress that, even if we were to take that step, it would be necessary for us to bear in mind the ability of government to proceed by way of regulations to support any definition in the Bill. We are well aware that flexibility will be required with regard to any final definition so that we can meet the way in which claims development occurs—the way in which this sort of market develops—in order to put limitations on claims.
At the end of the day, the detailed definition of whiplash injury will need to reconcile the current legal understanding with an accurate medical definition covering both injury and symptoms. Our aim is to achieve that objective, but to what extent we achieve it by incorporating the definition in the Bill is not a matter on which I would take a final position. I quite understand the suggestion that we should consider further the extent to which the definition can appear on the face of the Bill, and also allow noble Lords the opportunity to consider the scope of the draft regulation that has only recently been made available. In the light of that, and understanding that these are essentially probing amendments, I invite noble Lords not to press them at this time.
The Earl of Kinnoull
My Lords, I am grateful for those last few sentences from the Minister, which were very helpful and reflect the strong mood of the House. I must say that if we had had a brief fee clock going, with the number of very expensive lawyers here, it would have been going round quite rapidly. I will make one point, following what the noble Baroness, Lady Berridge, said. I too am a non-practising barrister, but I would never do anything to suggest that advocacy was not valuable. Advocates are immensely valuable in our justice system.
I do, of course, have experience of sitting on the other side of the table from the “claims industry”, as I term it—and the last thing those people want is an advocate in the mix. Most of their companies do not employ that many lawyers: some companies have no lawyers at all, or just one on their writing paper. They want a paper-based or telephone-based operation, in order to process things as cheaply as possible. This would actually help advocacy, because it would try to push things back into the proper legal market and away from companies that have been commoditising the rather grubby process of grabbing money. But, on the basis of what the Minister has said, and knowing that we will be having discussions with a view to bringing forward some sort of amendment on the definition—no doubt several noble Lords who have spoken today will be involved—I beg leave to withdraw the amendment.
Lord Beecham
Lord Beecham
My Lords, I shall speak to the amendments in my name. I have already effectively, I hope, spoken to Amendment 5. Amendment 4 is a probing amendment that seeks to alter the definition of a whiplash injury to confine it to neck injuries. I accept the point that the noble and learned Lord, Lord Mackay, made about the precise definition, and also the fact that I am effectively in the position that I was questioning before, of not having the medical authority to give a prescription. That underlines the need for independent medical advice as to what constitutes the kind of injury that needs to be covered.
Amendment 5, to which I referred before, would require the definition to be provided by the Chief Medical Officer. There may be other professional sources that would be as effective, but the independence and status of the Chief Medical Officer strikes me as highly relevant.
The other amendments in this group to which I will refer are, particularly, Amendments 8 and 10, which suggest a new tariff for 12 months rather than the two years in the Bill. I understand that the vast majority of cases are within that one-year period, so to extend it to two years seems somewhat invidious, given that there has to be proof of the effect of the accident. Two years is a long time to be subjected to, for what would be a pretty minimal level of compensation provided for in the tariff. I hope that that would improve the Bill somewhat.
In relation to Amendment 9, sub-paragraph (ii) seems superfluous because it requires the claimant to have mitigated the damage suffered, but in common law the plaintiff has to demonstrate that he has done precisely that. Sub-paragraph (ii) does not seem to add anything to the current legal position and, for that reason, it should be removed.
Amendments 15 to 20 are in this group. They would remove references to psychological injury from Clauses 2 and 3. That is a matter which we feel should be dealt with in the ordinary way. I beg to move.
The Earl of Kinnoull
My Lords, I rise to speak to Amendments 15 to 20 and to explain why leaving out the word “psychological” benefits the Bill. As currently drafted, the Bill captures soft tissue injury and minor psychological injury only. If a claimant sustained a whiplash injury and, say, a bruise on their knee at the same time in an accident, the bruised knee would not be captured by the definition, which is limited to neck, back and shoulder in the current Clause 1. Damages for the bruised knee would therefore fall outside the tariff damages but would remain compensatable under common law. As I said earlier, there is a great prize for simplicity here, for being able, as an honest and genuine litigant, to go to a web portal to fill a claim and have predictability about what you are going to get. We will no doubt discuss the tariff a lot later on today. By removing the word “psychological” we bring minor injuries into the tariff so that if you have an accident and get a set of minor injuries, which we loosely call whiplash injuries, but which include bruised knees, you know what you are going to get and there would be a simple web way of doing it. We have tried to do that, and that is the sole reason for removing “psychological”. It would mean that injuries without the word “psychological” include psychological injuries. In fact, the definition I referred to earlier on the pre-action protocol for small bodily injury claims specifically includes psychological injuries. I think I have made the point.
Baroness Primarolo (Lab)
My Lords, I rise to speak briefly to Amendment 21, which is tabled in my name. I draw attention to my interests as set out in the register.
I shall follow the theme in the point made by the noble Earl, Lord Kinnoull, with regard to physiotherapy and psychological treatments in claims under this clause. The debate at the moment is with regard to probing amendments, and I hope very much that the Minister, in his reply, will be able to give us a little more explanation on how he sees this particular section of the Bill operating.
I should also say as a caveat that, while I accept the very strong point continually made in the Chamber, and rightly so, about the creativity of some claims management companies—the ones making the telephone calls—to find ways into this area and to cause considerable difficulties, I hope that we will not lose sight of the genuine claims of individuals and the hardships they suffer when they seek to make a claim but cannot represent themselves and whose access to finance for such a claim does not exist. In our rush to deal, quite rightly, with unwanted claims, I hope that we will not undermine and damage the very valuable claims that are necessary for individuals—not just adults but children as well.
With regard to my proposed amendment, Clause 2(6) states:
“Regulations… may provide”,
that a person has taken,
“reasonable steps to mitigate the effect of … whiplash injury or minor psychological injury”.
As I have said, I want to talk about physiotherapy as well.
The reason I ask the Minister to give us more information is in the background of the very public debate about, for example, the provision of mental health services and, in particular, where such services are provided and how the claimant would get access to them and therefore have taken reasonable steps not to undermine a subsequent claim. The King’s Fund, in its analysis of NHS trusts, clearly identifies, through their financial accounts, that approximately 40% of mental health trusts have received a reduction in their funding and therefore in their services.
The type of claims made that require psychological support may involve children who, having been with their parents in a car accident, have problems with nightmares, so they need access to proper support and therapy. Such a claim may involve, and has involved, parents travelling in a car where the mother is pregnant and therefore suffers stress as well as physical injuries. Again, where is the access to psychological injury and, reasonable steps having been taken to mitigate that, given the connection between pain and one’s mental health well-being?
I am not a lawyer, and if my comments are considered ill-informed I will not be embarrassed by being corrected by the very many experienced noble and learned Lords in this Chamber. At the heart of this, and the objective that the Government seek to achieve, is how to stop those who are using the system in a way that, frankly, undermines the rights of good, honest people who are not making fraudulent claims. How to correct that system without preventing worthy, correct and needy claims is a huge challenge. At the moment, while I understand why the ABI talks in its briefing about the need for it to have flexibility to adjust and evolve as the industry does, I see nothing in the Bill that puts that same flexibility into protecting the rights of legitimate claimants in this area of physical damage.
I very much look forward to hearing what the Minister has to say on this whole area, because I fear that otherwise we may need to return to this. There is not enough protection at the moment for the individual legitimate claimant.
Baroness Berridge
My Lords, I shall speak to Amendments 8, 10 and 49A in this group. I join with the comments made by the noble Baroness, Lady Primarolo, in relation to genuine claimants. As I understand it, even the insurance companies accept that the majority of claimants in this area are genuine. It is a high burden on your Lordships’ House to ensure that the Bill hits the target of fraudulent claims as accurately as it can without the shrapnel hitting genuine claimants. Fundamentally, someone with a bruised knee, as the noble Earl, Lord Kinnoull, mentioned, may find themselves with more compensation when assessed under Judicial College guidelines than someone who has genuinely incurred a potentially six-month whiplash injury.
Amendments 8 and 10 relate to reducing the length of the period of these symptoms from two years to one. It is important to remember that while, yes, there is a portal, which the noble Earl, Lord Kinnoull, referred to, and the small claims track, even today 35% of claims are outside the portal. These are the nuts and bolts of people’s access to justice through the small claims track, but that is without legal representation.
The important reason to reduce the scope of the Bill to a year is that the overwhelming majority of whiplash cases, even including those that the insurance companies maintain today are fraud or suspected fraud, are resolved within a year. However, a bulk of cases—15%—last longer than that, and of those there are about 5% where someone has a long-standing chronic condition as a result of the whiplash injury. They might have an early onset of osteoarthritis, a chronic pain condition or fibromyalgia—these are cases that I have seen—which are seriously long-term disabling conditions. It is very important for those people that there is representation, perhaps more in-depth medical reports looking at what has happened to their symptoms, and legal advice so that they are not pressurised into settling a claim too early and getting a sum of money within the first year when actually the prognosis is not definite. If we reduce the scope of the Bill—the Government’s stated intention relates to minor injuries and fraud—down to one year, it would give protection to those people who, hopefully, if they were advised properly, would wait to settle their claim to ensure that their symptoms had resolved.
I hope this is not going to be a complicated amendment. It would do a lot to protect genuine claimants. We do not seem to have evidence of people who are exaggerating and claiming to have fibromyalgia, chronic pain or early-onset osteoarthritis as the result of a fraudulent claim. At the moment the Bill does not do sufficient to protect claimants in those categories, and reducing the limit from two years to one would deal with the fraud problem but also give them some protection.
Amendment 49A is one that I was given advice on by USDAW. The policy reason that Her Majesty’s Government have given for creating this section of claims is that we are aiming at fraud where they will not be covered by the Judicial College guidelines. That will lead to ordinary people not necessarily understanding why claim X merited much more than their own claim. This is serious in people’s fundamental understanding of compensation and justice.
Lord Bassam of Brighton (Lab)
My Lords, I rise with some trepidation to enter into a debate that is so well populated by lawyers and people who know a lot better about these things than I. Perhaps I should declare a sort of interest or make an admission that while I am not a lawyer, I live with one—and her advice to me the other day was not to get into this debate. I have set that on one side for what I hope is a good reason.
I shall speak to Amendment 27A on the supplementary list. It pursues the same point that the noble Baroness, Lady Berridge, explored. I too am worried about what the Bill—a welcome, reforming Bill in many respects—will also capture and that it will put off, deny and deprive access to proper compensation to those who, in the course of their employment, drive for a living. I am thinking of public service workers, ambulance drivers, firefighters, police officers and those in the distribution sector. I am worried that the Government have it wrong and that the legislation will capture people they do not want to. I cannot see, and we have not yet seen, evidence that there is widespread fraud. I am also concerned that in cases involving people who drive as a product of seeking their living and who are injured in the course of their work, perhaps by someone else’s negligence or when they have been working for a supplier contractor, they end up being undercompensated.
Like the noble Baroness, Lady Berridge, I should like to probe the Minister’s intent. Can he assure us that such claims will not be affected in the way in which they potentially are? We are both seeking assurances, some evidence and a hope that damages suffered by those in the course of their work will continue to be assessed in the usual way. That is only fair, right and proper. I am sure that the Government would not want to unwittingly—perhaps inadvertently—damage such people’s interests. While a claim culture exists, stimulated by an industry that is very driven, we do not want to harm those who are rightly seeking compensation for an injury that they have suffered.
Lord Monks (Lab)
My Lords, I follow for a moment the line that previous speakers have addressed. I understand that the Scottish position is different from that proposed in the Bill and that people injured in the course of their employment are treated differently from others. It would be interesting if the Minister, with his extensive knowledge of the Scottish position, could outline what the different reasoning might be. I am not asking him to speak for the Scottish Government, but I am sure he understands how Scottish practice has developed in a different way.
A number of us are concerned that this is a Bill for the insurance industry, tackling problems that it should have addressed itself. If insurance companies were paying out claims without properly investigating, if they were making money available just because it was too much trouble for them to assess the honesty of those making the claim, they have spawned the industry that we are now grappling with and trying to make sense of. The insurance industry should put its own house in order, not come crying to the Government too often to say, “You should do this for us with legal changes”.
I am conscious that we could have a problem with drivers who get injured and are covered by the road traffic laws being treated differently from a driver of a forklift truck, say, who has an accident in the factory or depot, and is not covered by road traffic law. There are inconsistencies here which, I understand, the Scots have addressed differently from the position under the Bill. The Minister shakes his head, and I stand to be corrected, but I should be interested in his observations on that point.
Lord Faulks
My Lords, the noble Lord, Lord Monks, makes a good point: the insurance industry has its share of responsibility for what has occurred in its eagerness to settle claims which may not have been genuine to save the cost of going to court to argue the matter, but to describe this as an insurers’ Bill may be to overstate the case. In the Bill, we are all concerned to stamp out what has been a widespread fraud—not at the expense of genuine claimants, of course, but I do not think anyone looking at the statistics could deny that there has been a serious and long-standing problem that needs a solution.
The noble Lord, Lord Beecham, mentions the Chief Medical Officer in one of his amendments. Of course, the definition of whiplash and the approach to it should be informed by medical opinion, but I respectfully suggest that, ultimately, we as a legislative body have to grasp that definition and approach, bearing in mind medical evidence but nevertheless seeking to identify what is going on in the real world, rather than simply tying ourselves to a medical definition which may of itself be imprecise.
As to where the cut-off should come—whether it should be 12 months or two years—it will always be somewhat arbitrary. However, there seems to me a risk that if we reduce it to 12 months rather than two years, we can anticipate a number of medical reports suggesting that matters should resolve themselves in, say, 18 months—not the more reputable medical experts, but, I am sad to say, not all of them have in the past been in that category.
The point made by the noble Baroness, Lady Primarolo, about the availability of therapy in various contexts is good but, as I understand it—my noble and learned friend will correct me if I am wrong—we are concerned here with damages for pain, suffering and loss of amenity. That does not preclude damages for loss of earnings or for the cost of medical expenses, whether for therapy or otherwise, which can be recovered in addition to the tariff claim. I hope that that is some answer to the question of whether those matters can be attended to following an accident.
As to the argument about whether employment should be an accepted category, while that might have some initial attraction, I would counsel against that approach. I can imagine a revision to the standard message following any such amendment. It would be, “We understand you have recently been involved in an accident while you were driving in the course of your employment”. That would inevitably follow if we narrow or exclude incidents arising from employment. Whether you are driving in the course of your employment, recreation, or whatever the reason, you are equally likely to—
Baroness Berridge
I hate to interrupt my noble friend, but in principle, what is wrong with a call saying that? If someone is driving in the course of his employment, it is in a different category because the employer will have to give evidence that he was indeed driving in the course of his employment. There is a danger that we are saying all these calls are a bad thing, or that all claims management companies are a bad thing and all insurance is a good thing. What in principle is wrong with a call of that nature that can be substantiated by evidence, and would need to be from the person’s employer?
Lord Faulks
I am grateful for that intervention. My point is that if someone has been genuinely injured, whether in the course of employment or not in the course of employment, they are entitled to make a claim, and nothing should preclude that, regardless of whether they receive a message in the current form or in an amended form. It seems to me that it would be inappropriate to make a distinction between the circumstances in which you may or may not suffer a whiplash injury. My point was simply that if there is an amendment to the law, those seeking to encourage not the genuine claimants—of which there are certainly some—but those who are not genuine may revise their message to take into account the revision that we make in the law. Of course I am not against genuine claims. On the amendment tabled by the noble Earl, Lord Kinnoull, and my noble friend Lord Hodgson, although I understand the disaggregation that lies at the heart of their amendment, I am not for the moment persuaded that this is not a matter that is catered for under Clause 2(3) and (4). I shall listen with interest to what my noble and learned friend says.
Lord Beecham
Perhaps I may invite the noble Lord to refer to the provisions that refer to MedCo. He talked about doctors’ reports as if they could be made by rather unscrupulous doctors at the behest of a client. Would not use of the MedCo system pretty well ensure that the reports would be valid and authentic?
Lord Faulks
The MedCo system has contributed very considerably to the improvement in the standards of medical reporting. For those of your Lordships who are not familiar with it, it was a system to prevent what was undoubtedly an abuse of the system by some doctors, to allow the random allocation of medical experts to deal with whiplash injuries. It is certainly an improvement. My point is that there is still a risk in certain cases of there not being reliable medical evidence.
Lord Trevethin and Oaksey
Before the Minister responds perhaps I may, in the probing spirit of the amendments, mention one point that has occurred to me in light of the noble Earl’s proposed deletion of the word “psychological” from various provisions in Clause 2. I completely understand what the Government are hoping to achieve by using the term “minor psychological injury” in those provisions. I imagine they have in mind the fact that in cases of the type we are considering, it did become routine, and probably still is routine, for claimants to be advised to get a supportive report from a psychiatrist that uses the term “post-traumatic stress neurosis” or something similar as a way of enhancing the eventual award. I can see that that is a problem that the use of the term “psychological injury” is directed at.
The noble Earl makes a significant point when he refers to the bruised or gashed knee of the claimant in this type of case. I am not sure how that type of case, where there is a whiplash injury but also some other injury that is outside the definition of whiplash injuries, will be satisfactorily addressed. I imagine that the tariff award for whiplash injury will be fairly low. I do not have the answer to this problem, but I am contemplating the position that will arise when a claimant has suffered a whiplash injury and is entitled to the tariff award, which may be only a few hundred pounds, but has also suffered a probably rather less serious injury to, say, his or her knee. A gashed or bruised knee might stop them from playing football, skiing or whatever it may be, and would be worth, I guess, a few hundred pounds—it might edge into £1,000. You might get an anomalous outcome that would involve claimants recovering more for very trivial injuries to the lower part of the body than they are entitled to recover, pursuant to the Bill, for the relevant whiplash injury. I do not know what the answer is, but it is a potential problem.
Lord Berkeley (Lab)
My Lords, I return to the issue of employee exemption, which several noble Lords have mentioned in this debate. I have a lot of sympathy with it. In my Amendment 23, I shall be seeking some kind of exemption for vulnerable road users. My worry in these amendments is the definition of who is driving in the course of their employment. My understanding is that under the Health and Safety at Work etc. Act, you are covered if you are driving to work in your car and you are employed. The car does not have to be owned by your employer; it can be hired or your own. You are at work and, therefore, covered by the Health and Safety at Work etc. Act. I assume it is the same for Uber drivers, truck drivers and anyone in between.
It is difficult to accept an exemption that would cover all those things, whether you are self-employed or employed by a company or by somebody else. It would be fine if one could find a definition, but there are so many loopholes nowadays in driving and road safety law. I have had many discussions with Ministers over the years about whether road safety and driving legislation should be led by the rules of the Health and Safety at Work etc. Act. In other words, you are at work all the time. That applies to drivers’ hours, driving safety and everything else. I worry about the definition of driving when in the course of employment, and I have a lot of sympathy with anyone trying to find a definition.
Lord Hodgson of Astley Abbotts
My Lords, I intervene briefly, having put my name to the noble Earl’s amendments. I am not sure that the noble Lord, Lord Trevethin and Oaksey, quite followed the idea behind this, which is that psychological injuries are specifically identified at various places in this clause but minor injuries are not. The purpose of the amendments is therefore to remove psychological injuries as a specific category and reinsert them further down, through Amendment 22, with minor injuries, so that we sweep up everything concerned with a whiplash unless it is a serious injury, such as a fracture of a leg, which is clearly a different issue. However, the issue is picked up by the reinsertion by Amendment 22 of the words “minor injuries”, such as a bruised knee.
Lord Keen of Elie
I am obliged to noble Lords for their contributions to the Bill in Committee. I begin with Amendment 4, moved by the noble Lord, Lord Beecham, which would limit the definition of whiplash to soft tissue injuries of the neck. There is then a further amendment that would require the definition of whiplash to be set by the Chief Medical Officer of the Department of Health. The amendment to remove the back and shoulder from this definition would significantly reduce the number of claims subject to measures in the Bill, namely the tariff and the ban on settling claims without medical evidence. It would also encourage claims displacement into other areas to avoid them being subject to the tariff. That would be a serious issue.
The definition in the Bill has been adapted from that in the Prisons and Courts Bill following feedback from stakeholders that the definition in the latter Bill was not broad enough to capture the intended claims. The current definition, with the draft regulations that have now been produced, is intended to achieve that objective.
The amendment requiring the definition of whiplash to be set by the Chief Medical Officer of the Department of Health would provide an independent person who has responsibility for advising the Government on medical issues, but the definition of whiplash injury needs to reconcile the current legal understanding with an accurate medical definition that covers both injuries and their symptoms. This is why the Government have developed the definition of a whiplash injury with input not only from medical experts, but from other expert stakeholders, including claimant and defendant solicitors.
Amendments 8, 9 and 10 restrict the scope of the tariff provisions by reducing the injury duration of affected claims to 12 months from two years. As the noble Lord, Lord Faulks, observed, this would reduce the number of claims captured by these reforms, but have the negative effect of encouraging claims displacement or claims inflation. Having an injury duration of up to two years will ensure that genuinely injured claimants seek timely treatment for their injuries, as well as enabling the Government to reduce and control the level of compensation in whiplash claims and consequently—as is one of the objectives—reduce insurance premiums for consumers.
The noble Earl, Lord Kinnoull, spoke to Amendments 15 to 20 and 22, which would widen the types of injuries affected by both the tariff of damages and the ban on settling claims without medical evidence. It would remove the term “psychological” from the clause, so that the measures in the Bill would apply to all minor injuries related to road traffic accidents, regardless of whether they are psychological or physical in nature. Consequently, this would apply the single-figure tariff to all those injuries, irrespective of number and type, by reference to the duration of the whiplash injury alone. This would result in the reduction of damages for a substantial number of personal injury claims outside the scope of our proposed reforms. The proposed reforms are intended to reduce the number and cost of particular claims—“an industry”, some people have referred to; “a racket”, others have mentioned. We are committed to addressing the issues that arise with whiplash injury.
I understand the point made about the bruised knee. I respond to the noble Lord, Lord Trevethin and Oaksey, on the potential for discrepancies between awards made under the tariff for the whiplash injury itself and awards made for other minor injuries.
Clause 2(8) makes provision for the fact that the court will take into account other minor injuries and will make an award that is not related to the tariff itself. That is my understanding of the words in parentheses: that, in the context of the whiplash injury, regard will be had to the limits imposed by the tariff and the regulations but that, with respect to the other injuries, there will be no such limitation. That is why we do not consider it appropriate to delete the term “psychological” and extend these provisions to all minor injuries. Including minor psychological claims within the original tariff, as the noble Lord, Lord Trevethin and Oaksey, indicated, was done in order to meet the way in which claims develop in this area. Indeed, it is in line with the Judicial College guidelines for personal injury compensation, which indicate that minor psychological injuries such as travel anxiety are not in themselves separate injuries attracting compensation; they have to be linked to physical injury itself.
Turning to Amendment 21, moved by the noble Baroness, Lady Primarolo, if one considers Clause 2(6), persons who are unable to locate treatment for either their physical or psychological injuries are in fact only required to take appropriate steps to seek such treatment. There is no requirement for them to undertake it if it is not available for any number of practical reasons. I would therefore suggest that this amendment is unnecessary in the circumstances.
Baroness Primarolo
Can the Minister explain, then, what the point is of putting a subsection into a Bill that will have no effect, given that we know that psychological and physiotherapy services are under enormous strain and vary around the country? On the point he makes about people just adjusting how they make their claim, surely the answer would be, “We tried and it wasn’t available”. If it is to be a test, should it not be a test that is capable of being judged?
Lord Keen of Elie
With great respect, the relevant text can be judged, because the requirement is that a person should take reasonable steps to secure those services where they are required. If they are not available then that is an answer to the point.
May I move on to Amendments 27A and 49A, on the course of employment? I have to confess that, on this matter, I am inclined to side with the noble Lord, Lord Bassam. It appears to me, with due respect, that there is perhaps a misunderstanding here. If we look at Clause 1(3), we see that it is concerned with a situation in which a person suffers whiplash injury “because of driver negligence”. Whether a person is in the course of their employment or not, if they suffer a whiplash injury because of driver negligence, the third-party driver’s negligence will be responsible for the injury and, therefore, the insurer of the third-party driver will respond. If, on the other hand, the injury is the consequence of the driver himself, then he will have no claim, because you cannot claim in respect of your own negligence. In neither event would there be a legitimate basis for claim against the employer. It is for that reason that we do not consider it necessary to exclude a group to that extent.
Lord Marks of Henley-on-Thames
I am sorry to interrupt the Minister, but is that the point? The point of these amendments, as I understood them, was to exempt those who drive in the course of their employment from the rigour of the new provisions of this Bill when they are claimants, so that the claimant in the course of his employment has a legitimate claim. We may assume it is a legitimate claim because, as the noble Baroness, Lady Berridge, said, it would have to be backed up by the employer’s evidence saying, “This claimant, driving my lorry on a perfectly legitimate delivery, was injured”. It is the claimant who counts, not the defendant.
Lord Keen of Elie
With great respect, if the claimant is driving, his claim will be against the third-party driver whose negligence caused the claim. There is no reason why, in those circumstances, you should distinguish between a claimant who is in the course of his employment and a claimant who is not. They are both liable to suffer the same injury in the same circumstances as a result of the negligence of the same party. The distinction is one without a difference, with great respect. There is no justification for making such a distinction. I recollect discussing this with the noble Baroness, and she talked about the distinction between motor insurance and employers’ liability insurance, but there is no question of the claim being directed against the employer’s liability insurance in such circumstances.
Baroness Berridge
That is not the point that is being made here. I would be grateful if my noble and learned friend could address the question. We are all, I believe, in your Lordships’ House working on the assumption that the target of the Bill is fraud, not genuine claimants. So the specific question is, where is the evidence that people who are claimants when they drive in the course of their employment and are injured by a third party’s negligence—the claim is not against their employer but against the other driver—are fuelling any of the calls or the fraud that is the underlying principle of the Bill? Because that is an injustice.
Lord Keen of Elie
With the greatest respect to my noble friend, there is no basis for distinguishing between the cohort which is driving in the course of employment and the cohort which is not driving in the course of employment when an injury is suffered due to the negligence of a third-party driver. I am not aware of any examination, study or evidence that would seek to distinguish, or of any conceivable basis for distinguishing, between those two cohorts. So, with the greatest respect, I would suggest that it is a distinction without a difference.
Lord Brown of Eaton-under-Heywood (CB)
May I just try to assist—I hope—the noble and learned Lord? The fact that the employer can authenticate that the accident was caused while the driver, the claimant, was acting in the course of employment does not authenticate the fact that he suffered a whiplash injury, and that is the vice that this legislation is designed to attack. Why, in any event, exempt from these provisions that particular class of driver? Why not the man taking his wife to hospital to have a baby, or a whole host of perfectly legitimate drivers? I hope to have helped.
Lord Keen of Elie
I am grateful for the noble and learned Lord’s assistance. In the past his interventions have not always been of assistance, but they certainly are on this occasion. I would go further and suggest that it would make no more sense to exempt people who were driving red cars at the time of the accident. It is a distinction without a difference; it is as simple as that. That is why we do not consider this to be a helpful line of inquiry, and it is not one that we intend to pursue further.
With regard to the other amendments that were spoken to in this group, I have endeavoured to address the points made. I acknowledge the point made by the noble Earl, Lord Kinnoull, and indeed by the noble Lord, Lord Trevethin and Oaksey, about the potential for anomalies where someone suffers a whiplash injury and other forms of injury as a result of the same accident. That is there, and there is no obvious answer to that. Nevertheless, the Bill is structured with the intention of addressing the vice we are really concerned with here and which is generally acknowledged to exist. In these circumstances, I invite noble Lords not to press their amendments.
Civil Liability Bill [HL]
Thursday 10th May 2018
(6 years, 7 months ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 90-I(b) Amendments for Committee, supplementary to the marshalled list (PDF, 54KB) - (10 May 2018)
Lord McKenzie of Luton
“( ) Regulations may be informed by a review from time to time of relevant changes in motor vehicle technology and driving techniques.”
Lord McKenzie of Luton (Lab)
My Lords, this is a step back from the legal intricacies of the Bill to reflect on a wider issue. The problem that the Government identify is the high number and cost of RTA whiplash claims. Their policy objective and intended effect are to disincentivise minor exaggerated and fraudulent claims—that is, to bear down on costs by reducing compensation levels for all, and requiring medical evidence before claims are settled. The impact assessment records that the volume of RTA-related PI claims has remained fairly static over the last three years, with rising volumes of traffic, meaning that there are proportionately fewer fatal or serious accidents. It attributes this in part to improvement in vehicle design—for example, integrated seats and headrests. Yet the Department for Transport recorded, for the year ended September 2017, 27,000 killed or seriously injured, with 174,000 casualties of all severities.
Although there was a decrease in settled claims, attributable in part to LASPO reforms, financially settled soft tissue claims for that year totalled some 520,000, whether they were from whiplash or as a result of other road traffic accidents. What seems to be missing in this debate is any form of focus on a wider prevention agenda. It should be about not only reducing costs but avoiding the pain and suffering and sometimes life-changing injuries in the first place. Why are we not raging against the scale of all this, as well as chipping away at monetary compensation levels?
I should point out at this juncture my interest, set out in the register, as president of RoSPA, the safety charity, and am grateful to it for the information it provided. I shall instance just two developments which have the potential to make a difference. In-vehicle monitoring—telematics—is increasingly available in the UK. As noble Lords may be aware, these systems essentially monitor how, when and where a vehicle is driven. The system can provide in-vehicle alerts if pre-set parameters are exceeded. There are obvious benefits for crash reduction circumstances. At present, it is understood that take-up of a variety of different systems is ad hoc and the catalyst, particularly for younger drivers, is reduced insurance premiums. Would not a comprehensive national take-up campaign have a beneficial effect on the real reduction of whiplash, reducing not only costs but the actual medical effects and suffering?
It is understood that next week the European Commission will propose new regulations that will focus on the mandatory fitting of autonomous emergency breaking systems. It has been estimated by the EU new car assessment programme that AEB can prevent up to 38% of rear-end crashes and avoid 1,100 fatalities and 120,000 casualties over the next 10 years. Currently, about 21% of new cars fit AEB as standard. I hesitate to move into issues of the European Commission, but will the Government support those regulations, both before and after Brexit, if that is where we end up?
I am aware that this amendment may be seen as a bit away from the mainstream before us today, but I hold to my point that concerns over levels of compensation for whiplash should be about prevention as much as about having a fair and robust system of compensation. I beg to move.
The Advocate-General for Scotland (Lord Keen of Elie) (Con)
I thank the noble Lord for his contribution to the debate and I acknowledge the importance of looking more widely at issues such as road safety in the context of addressing the very issue that this Bill is intended to deal with.
On the question of the European Union regulations, in so far as they have direct effect before exit day, they will form part of retained EU law, and in so far as they do not have direct effect by that date, they will not form part of retained EU law. Going forward, it will be for our domestic legislatures to consider the appropriate steps to take with regard to such measures, and of course they will be conscious of developments in other jurisdictions when addressing that point. I am sorry to revert to an earlier Bill and its progress through this House, but I thought that I ought to address that point directly.
We recognise that the definition of whiplash injury is complex and that there is a need to reconcile the current legal understanding with an accurate medical definition that covers both injuries and symptoms. That is why we developed the definition of a whiplash injury, and the wider reform proposals, with extensive input from expert stakeholders, including medical experts, in order that we could come to a view about the appropriate definition for these purposes. In developing the whiplash reforms, we have considered the impact of improvements in vehicle safety. Indeed, developments in vehicle safety have been one of the features of the analysis and impact assessment that have been carried out. As the Government have mentioned on several occasions, it is surprising that the number of whiplash claims continues to be so high despite the significant improvements in vehicle safety over recent years, including the development of safe seats and head restraints which have had such a material bearing on safety in road traffic cases.
The amendment would enable the Government to take account of advances in vehicle safety and driving techniques when revising the definition in regulations. The noble Lord did not go so far as to incorporate the possibility of increasing numbers of driverless vehicles—but, looking further ahead, that is an additional development that we may have to take into consideration. It is crucial that we retain the ability to continue to amend the definition of whiplash in order to reflect all these developments, some of which may come along far more rapidly than we presently anticipate. That is why in the first instance we propose that the definition should be set out in regulations that can be amended and, in any event, allowing for the suggestion that there should be a more extensive definition in the Bill, it would be essential that there should be the means to amend that definition rapidly in response to changing conditions, and to do so by way of regulations.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for a very comprehensive reply. I should say that looking to deal with the definition in the amendment was pretty much a peg on which to raise the issue that I did. The Minister prompted me on driverless vehicles. As it happens, I had half an ear to the television set in my office yesterday when I was drafting some of this, so I caught up on that debate. It certainly should feature in the future.
There is a broader issue here—I accept it is not for this Bill—about whether we could make a dramatic improvement to some of the casualty numbers by a comprehensive effort, particularly around some of the black box technologies. The insurance companies bear some of the costs of that at the moment. It may be that they should be asked to do more. What I am looking for here is a thorough, comprehensive focus. If we had the same intensity of focus on dealing with road traffic accidents that we have—dare I say?—on Europe, we might have made a real difference already. Having said that, I am grateful to the Minister for his response and beg leave to withdraw the amendment.
Lord Sharkey
Lord Sharkey (LD)
My Lords, the long string of amendments in my name and that of my noble friend Lord Marks has a very simple purpose: to enable us to debate the proposed tariff and, in particular, two different types of tariff. The first, essentially contained in Amendment 11, is a tariff based on the Judicial College Guidelines. The second is a fixed, specified and structured tariff. This is essentially contained in Amendment 96, where the amounts are place-holders based on the average of awards actually made. Before I discuss either of these variations, I should again mention the Delegated Powers Committee recommendation that,
“it would be an inappropriate delegation of power for damages for whiplash injury to be set in a tariff made by Ministerial regulations rather than on the face of the Bill”,
and that the tariff,
“should be set out on the face of the Bill, albeit amendable by affirmative statutory instrument”.
At Second Reading, the Minister noted this recommendation and responded by saying:
“We consider that being able to regulate the tariff by the affirmative procedure is a more flexible way of being able to respond to changes”.—[Official Report, 24/4/18; col. 1531.]
That is precisely what the DPRRC proposed should happen after first setting out the tariff in the Bill. I hope that when the Minister responds, he will give a fuller answer as to why he believes that the tariff should not be in the Bill but should be fixed by an unamendable statutory instrument.
I turn to the question of the tariff itself. Should damages remain determined by application of the Judicial College Guidelines, or should they be fixed amounts? If fixed amounts, what should those be? These questions go to the heart of the matter. If we stay with the Judicial College Guidelines, the system would be relatively unchanged, although we could reduce awards for injuries of less than three months’ duration if, for example, we thought that that was where fraudulent claims were concentrated. If we move away from the Judicial College Guidelines to the example tariff contained in the impact assessment or to the tariff published yesterday by the Government, there will be very profound changes. The tariff published yesterday is even lower—by about 4.7%—than the example tariff on page 26 of the impact assessment. It would be interesting to know how these tariff levels were arrived at and what objectives were used in deriving them. For example, was there a target reduction in the cost of total damages awarded? If so, on what basis was this target chosen? Can the Minister explain the basis of the construction of the tariff amounts and tell us whether there was indeed a target for overall damage reduction?
Whatever method was used to devise the Government’s proposed tariff levels, in either the example tariff or yesterday’s tariff, both would have a very large effect. These new tariffs would transfer £1 billion away from claimants, via insurers, wholly or partially to motorists in the form of reduced premiums. That is a very large transfer. It is made up of £240 million in claims that would no longer proceed under the new tariff—assumed to be around 133,000—£550 million because of the reduced awards for every successful claimant, and £190 million from insurers no longer picking up legal fees and VAT. On the way, and as a consequence of this transfer, the general taxpayer would be hit for £140 million by reduced revenue from IPT and some loss of revenue to the NHS. If the Government’s tariff levels are applied, there will be, they calculate, a lot fewer claimants and, it is to be hoped, fewer fraudulent claimants, deterred as they might be by the banning of no-med settlements and very low tariff awards. This means that those successful claimants remaining will carry the burden of this transfer. Claimants will be £1 billion worse off; motorists will be £1 billion better off. What is the Government’s justification for such a massive transfer of funds? There are two questions to answer. First, what is the evidence base that justifies any transfer? Secondly, why this amount? Why such a very large reduction in amounts awarded to claimants? Why not a smaller reduction—or, for that matter, a larger one? What is the justification for this level of transfer?
In the impact assessment and in the Minister’s speeches at Second Reading, it was clear that some care had been taken to avoid using fraudulent claims as the main reason for the proposed changes. However, I note that today the Minister seems clear that this is in fact the main driver. As we noted at Second Reading, claims about the incidence of fraud are highly contested. Is there in fact a reasonable and properly evidenced consensus about the extent or cost of fraudulent or exaggerated claims? I worry that there is not.
There are certainly competing claims from all the many vested interests involved, including the insurance industry, but no independent assessment to help us reach an evidenced view. The Government more or less recognised this when they set out in the impact assessment the principal justifications for the proposed changes. They were all economic and based on a need they saw to correct three alleged market failures. The first failure—if you can really call it that—was asymmetric information. Only a victim could really know the extent and duration of the pain and suffering caused by whiplash, and the Government see this as an incentive to fraudulent or exaggerated claims. So it may be, but we do not seem to know how many or to what extent. But punishing all genuine whiplash claimants by hugely reducing their awards is surely not a reasonable remedy. Why punish these people and reward motorists for an unquantifiable, or at least unquantified, number of fraudulent or exaggerated claims?
The second market failure is alleged to be that of perverse incentives. This refers to legal fees. The Government claim that if legal fees were not recoverable or were less recoverable, this would bring down the number of claims. So it might, but would this be reasonable? In any case, this alleged saving is by no means the major element in the transfer of funds away from claimants.
The third alleged market failure is that of insurance companies settling claims without proof of injury. Here, there is obviously a genuine market failure, and I am very glad to see the Bill banning this practice. However, nowhere in the impact assessment’s justifications for action is there any reference to the huge transfer—over £500 million—that is brought about simply by the introduction of much lower awards for all claimants. Again, what is the evidence base for such a reduction?
The Government’s proposed tariff is significantly lower than the current actual awards in every duration band. For injuries lasting up to three months, current awards average £1,800; the Government propose £225. For injuries lasting between three and six months, current awards average £2,250; the Government propose £450. That carries on all the way up the duration scale. This all looks like an arbitrary and huge transfer of money from claimants to motorists via insurance companies. The Government have given no justification for the scale of this transfer and no explanation why claimants should be so punished and motorists so rewarded. I imagine that we will hear such claims as, “It is generally accepted that claim levels are too high”. This is not a sound basis for policy decisions, certainly not involving huge transfers of funding on this scale, which also create very serious anomalies.
As we pointed out at Second Reading, an injury of 24 months’ duration identical in its effects, if suffered at work, would attract up to £6,500. For whiplash, the Government would restrict you to £3,725. If the Government want a fixed tariff, as they clearly do, then they should put this tariff in the Bill, so that we have the opportunity to amend it. As importantly, they must justify this £1 billion transfer from claimants to motorists. They must explain why all claimants for whiplash should suffer and all motorists benefit.
The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab)
My Lords, if this amendment is agreed to, Amendments 12 to 22 inclusive cannot be called by reason of pre-emption.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, I understand that the clear purpose of Part 1 of the Bill is to discourage false claims for whiplash injuries in road traffic accidents. The proposed method, besides wisely insisting henceforth on medical reports, is essentially by substantially reducing the damages recoverable in such claims to, as the noble Lord, Lord Sharkey, has just explained in some detail, figures well below those that are suggested in the 14th edition of the Judicial College guidelines, based as they are on typical court awards for such injuries.
The real question raised here is whether it is right to create especially low awards and, if so, how much lower than the norm for this particular injury suffered in this particular way specifically because disproportionate numbers of this sort of claims are likely to be false, not least because it is highly subjective and very difficult to establish objectively the reliability of the complaints. These are essentially political questions. It may be addressing the next group of amendments to say that it would make no sense whatever to involve the judiciary in answering these political policy questions. We know what the courts regard as the appropriate levels; we have those from the Judicial College guidelines.
As to what the political answer is to the precise level of damages proposed and whether or not it should be on the face of the Bill, I am essentially agnostic—although if anything I would favour that it should be. What rather surprises me is that, as I understand it, none of the amendments to the Bill is designed to challenge the whole Part 1 approach, which inevitably involves discrimination against those genuinely claiming for whiplash injuries in this context. Is the problem, one may ask, despite a number of improvements in the overall legal landscape over recent years—and indeed, no doubt consequentially, some reduction in the level of these claims—really bad enough to justify that whole approach? That does not seem to be squarely addressed in any of the amendments.
That said, I would add that I am in broad agreement with the whole idea of tariffs for injuries, certainly for lesser injuries, and indeed even of reducing awards in respect of a number of these lesser injuries. When I used to practise in this area decades ago, I used to think even then that lesser injuries were altogether too generously compensated, certainly in comparison to the graver injuries, which were not. Tariffs promote certainty and predictability, although of course always at the cost of some flexibility. That very predictability and certainty cuts down the enormous expense, the worry, the concern, the delay and the hassle of litigating expensively—as it invariably is—in this field. Indeed, that is also the effect of raising the small claims tribunal limits. I therefore also tend to support that to some degree in respect of these lesser injuries.
Overall, one must recognise that this is par excellence a policy issue, and it is for the Crown to justify Part 1 in the way that I have indicated. Part 2 raises very different questions, and to that I give my total support.
Lord Faulks (Con)
The amendment tabled by the noble Lords, Lord Sharkey and Lord Marks, seems at least to question the underlying premise behind these reforms. I respectfully suggest that the Government have established the premise. The Minister set out the Government’s case, as it were, at Second Reading, and the statistics seem to lead ineluctably to the conclusion that there is widespread abuse of the whole whiplash claims system. The solution, though it is inevitably somewhat rough and ready, is that there should in effect be a reduction in what claimants might have been able to claim under the system that currently obtains, although that is in relation only to damages for pain, suffering and loss of amenity and excludes loss of earnings or any other consequential losses. It is a reduction but a fairly modest one and we are speaking of injuries at the lower end of the scale, although I do not downplay the discomfort that can follow from whiplash injuries. However, the purpose behind the reforms is surely, first, to provide certainty and, secondly, to make the awards reasonably modest so as to provide less of an incentive for those who would seek to make fraudulent claims. That, combined with the ban on medical officers, should fulfil what is, as the noble and learned Lord rightly says, essentially a policy decision.
In effect, the losers about whom we should be concerned are those genuine claimants, as opposed to the many who are not genuine, who I accept will get a lesser sum than they would otherwise have obtained. In the round, though, I suggest that this is a sensible policy decision. The House may have in mind that when these reforms were initially trailed by the then Chancellor of the Exchequer George Osborne—and it came from the Treasury rather than the Ministry of Justice—the suggestion was that there would be no damages at all for whiplash injuries. This is a modification of that change, and of course there is the right of the judges to have an uplift in circumstances that we may be exploring later. Still, I suggest that it would be a mistake to pass these matters back to the judges. The Judicial College guidelines are in fact an extrapolation from individual cases decided by judges. They then, as it were, create a form of certainty, although they are variable according to individual cases.
I think the Government have made a case. They have to grasp the nettle, and they have done so in this case.
The Earl of Kinnoull (CB)
My Lords, I congratulate the noble Lords, Lord Sharkey and Lord Marks, for framing a good debate in this important area, and I thank the noble Lord, Lord Sharkey, for his very clear opening remarks. There seem to be three issues here: first, who should set the tariff; secondly, where it should be set out; and, thirdly, how it should be amended.
I regard the tariff as being very much a political matter. The problem that we are trying to cope with is a widespread low-level fraud that is afflicting our country. It is easy money offered by the claims industry for people following what are probably genuine motor accidents. I read out earlier a quite shocking quote from one of the leading people in the claims industry:
“Even if you don’t experience any symptoms straightaway, don’t rule out the possibility that you’ve suffered this type of injury”.
I feel that as it is a political and social problem it must have a political solution, and it cannot really have a judicial solution.
I am grateful to the noble and learned Lord, Lord Brown, who has lent me his copy of the Judicial College guidelines. The introduction states:
“Assessing the appropriate level of any award remains the prerogative of the courts, which are not constrained by any range identified in this book, since the figures within any such range are persuasive, not obligatory, and merely represent what other judges have been awarding for similar injuries”.
Therefore, the whole basis on which the Judicial College has been gathering figures and making judgments is not the sort of basis on which in any event one would want to build a tariff construction. It is the wrong starting material, although it is an interesting book. Accordingly, I feel that the Lord Chancellor must be the person who takes a decision about what will be contained in the tariff.
In respect of my other two questions, I return to the 22nd Report of the Delegated Powers and Regulatory Reform Committee, which considered this issue at paragraph 13 and stated:
“In our view it would be an inappropriate delegation of power for damages for whiplash injury to be set in a tariff made by Ministerial regulations rather than on the face of the Bill. The tariff should be set out on the face of the Bill, albeit amendable by affirmative statutory instrument”.
I feel that answers both my questions. I urge the Minister to consider having a tariff on the face of the Bill and to ensure that it is amendable with suitable parliamentary oversight.
Lord Marks of Henley-on-Thames (LD)
My Lords, the amendments are, as has been said, in my name and that of my noble friend Lord Sharkey. I shall first add to the point made about the Delegated Powers and Regulatory Reform Committee by quoting what it said about placing the tariff in the Bill. It said that the second central question—the first being the question that I quoted earlier about what is meant by whiplash injury—is:
“By how much are awards of damages to be reduced?”
The committee said that the Government’s answer was that:
“The reduction in damages will be whatever the Lord Chancellor says it will be, in regulations to be made by him or her at some future date”.
The committee came to the conclusion, as the noble Earl pointed out, that that is an inappropriate delegation of power. I again make the point that it is appropriate for the Government to accept that recommendation. That has always been the way that that committee’s recommendations have been dealt with. Of course, amendment in the future can be made by statutory instrument.
I turn to the important point that was made in different ways by the noble and learned Lord, Lord Brown of Eaton-under-Heywood, the noble Lord, Lord Faulks, and the noble Earl, Lord Kinnoull, which is that the cost paid by society for these reforms in this particular case—that is, the reduction in damages—is a reduction in awards for genuine claimants. It is genuine claimants who are made to suffer. I cannot see the justification for that in any of the evidence that the Government have produced. We accept entirely that there is a problem with fraud. We are fully behind attempts to tackle fraud by eliminating, or at least reducing, fraudulent claims. But to remove the right to fair damages for claimants in these particular types of cases does not seem to be an appropriate response to this problem in a civilised society.
We address this central problem by saying that the Judicial College Guidelines are an appropriate way of coming to a conclusion on appropriate damages. They are a fair and workable way in which to achieve comparability. They avoid the problem that fraud may be positively encouraged by a cliff-edge system that encourages exaggeration. Damages under this proposal double if the claimant can persuade the medic who is preparing his report that an injury will have a duration of three months-plus, rather than just short of three months—doubled from £225 to £450. In that context, I make two points. The first is that it is a little odd that the response—
Lord Hodgson of Astley Abbotts (Con)
Does the noble Lord accept the argument that the quantum of damages is essentially a political decision that should be taken and justified in Parliament, not taken by judges in courts? How do aggrieved people achieve change there? We know how they achieve change in a political situation: they can lobby their Member of Parliament and get change. Is the noble Lord saying that this must be left to the judges and that we have no way of obtaining redress for decisions that an individual might feel are unfair or inaccurate?
Lord Marks of Henley-on-Thames
Absolutely not. The Judicial College can respond, and be required to respond, to political guidance if Parliament chooses to legislate on the level of damages. I do not say that that is what is wrong. My concern is about the fairness and comparability of picking out whiplash injuries in an attack on fraud and reducing the compensation to genuine claimants accordingly. My point about the £225 and £450 figures—
Lord Faulks
Does the noble Lord accept that if you reduce the amount of damages, it provides something of a disincentive to those who are fraudulent?
Lord Marks of Henley-on-Thames
Of course I accept that. It is a question of whether the cost in unfairness is worth paying. It is a dilemma that the noble Lord himself correctly outlined in his speech. We are simply saying that we ought to try every other avenue before trying this drastic avenue of introducing an unfair system for genuine claimants. I will see if I can get beyond the next couple of sentences.
My point about the £225 and £450 figures is that they represent a cliff edge. They compare to £1,800, which is the expected award set out in the Government’s impact statement for such injuries of less than three months’ duration to date. The Government’s response to the outcry that these damages are so low has not been to meet the outcry at all but to reduce them from £235 to £225 and from £470 to £450.
One of our problems with the present proposals is that there is no evidence base for a recent increase in the number of fraudulent claims. We entirely accept the case that the noble and learned Lord, Lord Keen, made both at Second Reading and today that there is a wide prevalence of fraudulent claims that we have to tackle. However, there is not a wide base of evidence for an increase in such claims, nor is there sufficient evidence of how many claims are fraudulent or genuine. There is certainly no evidence that only the fraudulent claims would be deterred and that the genuine claims would continue. That worries me seriously, because the noble and learned Lord suggested earlier today that a genuine claimant might continue whereas a fraudulent one might be deterred. We simply do not accept that. It is just as likely—and I say this also without an evidence base—that genuine claimants would be deterred because the amount at stake had become so low, even though they had a fair claim.
We entirely agree with the Government that the proposal for compulsory medical reports discriminates between genuine and fraudulent claimants. I repeat my declaration at Second Reading that I have just concluded some litigation about compulsory medical reports and the operation of the pre-action protocol. However, there is no corresponding evidence of discrimination in the case of these drastic cuts in damages, which we say are unjust, unfair and fail to give fair compensation to genuine claimants. They discriminate unfairly between injuries sustained in road traffic accidents by drivers and passengers in motor vehicles and those sustained in such accidents by cyclists and pedestrians. Who would receive the traditional level of damages? Passengers and motorists would not, even in genuine cases. They discriminate unfairly between accidents which are covered by the Bill and accidents at work or accidents caused by, for instance, a council’s negligence. Those can also be a source of fraudulent claims.
If the Government are determined to have a tariff, we are worried about the cliff edge. I see no fundamental reason in principle against a tariff; it is a question of weighing the advantages of certainty outlined by the noble and learned Lord against the fact that you have a cliff edge where those cases that are very close to the three-month level produce very large discrepancies in damages. If we are to have a tariff, let it at least be one that does not penalise genuine claimants by allowing them an award that is far too low. That is the basis for our alternative Amendments 13 and 96. We do not put them forward as a preferred option, but they are more acceptable than the Government’s proposals.
Lord Beecham (Lab)
My Lords, I concur with the views expressed and proposals made by the noble Lords, Lord Sharkey and Lord Marks. They are absolutely on the right track, although I do not agree with the provision for the Judicial College guidelines to be taken into account. It will be seen that in the next group, we have an alternative proposal suggesting that the Civil Justice Council should be involved in making the decisions.
In this group, however, there is an amendment in my name and that of my noble friend Lord McKenzie which would restore a degree of discretion for the court to uplift the amount of damages payable where it deems it just to do so in all the circumstances of the case. That would revive the role of the judiciary in assessing damages, at least to some extent, where it felt that the scale proffered under the legislation was inadequate—as noble Lords have already made clear, that seems likely in many cases.
I broadly support the amendments of the noble Lord, Lord Sharkey and Lord Marks, and will revert to one aspect to which I referred in the next group.
Lord Keen of Elie
My Lords, I am grateful for the contributions that have been made. It respectfully appears to me that the points made by the noble Lords, Lord Sharkey and Lord Marks, materially bolstered the approach that the Government take in the Bill. Why do I say that? Because it is quite clear that we are addressing a matter of policy and have to do so as such. What ultimately has to be taken here is a political decision, not a judicial determination.
In fairness, I think it was a slip from the noble Lord, Lord Sharkey, but when he talked about the question of whether claims are genuine or not reasonable, he said that it was unquantifiable—and then corrected himself to unquantified. The former is more accurate than the latter.
Let us be clear. More than 80% of road traffic injuries are allegedly whiplash-induced injuries. The vast majority of all personal injury claims are whiplash claims. Over 10 years, the number of whiplash claims has rocketed—yes, it has stabilised a little in the past year or two, but it has still rocketed. At the same time, the number of road traffic accidents reported has dropped by 40%. At the same time, the number of vehicles classified by Thatcham as safe from the perspective of seating and headrests has increased from 18% to 80%.
As some people have said, an industry is going on. As others have suggested, there is a racket. We have a claims culture that has built up—I attribute no blame to any one party; all sides involved have contributed in one way or another to the ballooning of the claims culture. The time has come—indeed, the time may be almost past—when we need to address it as a political issue.
The noble Lord, Lord Sharkey, suggested that somehow we were making a transfer from claimants to motorists. With great respect, a very large proportion of claimants are motorists, so it is not as simple and straightforward as that. Secondly, he talked about the transfer requiring to be justified. The transfer is a consequence of the policy decision we are making to deal with the industry, the claims culture; it is not the purpose of it. It is, as I say, the consequence.
Lord Sharkey
In fact, I was asking the noble and learned Lord, with respect, to justify the quantum, but perhaps he is going to deal with that.
Lord Keen of Elie
With respect, as I say, the quantum is a consequence of the steps we are taking to address the claims culture. The way in which we are doing it is such that we are confident that the benefits will be passed to consumers in the form of motor insurance premiums.
Lord Sharkey
In that case, perhaps the noble and learned Lord could explain exactly how the tariff was constructed—on what basis?
Lord Keen of Elie
Yes, I shall come to that. We have had regard to the present level of damages awarded in these cases, we have had regard to expert input about how we can deal with the claims culture that has built up, and we have taken the view on the level of tariff required to implement the policy decision that we have made to deal with this emerging problem.
Lord Sharkey
Does the Minister accept that that is not really an explanation? It is simply a statement that the Government have done something. I was asking for the basis on which they arrived at these numbers. In fact, oddly, the numbers changed between the impact assessment and the SI published yesterday. There must be a reason for that; there must have been some discussion. There must be some basis on which these amounts were constructed, but it is not clear from his answer what they are.
Lord Keen of Elie
With respect, first, I understand that there was not intended to be a change between the impact assessment and the SI publication. That is why the rather odd difference of 4 point something per cent emerges. I acknowledge that that was not intended.
Lord Faulks
My Lords, I am very grateful to the Minister for giving way. Perhaps he will confirm to the House that even the Judicial College guidelines or awards of damages by judges for pain, suffering and loss of amenity are not mathematically calculated; they are figures arrived at doing the best that a judge can to represent the nature of the injury by such an award.
Lord Sharkey
I think this is a misunderstanding. I was not trying to imply that there was an element of certainty involved here. I simply wanted to know how the figures had been arrived at. Why not some other figure? Instead of 235, why not 200? Why not 400? How were these figures arrived at?
Lord Keen of Elie
With respect, a judgment had been made having regard to all the information available as to what level should be set for the tariff to address the very problem that we are attempting to deal with. It is not based on some mathematical formula or percentage.
Baroness Berridge (Con)
I refer my noble and learned friend to his previous comment which, fairly, recognises that all parties are to blame, which is something that I think he conceded at Second Reading—that the insurance industry shares part of the blame. May I clarify? When he says that all parties are to blame for this, may I clarify that he was not including the genuine claimants, who have become a focus in this House: that they are not to blame for an industry, a racket or whatever created by others?
Lord Keen of Elie
Everybody readily acknowledges that point but, with respect, you cannot take 650,000 claims and identify 300,000 that happen to be fraudulent, or 200,000 that happen to be exaggerated. A policy decision has to be made, acknowledging that there are within that very large body of claims perfectly genuine claims, perfectly fraudulent claims, exaggerated claims and minor claims that would never have been brought but for the encouragement of a claims industry that sees the financial benefit of ensuring that people take these claims forward. That is part of the culture that has developed. I noticed that when the noble Lord, Lord Beecham, suffered an unfortunate accident on the Tube and mentioned it in this House, he was asked if he intended to make a claim and said no. One was encouraged by that. People tend to consider that these events can happen; they may be able to point the finger of blame at someone, but they feel that life goes on and it is unnecessary to be distracted by such issues. We have a claims management culture that goes out of its way—many noble Lords have noted it—to encourage people who would otherwise think nothing of a minor injury to come forward and join the bandwagon. Let us emphasise: this is a matter of policy that we are addressing in these circumstances.
Baroness Primarolo (Lab)
On that point, the Minister will be aware that the business model for insurance companies is to assist those who they insure, and to make claims against others when it is appropriate. They are part of that industry, and some of them own claims management companies. Will the Minister explain to the House what he undertook in terms of research to make sure that the figures he is basing his assertions on are correct?
Lord Keen of Elie
I acknowledge the noble Baroness’s expertise in these areas as a non-executive director of Thompsons Solicitors, and her knowledge of the claims culture that has built up. With respect, in carrying out our work, we looked at the behaviour of the insurance industry in this context. Of course, the insurance industry can operate as an intermediary because, where the claims arise, it passes on the costs to the consumer by way of increased premiums. There have been instances in the past where insurance companies have passed on details of their own insurees’ claims to third parties and that has been exploited. I was quite open earlier in saying that we acknowledge the contribution of a number of different parties to what has developed into an unacceptable claims culture. That is what we are seeking to address in this Bill.
Can I continue just a little further in that context? The first group of amendments from the noble Lords, Lord Sharkey and Lord Marks, proposed that compensation for pain and suffering should be determined by reference to the Judicial College guidelines. Indeed, the second set of amendments proposed to place the tariff amounts into the Bill rather than in regulations made by the Lord Chancellor. All those figures would be significantly higher than those proposed by the Government—indeed, more in line with the amount currently paid out by claim.
I understand that noble Lords feel that the proposed tariff amounts are too low, but we continue to be concerned about the high number and the high cost of these claims in general, and the impact of that on the consumer. Therefore, we have to take a policy view as to how we can disincentivise not just fraudulent claims but what I would call unmeritorious claims—very minor and exaggerated claims. Our view is that it is right to set the tariff through regulations, which will help to control those costs and ensure greater certainty to both claimants and defendants when they come to deal with these claims, remembering that the vast majority of these claims never reach court anyway. They are dealt with before they ever arrive at the door of a court. In addition, we consider that a tariff will provide the flexibility required to change the tariff amounts, in reaction not just to inflation but to changes in the market, if I can gently call them that. We know that we are dealing with a marketplace; it is extremely inventive and can rise again phoenix-like from any statutory provision that we bring forward.
Therefore, we are going to have a tariff of predictable damages, albeit for those who suffer injury with a duration of up to 24 months. That is a relatively minor personal injury, but not one to be dismissed—and we do not seek to dismiss them. The relevant tariff will then be applied. It will be far simpler for someone to take their claim forward and, of course, we then have in place the requirement for an independent medical expert report, albeit in circumstances of dealing with subjective complaints of injury, as the noble Lord, Lord Sharkey, acknowledged. They can be very difficult to determine. If someone comes forward with symptoms, on the basis of a subjective assessment, a report can be made, but it can be very difficult to determine whether those subjective complaints are well based. Indeed, as the noble Earl, Lord Kinnoull, observed, there are claims management companies that would encourage someone to come forward even if he had not suffered any symptoms so far, in the belief that something might emerge in due course. That is why we have taken that approach, albeit we have allowed for the judiciary to have input so that it can, in appropriate or exceptional circumstances, increase the tariff award by up to 20%.
Lord Marks of Henley-on-Thames
I just wanted to make this point, but because of the noble and learned Lord’s plea I have perhaps left it a little late, as he has left the question of the figures. He made it clear that a political judgment was made in reaching these figures. The noble Lord, Lord Faulks, asked for clarification that the Judicial College guidelines, on which we rely, were merely an extrapolation from judges’ awards. However, as I expect the noble and learned Lord will accept, there is an element of circularity here because the judges reach their decision as to what is appropriate invariably after having the Judicial College guidelines cited to them, so they feed on themselves and are therefore a fairly carefully worked-out set of figures into which there could be political input.
Lord Keen of Elie
With respect, as the noble Lord outlined, they are self-perpetuating figures. Therefore, although we have regard to those guidelines when coming to a view as to where the tariff should be set, that was only one element in deciding the appropriate levels for the tariff itself.
I shall turn for a moment to the amendment proposed by the noble Lord, Lord Beecham, which would provide the court with complete discretion with regard to any percentage increase of exceptional circumstances. We do not consider that that is an appropriate way forward. It would simply lead to an increase in litigation and in the claims culture, so that is why we feel that there should be an appropriate limit on how any exceptional circumstances can be dealt with by the court.
In that context, I should point out that the tariff system is not entirely a novelty. Other European jurisdictions faced with the same claims culture and the same racket, as some people have called it, have introduced tariffs as well, or tables of predictive damages. That includes Italy, Spain and France. In due course both Houses will have the opportunity to debate the details of any regulations that are introduced to put forward the appropriate figures for the tariff, which at present we consider should be in the regulations, if only for the purposes of flexibility.
Again, I want to emphasise that this is essentially a matter of policy to deal with a very particular problem. It is a political decision; it is not one that we consider is for the judges; it is one that is ultimately for the Lord Chancellor to deal with in his capacity as a Minister. It is in these circumstances that I invite the noble Lord to withdraw the amendment.
Lord Sharkey
I thank the Minister for the long and comprehensive—and occasionally interrupted—answer. There is an issue here. I accept that it is a political decision, of course, and we are all operating on that basis, but I am still worried and puzzled about the way in which this table of tariffs has been devised. I have heard nothing from the Minister to suggest that it is not arbitrary. In particular, he did not answer my question so perhaps he can do it now. Were the figures devised on the basis of some target saving being set and then working backwards to say what the tariff would be to generate that saving? If that is the case, we ought to be told.
Lord Keen of Elie
Can I be clear to the noble Lord? I am not aware of there having been any target saving. As I sought to indicate earlier, this was rather an approach from the other direction: what policy is required? Effective policy is required to deal with the problem facing us.
Lord Sharkey
The Minister will forgive me if I say that that sounds a bit like the back of a political envelope. The question still remains. We are interested in what these figures are, and it would help our discussions if we had a clearer idea of how they were arrived at. I am sure that we will want to pursue that as the Bill makes progress. In the meantime, I beg leave to withdraw the amendment.
Lord Beecham
Lord Beecham
My Lords, this amendment and Amendment 29 set an alternative method for recommending a tariff, not via the Judicial College but via the Civil Justice Council, and it is suggested that this should be done on an annual basis. The Civil Justice Council is a body established by the Civil Procedure Act 1997, and it acts as an advisory body to the Lord Chancellor, who must then set out the recommended tariff under this amendment, in regulations. That is the substance of Amendment 12.
Amendment 29 makes the necessary changes to the Civil Procedure Act, which then empower the Civil Justice Council to include recommendations on the whiplash injuries damages tariff. In my submission, that is a better way of dealing with matters than either the Lord Chancellor doing it on a political basis or leaving it to the Judicial College. I understand the reservations about them. This is a better way of dealing with the situation, and I commend it to the House. I beg to move.
Lord Bassam of Brighton (Lab)
My Lords, I have Amendment 14 in this group. Much of this ground was covered in the earlier debate, and I anticipate the Minister’s response in that light. I take the point made by my noble friend Lord Beecham that we perhaps need to find another route on this issue, and in a sense that is what Amendment 14 does. It seeks to place a duty on the Lord Chancellor to consult the Lord Chief Justice and obtain the agreement of the Judicial College on the proposed amount for tariffs, before making regulations to set damages tariffs for whiplash.
The Delegated Powers and Regulatory Reform Committee of your Lordships’ House recommended that it is the judiciary, with its experience of personal injury claims, that should determine the provisions for damages or, failing that, the responsibility should be undertaken by independent medical experts. Noble Lords have referred to medical experts in earlier debates and recognise their value. I know that many would prefer the Government to abandon their plan to discard the use of the Judicial College guidelines for general damages claims, but there is value in the current guidance. This is a probing amendment, along with others, to find a way of enabling consultation and constraining the absolute power currently set out for the Lord Chancellor.
One of the worries that feeds this is that genuine cases may be dealt with in a way that leads to undercompensation. We do not know what the scale of the problem is, because the Government have not produced statistics on what they believe to be the level of genuine or, for that matter, fraudulent claiming. While that remains the case, we must surely protect those who have genuinely suffered and need to make a claim for good reasons.
It is worth reminding ourselves that the Bar Council recommended that the Lord Chancellor should be required to have regard to decided cases. That seems a reasonable approach. If the Lord Chancellor is required to consult the Lord Chief Justice before making regulations on the uplift in exceptional circumstances, what justification can there be for him not to consult the Lord Chief Justice on the tariff amounts generally? It may be that, with its experience, the Judicial College guidelines would be an appropriate starting point and basis for consultation.
We recognise the power of the Government’s argument generally to change and make reforms, but it is also important to recognise the value of the judiciary’s knowledge in this field and the importance of consulting it in setting tariffs. After all, it has the experience.
Lord Faulks
I just wanted to say one thing. First, I am not sure whether I have declared during Committee that I was a Minister in the Ministry of Justice when the subject of whiplash reform was frequently discussed, although the precise shape of that reform did not manifest in the same way that it does in this Bill. I made that clear at Second Reading, but would like to make it clear now.
Lord Keen of Elie
My Lords, I was rather hoping that my noble friend was going to explain the tariff, but that may be for another day.
If I respond shortly, it is not because I dismiss the importance of the amendments that have been moved but because I have already sought to set out the Government’s approach to the tariff, and I hope that will be appreciated. However, I understand the purpose of these probing amendments, in particular the amendment spoken to by the noble Lord, Lord Bassam, which reflects some recommendations from the Bar Council. I will add two short points.
First, as I mentioned before, we allow for the 20% uplift for exceptional circumstances to be placed in the hands of the judiciary. Secondly, in setting the tariff, the Lord Chancellor is going to consult widely and take into account the views of a wide spectrum of interested parties in order to arrive at what is considered, for policy purposes, to be the appropriate levels, both now and in the future. However, we do not consider that it is appropriate to formalise any part of that consultation, for example by reference to consulting the Lord Chief Justice.
I have heard what has been said; it is essentially a development of the previous group of amendments. I appreciate why these additional amendments have been moved, but invite noble Lords to withdraw.
“(7A) Regulations under subsection (7) may not increase amounts in relation to claims by vulnerable road users unless the increase is to reflect increases in the retail prices index or the consumer prices index.(7B) In subsection (7A), “vulnerable road user” means any person other than a person—(a) using a motor vehicle other than a motor cycle on a road or other public place in England or Wales, or(b) being carried in or on a motor vehicle other than a motor cycle while another uses the vehicle on a road or other public place in England or Wales.”
Lord Young of Norwood Green (Lab)
My Lords, with the leave of the House I will move this amendment on behalf of my noble friend Lord Berkeley, who is unable to attend this afternoon due to personal circumstances. This amendment addresses a slightly different issue from those that I have heard today. If the Bill is enacted, the Government also propose to increase the small claims track limit for personal injury cases from £1,000 to £5,000 for all road traffic accident claims and to £2,000 for all other personal injury claims. The Ministry of Justice’s impact assessment makes it clear that the small claims limit increase is part of a broader reform package, although the small claims limit proposals do not appear in the Bill, as they can be implemented through secondary legislation via an amendment to the Civil Procedure Rules.
When the Ministry of Justice published its consultation on reforming the soft tissue whiplash claims process, Cycling UK—to which I must pay tribute for providing the briefing—realised that the stated proposal to increase the small claims limit to £5,000 extended far beyond whiplash claims by car occupants. In partnership with RoadPeace, the national charity for road crash victims, and Living Streets, the national charity for everyday walking, Cycling UK launched its Road Victims are Real Victims campaign, the catalyst for which was the shared concern that the consultation ignored the interests of road crash victims, particularly pedestrians, cyclists and motorcyclists—generically vulnerable road users.
Within the consultation, no reference was made to vulnerable road users. The focus was on whiplash, fraudulent claims and motorists, without consideration of the complexity of vulnerable road user personal injury claims, the different nature of the injuries typically sustained and claimed for or their vulnerable status. More than 6,000 people responded to the Road Victims are Real Victims campaign, writing to the Ministry of Justice in support of Cycling UK’s submissions and outlining their opposition to the proposed small claims limit increase, which disproportionately affects vulnerable road users. The MoJ’s consultation response failed to address any of the arguments raised on behalf of vulnerable road users, including the complexity of their claims or the nature of their injuries, save for one sentence in paragraph 86 acknowledging that certain points had been made but not responding to them.
The Government’s proposal to increase the small claims limit to £5,000 for all road traffic accident-related claims will affect 70% of cyclist personal injury claims and a similar percentage of motorcyclist personal injury claims, where the general damages for pain, suffering and loss of amenity are under £5,000. Cycling UK met with officials at the MoJ following publication of the consultation response, and explained why vulnerable road user personal injury claims should be excluded from the small claims limit increase to £5,000 and how that could be achieved simply through adopting the same definition of a road traffic accident claim for the purposes of the small claims limit, as the Government propose to adopt in Clause 1 of the Bill, which defines whiplash injury and refers to whiplash injury suffered due to driver negligence when someone is,
“using a motor vehicle other than a motor cycle”.
The Bill excludes vulnerable road users from the definition of whiplash and the whiplash reforms in the Bill. The changes to the small claims limit catch all road traffic accident personal injury claims, including those by vulnerable road users.
The consultation document made it abundantly clear that the Government’s main aim was to tackle what they perceived to be the “compensation culture” and both fraudulent and exaggerated whiplash claims. Whatever the extent of these problems, the purpose of the amendment is to ensure that vulnerable road users should not be penalised as a consequence of measures the Government implement to address them. I do not think that we are trying to say that this is a perfect amendment. I hope the Minister will understand that this is a probing amendment; we are seeking an assurance from him that he would be open to a consultation process. Before I end my contribution I suppose that I should declare an interest as a regular cyclist and a member of the All-Party Parliamentary Cycling Group. I beg to move.
Lord Sharkey
Talking about vulnerable road users, I was reading Tuesday’s edition of Insurance Times, and the opening sentence was:
“Justice minister Lord Keen makes the first concession on Civil Liability Bill ahead of it entering the committee stage in the House of Lords”.
It went on to say:
“Lord Keen sent a letter to peers this morning, and in it, he made his first real concession regarding the Bill”—
and it then went on to quote the Minister at some length.
I looked on the Bills in progress website and could not find any letter. I searched through my emails and could not find any letter; I searched through my junk mail and still could not find any letter from the Minister. I wonder whether he will simply tell me that I should not believe everything I read in Insurance Times, or whether there is some letter that he would like to draw our attention to.
Lord Butler of Brockwell (CB)
My Lords, I support this amendment. I, too, declare an interest as a regular cyclist and a member of the APPG on cycling. As has been made clear at all stages, the Government’s main aim in this Bill is to tackle what they perceive as the compensation culture, and in particular fraudulent and exaggerated whiplash claims. It should not be a by-product of that that vehicle road users, including cyclists, are penalised by measures designed for a completely different purpose.
Whiplash claims are brought by motor vehicle occupants, not by people riding bicycles or motorcycles or crossing the road. Nobody makes a fraudulent claim by throwing themselves off a bicycle or a motorbike or by jumping in front of a car. The point has been made to the MoJ that there is no evidence to suggest that fraudulent claims by vulnerable road users are an issue of concern—and, as far as I am aware, no evidence to the contrary has been provided by the Ministry of Justice.
Whiplash claims from cycle and motorcycle collisions are almost entirely unheard of. The mechanism of the typical injury sustained is, of course, different. People on bicycles tend to be injured by hitting hard surfaces—car bonnets or the road. They sustain fractures and injuries from those impacts. It is not at all likely that they would be making a fraudulent claim. Indeed, I think it is impossible to imagine that they would.
I support this amendment. I think that a Bill designed for whiplash claims should not accidentally spread its effect to vulnerable road users whose injuries are likely to be of a completely different nature.
Lord McKenzie of Luton
My Lords, we have Amendment 26 in this group. I thank my noble friend Lord Young for stepping in to the breach in place of the noble Lord, Lord Berkeley, and for the other contributions that have been made.
Lord McKenzie of Luton
I am sorry. I will speak to Amendment 23 only to congratulate my noble friend for stepping into the breach. I thank him and the noble Lord, Lord Butler, for speaking in support of cyclists. We are very happy to support their proposition.
Lord Keen of Elie
I am obliged to the noble Lord for supporting their proposition rather than their amendment—which, I venture, is entirely appropriate in the circumstances. Clause 1 goes out of its way to ensure that vulnerable road users such as cyclists or motorcyclists are not encompassed within the ambit of the provisions in Part 1 of the Bill. That has to be made absolutely clear. I entirely endorse the views expressed by the noble Lord, Lord Butler, as to the types of injury normally suffered by cyclists or motorcyclists. It does not tend to be of the whiplash variety, which is why we have ensured that they are not included in the terms of the Bill. In particular, as I say, Clause 1 expressly serves to exclude vulnerable road users of that type.
However, the point that the noble Lord made was more to do with a matter outwith the present Bill, which is the proposal to increase the small claims limit to £5,000 for road traffic cases. That is being mooted. Indeed, that increase was a factor in our approach to the whole issue of whiplash injury—but it was not limited to that. The proposed increase in the small claims limit will apply to all road users, including cyclists and motorcyclists. The Government’s reasons for seeking that increase are not simply limited to whiplash claims and the claims culture that has developed there but reflect the fact that, in our view, low-value road traffic accident claims—whether whiplash or otherwise—are appropriate for the small claims track and are capable of being dealt with in that track, whether they be for whiplash or other forms of road traffic injury.
In that context, I also note that we are developing, with expert input, the claims portal for these small claims so that claimants will find the system far more accessible. I simply seek to emphasise that the Bill does not embrace vulnerable road users such as cyclists. However, our reason for increasing the small claims limit for road traffic accidents in general is not limited simply to the view that that is a means of dealing with the whiplash claims culture; it reflects a wider view that low-value road traffic accident claims can appropriately be dealt with in the small claims track. Of course, where those claims are perceived to be complex, they can be moved from that track into the next track of judicial determination. In these circumstances, I invite the noble Lord to withdraw the amendment—albeit he acknowledges that it was tabled for probing purposes.
Lord Young of Norwood Green
I welcome what the noble and learned Lord said—I have found it constructive and helpful. Nevertheless, I still think that there is some concern and, rather than having to return to this on Report, it would be useful if we could meet him for further consultation.
Lord Keen of Elie
I am perfectly content to meet the noble Lord. As I return to my feet, I am reminded of the regular reading material of the noble Lord, Lord Sharkey, which includes the Insurance Times. I circulated a letter to Peers following Second Reading and it may be referring to that, but I do not recollect having made the sort of concession reported in that material. Unless the noble Lord feels that he can correct me, I am certainly not aware of it. Our position has always been that the original draft of the Bill specifically excluded vulnerable road users. I suspect that it is a case not of journalistic licence but of journalistic error.
Lord Young of Norwood Green
My Lords, once again I thank the Minister for his contribution and will reflect on it when we pore over Hansard. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
“( ) Nothing in this section, or in any amendments to the Civil Procedure Rules which increase the Small Claims Track Limit, prevents a court, in a case where a person suffers a whiplash injury, making an award of costs in respect of the provision of a medical report in support of that person’s claim.”
Lord McKenzie of Luton
My Lords, this is a very straightforward amendment. We know that legal costs are unrecoverable in the small claims court, and the increase in the small claims limit creates real problems. The amendment would at least provide for the courts to allow an award of costs in respect of the provision of a medical report. That is important, because whiplash claims cannot be processed until a medical report is available, and the amendment would facilitate that in circumstances where it would otherwise be difficult for claimants to obtain one.
Lord Marks of Henley-on-Thames
My Lords, I have three amendments in this group: Amendments 27, 47 and 52. Amendment 27 seeks a review of the small claims limit. We say that the provisions of the Bill cannot be satisfactorily considered unless at the same time the Government are prepared to discuss what will happen with the small claims limit.
The proposal is that the small claims limit will rise to £10,000 and to £5,000 in these cases, and that will effectively exclude all the whiplash claims on this tariff, with the claimants being unable to recover costs, apart from the very limited fixed costs. If that goes ahead, there will be no legal representation in respect of nearly all whiplash claims. Of course, that will not be limited to fraudulent claims; it will penalise genuine claimants as well.
The reason why there will be no legal representation is that, essentially, the vast majority of these claims are dealt with on conditional fee agreements whereby no fee is paid unless there is recovery. If there can be no costs recovery, even the fixed costs allowable under the protocol, there will be no legal representation. It looks very much, therefore, as if the purpose of the damages sections of this legislation is to wipe out these claims indiscriminately—fraudulent or genuine. There are two swipes. We dealt with the last swipe—cutting the damages to a level whereby, in many cases, it is simply not worth claiming—and changes in the small claims limit would effectively remove the chance of getting a lawyer to work on a conditional fee agreement. We believe that there should be a review of the small claims limit, and we said in our Amendment 27 that the provision may not be brought into force until the Civil Procedure Rule Committee has reviewed the limit of the small claims track for personal injury whiplash claims and published its decision.
Amendment 47 comes back to the question of recoverability of medical reports. It ought to be perfectly obvious that a successful claimant can recover the cost of securing a compulsory medical report or what is termed in the Bill,
“other appropriate evidence of an injury”,
even in the absence of a rule that the claimant can recover other fixed costs. When I raised this point at Second Reading, the Minister said that there would be such recovery. I quoted the impact statement showing that all successful claimants would have to pay the £216 for the medical report. The Minister said no, that was not right and the savings calculated that formed the basis of what I alleged were calculated on the basis of claims avoided, not of all claims. The Government were assuming that a successful claimant would recover the £216—which is £180 plus VAT—in respect of medical reports. At the moment, I can see no provision for that. The Civil Procedure Rules relating to small-claims track cases restrict awards of costs, but by exception they permit, at the discretion of the court, an award of limited costs for experts; but that does not make such costs payable as a matter of course, only as a matter of concession. We seek to have this matter made clear and Amendment 47 is a simple and secure way of ensuring that.
Amendment 52 is a further probing amendment: probing in the sense that, at Second Reading, the Minister expressed considerable sympathy with the idea of having a new protocol for small claims. The existing pre-action protocol for low-value personal injury claims in road traffic accidents came into force in 2010, and it has been kept up to date since. It introduced a simple low-cost way of pursuing claims, generally through lawyers acting on conditional fee agreements—often “CFA lite”, as they are called—whereby lawyers effectively guarantee that there will be no liability on their clients at all to pay fees, because under the existing protocol they will recover the fixed costs from the defendant’s insurers, which they are able to do. The protocol has its faults, not least—some would argue—that the protocol has of itself increased the number of whiplash claims, including the number of fraudulent claims. That is partly because it is very computer-based. It works on the basis of the portal: generally speaking, everyone has to use the portal; the claims are notified and the insurers respond through the portal. There is very little personal checking of what is in fact happening to such claims.
It is also suggested that, arguably, the number of claims settled by insurers without proper investigation has increased. That is for the simple commercial reason that insurers prefer to pay small claims and fixed costs rather than contest cases outside the protocol. That is a danger in relation to all of these proposals. The Government have not sufficiently considered that insurers will find it easier to settle smaller claims under the tariff than to settle larger claims under the Judicial College Guidelines, as they do now, a point made by the noble Baroness, Lady Berridge.
However, for all its faults, the protocol has increased access to justice for genuine claimants. The concern that this amendment is designed to address is that because the protocol does not apply below the small claims limit and the small claims limit is going to rise, there has to be a parallel protocol for unrepresented claimants that is easy to navigate. Our amendment describes that as having,
“the objective of ensuring that the procedures for claimants pursuing such claims are simple and readily understandable for claimants who are not in receipt of legal advice and representation”.
That is the purpose to which the amendment is directed.
Baroness Berridge
My Lords, I have added my name to Amendments 27, 47 and 52, to which the noble Lord, Lord Marks, has referred, which relate to some of the most fundamental points in the reforms. They involve the procedure which will exist for genuine claimants through the small claims track and/or the portal.
I am saddened but grateful to my noble and learned friend the Minister to learn that it is not an unintended consequence of the Bill that genuine claimants will be caught. It is an intended consequence of the Bill, so there is a high onus to ensure that access to justice is ensured for genuine claimants.
The noble Lord, Lord Marks, referred to no legal representation but, having worked in what was then called small claims arbitration I know that defendants are usually legally represented. In Scotland personal injury claims, which are generally more complex, are outside its equivalent of the small claims procedure because of the asymmetry of the relationship in the small claims track between the claimant and the defendant. Having represented defendants in those circumstances more times than I care to remember, I know that although district judges go out of their way to try to ensure that there is fair procedure, they cannot step outside the boundary of their judicial role. Invariably, therefore, as the legal representative of the defendant, you know that you are at an advantage.
It is important to remember that, on the figures I have been given, 40% of people who buy fully comprehensive insurance do not also buy legal expenses insurance. Therefore, in order to recover their personal injury losses, their uninsured losses, and their often considerable excess losses—which can be about £500—genuine claimants pursuing personal injury losses, more often than not, will be litigants in person using the small claims track or the portal.
On the claims portal which has been mentioned, I know that a working group at the Ministry of Justice is looking at the new portal which will ensure that litigants in person have access to a streamlined procedure.
At the moment, however, you are within the claims portal only if liability is admitted. Some 75% of insurers have apparently signed up to pass on premiums so, like claims management companies and lawyers, we have good, exemplary and not-so-good companies. Unfortunately, with unrepresented claimants, there is now an incentive for certain insurers to deny liability because once they do so, the case comes out of the portal. It is then for a defendant insurance company to deal with a claimant—precisely the asymmetry of the Scottish situation. We have talked a lot about cold calling. Imagine being in that situation as a claimant trying to recover personal injury losses and an excess. You are busy, you are working and nobody is there to advocate between you and the defendant insurance company. That is a worry in relation to how the current portal operates.
Lord Bassam of Brighton
My Lords, I am much heartened by what the noble Baroness, Lady Berridge, said because my Amendment 30 tries to take us to the same range of issues. It states:
“When making regulations under section 2(2), the Lord Chancellor must take account of the PI small claims limit”.
The rest of the amendment addresses the whiplash issue.
Why is the amendment here? It is here because there is no other way in which we can address the personal injury limit. It seems to us to bring in an element of manifest unfairness. This piece of legislation will impact on small claims made by employees. By raising the threshold to £2,000 for those personal injury cases the Government are creating a particular difficulty. Claimants in the small claims court, because they cannot reclaim the cost of legal support, will have to represent themselves as litigants in person—and that brings a number of difficulties.
These cases can be very complicated, and they impact adversely on those who have suffered an accident at work, or the early onset of an industrial disease. USDAW has produced a very good briefing on this, citing a vast array of cases in which it represented members and which would be caught by this uplift. Vulnerable employees can be quite seriously injured. They are often unable to work for weeks or months and suffer considerable financial detriment and loss. With no legal assistance available to them, they will be opposing an employer—who will invariably be represented at court—without the expert advice that their injury and its implications merit.
I do not understand, therefore, why the Government are so keen on this £2,000 limit. It seems both unfair and lacking in rationale. The Government have not set out any reasons for including employee injuries in what was billed as a reform of whiplash claims—which, as we have said, we have no argument with. There is no suggestion anywhere that there have been fraudulent claims by injured employees. Claimants in this process will be vulnerable. There should be, as the noble Baroness, Lady Berridge, said, an equality of arms. That principle, which is fairly fundamental to the way our system of justice works, is undermined by this change, and the uplift to £2,000, when employers will be able to rely on full legal advice and support.
Cases are complex, injuries can be significant and victims can suffer considerable financial loss. Furthermore—an important point—the increase is far in excess of inflation. In 2009 Lord Justice Jackson suggested that there should be no increase to £1,500 until inflation justified it. Well, the figure of £2,000, to which the Government are wedded, cannot be justified on an inflationary basis: in terms of Lord Justice Jackson’s proposals, no increase is currently justified.
Small claims courts are not suitable for personal injury claims. We invite the Government to seriously reconsider the way they have set about this. We have already heard that cyclists will be swept up in the whiplash issue. Whether or not the Government seriously thought that they would be involving quite badly injured claimants by raising the limit to £2,000, that would be the effect of the proposed change. I have tried to find a way to bring an amendment to the Bill that would capture this issue, but have not so far succeeded. That worries me, because the Government seem to have found a way around a problem to the benefit of employers. I hope that that is not the case.
The Minister has a gap between Committee and Report, and I hope that he will meet me and others—particularly those who represent trade union members and are involved day in and day out with small claims personal injury issues—to benefit from our experience and knowledge of this field. I hope that he will then reconsider what is a very unfortunate policy, and one that will not be welcome in the workplace.
There are two other points here that are of value to consider. There will be an increase in the undersettlement of claims as a product of this; and I suspect that there will also be an increase in the number of claimants with highly unrealistic expectations of the value of their claim, thus removing the possibility of early settlement and placing increased pressure on the courts system. I hope that the Minister has some reassurance for us on this, because it is a very serious issue. It undermines some of the other, perhaps gentler, words that the Government have used in trying to understand the problems and complexities that people confront in the workplace, which was one of the Government’s earlier ambitions. That is the purpose behind our Amendment 30 and I hope that the Committee will see the strength of the case that has been put.
Baroness Primarolo
When the Minister considers in the round the comments made by other noble Lords, will he undertake to go away and look specifically at the way in which Scotland has approached this important question of asymmetry in the process? Will he look at whether there is a way of incorporating or dealing with claims in a similar way, without clearly undermining what he has identified as the Government’s policy principles in simply reducing tariffs?
Lord Keen of Elie
My Lords, perhaps I may begin with Amendment 26, as put forward by the noble Lord, Lord Beecham, and Amendment 47, put forward by the noble Lords, Lord Marks and Lord Sharkey, and my noble friend Lady Berridge. These amendments seek to secure assurances as to the recoverable cost of a medical report in respect of whiplash injury claims, notwithstanding the increase in the small claims track limit.
The cost of medical reports is currently recoverable in personal injury claims where the defendant insurer has admitted any part of liability. It is intended that these costs will continue to be recoverable following these reforms, including the proposed reform in the small claims track, which is not part of the Bill. I seek to reassure the noble Lord, Lord Marks, in particular that it is intended that that cost will be a recoverable element in each and every case where liability is accepted. My understanding is that the civil procedure rules currently permit the recovery of such a cost; if there is any issue with that, I would be perfectly happy to look at it again to ensure that the rules reflect that position, because that is certainly our intention.
The effect of Amendment 27 would be to require the Civil Procedure Rule Committee to undertake both a review and a consultation in respect of the proposed increase to the small claims track limit for whiplash claims before publishing its decision. I appreciate that the noble Lord, Lord Bassam, is taking us beyond the realms of whiplash claims and I will comment upon his observations in a moment. The Government have already undertaken a consultation on this issue and our policy changed as a result of that consultation. Originally, we proposed raising the small claims track limit to £5,000 for all personal injury claims but, after consultation, we proposed that the track limit should be raised to £5,000 for road traffic accident-related personal injury claims but only to £2,000 for all other personal injury claims, including employer/employee claims. We do not believe that a further consultation on this issue is required, nor that such a requirement should be placed into the Bill.
I observe in passing that the small claims limit for non-personal injury claims is now, I believe, £10,000 and it operates adequately. In respect of the personal injury limit of £1,000, that was set about 10 years ago so even if we were to apply various inflation-linked multipliers, it would be in the region of £1,700 to £2,000, depending upon what index was taken in respect of inflation. As regards personal injury claims in general, it is not going much beyond that.
The proposal in the amendment tabled by the noble Lord, Lord Bassam, is that the increase should be to a maximum of £1,500, as opposed to the increase to £5,000 for road traffic accidents and £2,000 for personal injury claims. In that context, the noble Lord observed that these cases—I believe he was referring to non-road traffic accident cases in particular—can be very complicated. I acknowledge that, but if such a claim is complex, that is a ground for removing it from the small claims process to the fast track. There is already provision for that very situation, so we do not consider that further steps need to be taken.
Lord Bassam of Brighton
Can the Minister assure me that there will be consultation with the trades unions? Given the case he is making, it is important that that should take place. Their experience here is highly relevant.
Lord Keen of Elie
Trades unions’ experience is, essentially, filtered through claimant solicitors such as Thompsons, and those being consulted include representatives of both claimant and defendant groups—so that is being done. However, I would be perfectly happy to meet the noble Lord, and such representative groups as he may wish to bring to a meeting, to discuss the proposed increase in the limits on small claims. If he wishes to do that, I shall be perfectly content for him to contact my private office, and we can make suitable arrangements. At this time, however, I invite noble Lords not to press their amendments.
Lord Hodgson of Astley Abbotts
My Lords, at this stage in proceedings on the Bill most of the ground has been pretty extensively ploughed, and I shall endeavour not to till it longer than I have to. We had a long discussion about the setting of the rate on the group taken with Amendment 11, and the noble Lord, Lord Beecham, got even closer to the matters I have in mind with his Amendment 38. However, Amendment 35 is concerned with the provisions of Clause 3, which, as the title suggests, permits uplift in exceptional circumstances.
The question I wish to discuss is whether there should be any limit on the amount by which these exceptional awards can exceed the basic tariff, and if so, whether that limit should be in the Bill. I think there is a strong argument for limiting the exceptional awards, and for putting that into the Bill; the noble Lord, Lord Marks of Henley-on-Thames, was kind enough to take my intervention in an earlier debate. I wish to see judicial discretion limited because I think this is a political matter, not a matter for judicial discussion and discretion. Therefore the limit should appear in the Bill—as a percentage, not as an absolute amount, because if the tariff goes up, obviously the amount of an exceptional award should also eventually increase.
My noble and learned friend referred to this matter in the letter he sent to those of us who participated in the Second Reading debate about the need for a degree of judicial discretion. He suggested that the uplift should be capped at 20% and he has already referred to that this afternoon. I do not disagree with any aspect of his remarks, except that I think it is important that the percentage should appear in the Bill. This is in the interests of stability and clarity—stability because if the exceptional amount could be increased by the court without limit the temptation for claimants to game the system would be greatly increased, and clarity because such a limit would facilitate the setting of the rates of motor insurance and reduce the volatility in the amount of such rates year by year. That is an important distinction to remove absolute discretion from the courts, to bring it into the political arena and to set that percentage in the Bill so it is clearly a political, parliamentary decision. I beg to move.
Lord Beecham
My Lords, I am a little concerned at the degree to which political considerations are supposed override our system of justice. This is not the first time it has been mentioned. However, the latest case is perhaps the least acceptable of the recommendations of this kind. Why on earth should Parliament decide on the so-called exceptional circumstances—undefined, of course, for the purposes this debate—on what are already constrained sums to be awarded in damages? It is trespassing too much on the rights of the citizen and the role of the judiciary. I hope that the Minister will concur with that, given his enormous experience of these matters, and, I apprehend, a real interest in justice being effective and available. With all due respect, the amendment moved by the noble Lord undermines both.
Lord Keen of Elie
My Lords, I am obliged to my noble friend Lord Hodgson for his amendment. I understand the intent when we are seeking to address a very particular problem. However, I cannot concur with the proposal that we should set in the Bill some limit to the judicial discretion that will be exercised in exceptional circumstances. We have yet to see how exceptional circumstances will develop once the Bill comes into effect. We therefore consider it more appropriate that the percentage increase in tariff should be determined by regulation by the Lord Chancellor in order that he may, from time to time, have regard to developments once the Act is in force. We do not consider it appropriate to constrain that exercise by setting a ceiling in the Bill. For these reasons, I invite my noble friend to withdraw his amendment.
Lord Hodgson of Astley Abbotts
I thank my noble and learned friend for that reply. It was not entirely unexpected. I say to the noble Lord, Lord Beecham, that it is nothing to do with access to justice, it is merely limiting judicial discretion. Indeed, the noble Lord accepts that judicial discretion is going to be limited because he is quite happy to have this percentage in regulations which can subsequently be altered one way or another without much parliamentary scrutiny for all the reasons we know. I note the points my noble and learned friend has made, and I beg leave to withdraw the amendment.
Lord Beecham
Lord Beecham
My Lords, the amendments in this group pray in aid, as it were, for the work of MedCo, a body set up by the Government, I believe in 2015, to facilitate the sourcing of medical reports on injuries of the kind that we are debating under the terms of the Bill. The Ministry of Justice produced a pre-action protocol for what it calls low-value personal injury claims in road traffic accidents. Before that, there was no system at all to effectively source reports, and apparently a practice was developing of some claimant representatives—not necessarily solicitors—and insurers using what are described as “tame” doctors to produce medical reports for the purposes of securing compensation.
The Government set up the MedCo organisation to provide claimants with access to independent medical reporting facilities from reputable sources, which are themselves subject to regulation and control by the MedCo board. Apparently MedCo had a bit of an uneasy period in its early days and there have been a number of reviews, but the principle remains valid. I understand that it is now working better and that there is no channelling of medical reports to, as it were, sympathetic doctors who might be relied on to back up claims that are less than valid. To that extent, the Government’s original idea has proved right.
In relation to the Bill, it appears that there will be a necessity to reconstruct the portal so that litigants in person can access and use the portal themselves. Therefore, it is all the more necessary to ensure that the MedCo system is available and as user-friendly as possible. I hope that the Minister will acknowledge that I am taking the unusual stance of having supported a decision made by the Government some time ago and seeking that it should continue to flourish. I look forward to his acknowledging that this is a good way of serving justice for both sides in such cases, by having thoroughly professional, independent people providing the necessary political evidence, not being paid for a particular kind of evidence—which one suspects can happen and perhaps has happened hitherto, producing some decisions that were, frankly, unjustified. I hope that the noble and learned Lord will build on the position created originally in 2015 by the Government and ensure that it remains applicable and useful under the new regime being developed.
Lord Bassam of Brighton
There are other amendments in this group, are there not?
Lord Keen of Elie
There are indeed, and that was why I wondered at the noble Lord’s reticence. If the noble Lord wishes to speak to them, I am not the person to stand between him and the remainder of the Committee.
Lord Bassam of Brighton
I am extraordinarily grateful to the noble and learned Lord for his prompt rising, as it were, from a sedentary position. My Amendment 42A is in this group. On the Bill as a whole, in Clause 4 the Government seem to recognise the problem of what are called “pre-med offers”, yet fail to ensure that they are sufficiently discouraged. We are in the same territory here but perhaps not seeking to approach it in the same way. My understanding is that such offers are made to people sometimes at a point of vulnerability following injury and sometimes, it has to be said, in the most cynical of circumstances—when sick pay runs out and after putting in a denial, which, although clearly weak, sometimes worries people.
Lawyers for claimants have a professional duty to put an offer to their client. There are many circumstances in which desperate people ignore the advice to reject that comes with that offer and accept what is offered, however inappropriate the sum is to the injuries that they have suffered. Pre-med offers are not made to be fair or reasonable. The offers are often made by defending insurers to get rid of a case cheaply, and I quite accept that the Government are right to seek to prohibit them. The consequence of acceptance in the absence of a medical report is that if the injured person later develops conditions arising from the accident, they will of course fall back on the NHS to support them. They will have no compensation to get treatment and the cost will fall more widely on society and the taxpayer. Meanwhile, the insurer for the guilty party who caused the injury will have walked away having saved money.
Lord Keen of Elie
I am obliged to noble Lords. The amendments from the noble Lord, Lord Beecham, would place the requirements for medical reports to be provided by an accredited medical expert selected via the MedCo portal or other experts specified by the Lord Chancellor in regulations. Currently, the Civil Procedure Rules require any initial medical report in support of a whiplash claim to be sought through the MedCo IT portal, which is established and proves, as the noble Lord indicated, the independence and quality of these medical reports. The Civil Procedure Rules also require that all MedCo medical reports must be provided by an accredited medical expert. I am therefore uncertain what additional benefit the amendments would add to that process, because we already have in place the requirement that it should be a MedCo report that is obtained.
Indeed, the amendments could have a negative impact on the success of MedCo as, on one view, it would widen the pool of medical experts to any person with medical qualifications rather than someone who has been accredited specifically for these types of report by MedCo. I may have misunderstood Amendment 41, but that appears to be what its result would be, although that may be unintended. I emphasise that we consider that the creation of MedCo, as adjusted recently, has been a success and will continue to be so. We require that parties should have to go through the MedCo portal for an appropriate independent expert report before these claims are settled.
So I ask the noble Lord to reconsider the terms of the amendment because we do not feel that it adds anything to the Bill. I believe we have a common intention here and it may be that I have misunderstood what lies behind Amendment 41, but at present we believe the present structure of MedCo reports and the portal is appropriate as it stands, and at this stage we would not be prepared to contemplate the amendments that have been moved. If the noble Lord wishes to discuss this matter further with me, I will be content to do so because it may be that I have somehow misunderstood the intent of Amendment 41 in that regard.
I turn to the point raised by the noble Lord, Lord Bassam. We looked at the whole question of how it would be most appropriate to deal with claims that were settled without a MedCo report. That would place the insurer or relevant party settling the claim in breach of their own regulatory requirements, and appropriate steps would be taken. In due course, as we know under the financial regulation Bill that is currently going through, that would be the FCA in respect of claims management companies.
I draw attention to Clause 5(6), which states:
“A breach of section 4 does not make an agreement to settle the whiplash claim in question void or unenforceable”.
We adopted that approach to ensure that the claimant should not suffer at all in circumstances where the person making the settlement did so without the report. In other words, the claimant would be entitled to retain all sums paid in those circumstances. If we make the agreement void, the sector would potentially seek recovery of the sums passed in respect of a void transaction. I appreciate that the noble Lord seeks to qualify that, but it raises complex issues over contract liability. We believe that we have taken the correct approach by ensuring that the person making the settlement, who is a regulated party, will be in breach of their regulatory regime if they do so without a MedCo report, while equally ensuring that the claimant should not suffer because of that misfeasance, and should be able to retain the settlement sum.
We do not believe that there is a major issue in this context with regard to those who are persuaded to settle early but, if that is an issue, it is more widely encountered across personal injury claims as a whole, and we do not see any basis for taking an exceptional route in regard to whiplash injury claims. I hope that that reassures the noble Lord that there is a mechanism to protect the claimant and enforce the requirements of Clause 4 against those who are settling claims.
Lord Bassam of Brighton
I am grateful to the noble and learned Lord for his attempt at reassurance. I will reflect on his words, but I may come back with something on Report because I want to ensure that we have that protection there.
Lord Keen of Elie
I quite understand the noble Lord’s concern, and I would be willing to consider any further amendment that he puts forward on this in due course. At this stage, I invite the noble Lord to withdraw the amendment.
Lord Beecham
I am obliged to the Minister for his invitation, which I will certainly take up. The intention of the amendments is to fill out, as it were, the provisions in Clause 4 relating to regulations to be made by the Lord Chancellor about the appropriate evidence of an injury for the purposes of this clause. It may be that both of us are replicating something that already exists, but we can have a look at it and I am sure it is a matter on which we can reach agreement one way or another. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
“( ) The Treasury must make regulations requiring the Financial Conduct Authority, where it is the relevant regulator, to prohibit a regulated person, in the course of providing any claims management services (within the meaning of section 419A of the Financial Services and Markets Act 2000), from doing, or arranging or advising the doing of, an act mentioned in section 4(2).”
Lord McKenzie of Luton
My Lords, I shall also speak to our other amendments in this group. Amendment 43 requires that regulation made by the Treasury must require the FCA, when it is the regulator, to prohibit regulated persons from providing claims management services in advising, doing or arranging any of the acts prohibited by Clause 4 as regards settlement of a claim before a medical report is available. Many have spoken on this Bill and elsewhere about the conduct of claims management companies and how fleet of foot they can be in exploiting opportunities. These activities have been constrained by recent legislation. The FCA is to become a tougher regulator, transitional arrangements have been put in place and a charge cap has been enabled. However, we use this opportunity to get a comprehensive update on where regulation is or what is yet to be put in place for CMCs.
Amendment 44 refers to cold calling. We know that cold calling is often a prelude to some scam or nefarious activity, and there has been a range of activity to restrict such operations. The Financial Guidance and Claims Bill provides for a ban on cold calling for pensions, enables the introduction of a ban on other financial products and makes provision in respect of certain CMC activity but, for the avoidance of doubt, can the Minister tell us where these things stand across the board?
In our debates on the financial guidance body, exchanges took place about no cold calling in respect of personal injury claims by virtue of the involvement of solicitors in that activity. However, it was further suggested that people were finding a way around that. This is by way of a probe. Is all cold calling in respect of personal injury claims—be it by CMCs or otherwise—now prohibited?
Amendment 44 is one of several in this group which require a review of the activities of Part 1: in particular to ensure that savings arising to insurers are passed on to consumers—motorists. We know that this is particularly difficult. The accounts and activities of general insurers can be complicated and it is very difficult to identify a fixed starting point from which to do the analysis. A whole host of questions arise about how the distribution of any savings made should accrue across the range of consumers that face insurers.
There are questions about who might be the person in a particular organisation to have to certify annually that savings have been secured. Experience shows that if you simply have a process whereby someone has to sign off for the company that savings have been passed on and the policy complied with, it could well be delegated to someone who does not necessarily know exactly what has gone on. In all the variations trying to substantiate that savings are made and that what is promised under the legislation is being delivered, we may seriously think about regulation which requires the chief executive of each of the insurers to be the person held to account for the statement about the extent to which compliance with the requirement has been made.
I may return in a moment to speak to some of the other amendments in the group, but for the time being, I beg to move.
The Earl of Kinnoull
My Lords, my own solution to the problem of the promise that the insurance industry has given is contained in Amendment 46. I am very grateful for the support and advice that the noble Lord, Lord Hodgson, has given me in considering this problem. The promise made by the insurers—percentages are a dangerous game, as there is a question of whether you are counting numbers, premium volume or whatever; but in premium volume terms—represent 90% of the market. The promise says that,
“the signatories to this letter today publicly commit to passing on to customers cost benefits arising from Government action to tackle the extent of exaggerated low value personal injury claims”.
In considering how one should attack that problem, I ask myself two simple questions. First, does the person who accepts the data understand it? Having spent a lifetime in the insurance industry, I can say that claims presentations are phenomenally complicated. I will not even start to use some of the jargon. It is extremely complicated to know whether you are talking about an accident year or the date year, as it were, and to understand certain things such as how the claims coding works, loss triangles, reinsurance effects and so on. But a regulator is someone who can do that.
The second question I ask myself is: will the person who has it have a mechanism for ensuring compliance? Are they good policemen? That is why I have centred on the FCA. I have criticised the FCA in the past but I have never criticised its competence. I have only ever said that it has been heavy handed. It will certainly have people who understand the approximately 250 returns that come in from the participant companies that have motor insurance licences in Britain. We can see who they are on the Bank of England website, and they certainly have the power, not least under the regime of treating customers fairly, but they also have plenty of other soft power. The chief executives of insurers have to be approved, as does the chief risk officer. I seem to recall that even the chairman of our audit committee ended up having to be approved. An insurer cannot afford not to have a good relationship with the regulator, because the insurance industry is much more scared of the regulator getting annoyed than of the court. The regulator can move overnight and do something to your business, whereas a court will take a period of time to do that.
Accordingly, I advance my structure for solving the problem, which I think is proportionate. It would be possible for the FCA to report on it in some way—I had not really considered that part. I am asking for the trigger to be fired twice because, by the end of 2020, this legislation will either have been a terrific success, and we will be absolved of this particular problem with the claims industry, or it will have not been a great success; they will have found a way around it, so we would not need to have the report rolling on for ever. On that basis, I ask for my amendment and that of the noble Lord, Lord Hodgson, to be considered.
Baroness Berridge
I rise briefly to speak to the amendments I have in this group, which refer to a report by the FCA as well as a report being laid before Parliament.
It is important in this context to look back at Second Reading and the Government’s confession that the insurance industry had not done all it could to get on top of the issue of fraud. In some respects, on Second Reading one could have been forgiven for thinking that the problem of fraud was so great for the insurance companies that they were teetering on the brink of bankruptcy as it was such an urgent issue. Nothing could be further from the truth. A report from Direct Line Group, which is the largest insurance group that we have, shows profits for financial year 2017 of £610.9 million—a leap of 51.4% on 2016. Dividends were up 40.2%. In its interim report in 2017, one of the reasons it gave for that was fewer than expected bodily injury claims. We might argue for a long time about CRU figures, but Direct Line attributes its increase in profits to a decline in personal injury claims.
It is disappointing to those of us who are saddened and troubled by the effect on genuine claimants that there is no proper mechanism in the Bill to ensure that the £1 billion of savings from claimant payments will actually go to the motorists. The Government are saying that that is the Bill’s overall intention. In light of the scale of the fraud that the insurance industry would like us to believe, it is disappointing that it has not invested more of its resources into controlling this fraud because it is a societal issue that affects culture, as opposed to the profits that I have just outlined.
There is a particular legal problem, though, on which I hope the Minister can help us. Many insurance companies are no longer mutuals; they are listed on the stock exchange, with all its reporting requirements and requirements for directors to take into account their shareholders in the payment of dividends. How is that circle going to be squared? You have directors with an obligation to shareholders. They make cost-benefit savings, but they are under pressure either to pay down debt, as some have with some of their profits, or to pay out dividends rather than decrease the premiums they are charging to motorists.
There is a further issue with insurance companies, which is that they have enjoyed bumper savings from the implementation of the Jackson fixed-cost reductions and the LASPO changes that were introduced in April 2013. I am grateful to a fee earner from the Vale of Catmose—and to Thompsons Solicitors—who pointed out to me that insurers have saved at least £8 billion in claims costs between 2010 and 2016; the figure to date is around £11 billion. In spite of this, premiums have continued to increase relentlessly. She said the average premium has gone up from around £385 in the second quarter of 2013 to £493 in the last quarter of last year, according to the ABI’s own premium tracker—an increase of 28% since the LASPO changes.
There have been inordinate savings before that insurers have not passed on as reduced premiums. It may be as a result of being legal entities, as I have described, that they are under pressure from their shareholders to pay out bumper dividends instead of reducing premiums. There needs to be something more effective in the Bill to ensure that, after the Government introduce these changes, insurance companies will be held strictly to account and will pass on the savings they will undoubtedly make.
There is a laissez-faire attitude that, as half the market uses price-comparison websites, these savings will be passed on, but it does not always come to pass. It is ironic that, after the Second Reading of this Bill, we received the message that the Commons had passed the Domestic Gas and Electricity (Tariff Cap) Bill for meters. That clearly shows that, in some circumstances, the market does not provide the savings to consumers that we envisage. The Government need to ensure that savings are passed on and there is a strict mechanism in the Bill to that effect.
Lord Marks of Henley-on-Thames
My Lords, I first speak to Amendment 53 in this group, which deals with passing savings to insurers on to the public. Our amendment seeks an annual review by the Lord Chancellor of the extent to which insurers are passing on those savings to their policyholders. It is common ground that the purpose of this part of the Bill is to reduce fraudulent claims and to reduce the cost of all claims. This has become particularly apparent here, for claims both fraudulent and genuine. Savings are to be passed on to insurers that will pass those savings to their policyholders. The Government rely on the letter written to the Lord Chancellor in March, in which the insurers said that they would,
“publicly commit to passing on to customers cost benefits arising from Government action to tackle the extent of exaggerated low value personal injury claims”.
At Second Reading, my noble friend Lord Sharkey pointed out that it did not define precisely what “cost benefits” were, nor did it commit to passing on all savings or even all cost benefits made.
We want to see that all savings are in fact passed on. Our amendment is intended to ensure that the Government do better than simply relying on that letter. Far be it from me generally to accuse the Government of naivety but, generally speaking, a letter of intent in that form would not convince many in commerce that the intent was in fact going to be carried out. I believe that a review by the Lord Chancellor and an obligation to report to Parliament would increase greatly our chances of having that stated intent carried out. The reason that we press for the involvement of the Lord Chancellor is that this is a political decision and political action and it seems to me that a political response is required. The purpose of this group of amendments—and ours is consonant with that purpose—is to encourage the insurance industry to stick to its promise, and indeed to do better, to make sure that all savings are passed on; and, because of the report to Parliament, to enable the Government and Parliament to consider reviewing the legislation and/or penalising the insurance industry by imposing some kind of levy, tax or other measures if it fails to keep up to the mark on this.
I will also speak to Amendment 54 in this group, which is directed at cold calling. If the real mischief at which this part of the Bill is directed is fraudulent and exaggerated claims, then cold calling is undoubtedly the chief instrument by which that mischief is done. Sometimes, in discussing this, we have not looked at the fact that these fraudulent and exaggerated claims in fact come at three levels. At its worst, perhaps, it involves faked or staged accidents. These calls that say, “We understand that you have had an accident that was not your fault”, when no such accident has ever happened, are an invitation to the practice that is most invidious, and which we know happens, of accidents being deliberately staged, sometimes by people who develop a real accident involving innocent motorists crashing with them in order to mount claims. The second is fake injuries, where there is a real accident but the injury is faked altogether and a claim is made. The third is exaggerated injuries. The practice of cold calling makes all three types of dishonesty worse and we really have to get on top of it.
The first part of our amendment would mandate the Lord Chancellor to carry out an annual assessment of the effect of cold calling on the prevalence of fraudulent whiplash claims. The second part would compel the Lord Chancellor, if he were satisfied that it would significantly reduce such claims, to ban cold calling and to ban the commercial use of any data obtained by cold calling. That second part is directed at the fact that it is very difficult to legislate against cold calling from abroad but that, if you legislate against the commercial use of data, you do catch UK corporations or individuals who are using such data to pursue these fraudulent claims. The amendment is not specific to claims management companies. I mentioned earlier the interest that car hire companies and car repair companies have in pursuing these claims. They can offer to pursue personal injury whiplash claims as an add-on to sell their other services.
This is a probing amendment in a sense in that the Financial Guidance and Claims Bill, as mentioned by the noble Lord, Lord McKenzie, covered claims managers and defined claims management services quite widely. However, we are not convinced that that would achieve our object of banning the use of cold calling for other purposes or by other outside companies or that it would cover the use of cold calling in its widest sense.
Lord Hodgson of Astley Abbotts
My Lords, my name is down to Amendment 46, moved by the noble Earl. I entirely support what was said by my noble friend Lady Berridge and the noble Lord, Lord Marks of Henley-on-Thames. It is not good enough just to say, “We are going to make sure it is competitive”. There will have to be some demonstration of returns and the improvement from this.
Therefore, who invigilates and who enforces? The noble Lord, Lord Marks, suggested a review by the Lord Chancellor. The noble Earl pointed out quite graphically the complexity of unpicking insurance claims and returns. I urge the Government, if they are minded to move in this direction, to think about the FCA as the invigilator and the enforcer. It has exceptionally wide powers.
The noble Earl referred to treating customers fairly but there is a thing called Section 166, which is an investigation by skilled persons. This puts the fear of God into people because the FCA can choose to have anything investigated and the cost is charged to the company being investigated. That sort of power is extremely valuable in unpicking the very detailed information that the noble Earl referred to. I fear that the Lord Chancellor’s Department would not be as well equipped to do it as the FCA. I hope the FCA will be uppermost in the Government’s mind if they are minded to have somebody keep an eye on and verify and show beyond peradventure what savings are being made and how they are being distributed.
Lord Keen of Elie
My Lords, clearly these amendments are directed primarily at two areas: first, the review or regulation of the effectiveness of these reforms and the supporting regulations and, secondly, the issue of cold calling. I will deal with each in turn. I am not going to go through the detail of each set because I understand that the force of the amendments is all in one direction on the first point. The amendments as drafted would require reports on these reforms to be published shortly after their implementation. Although I understand the reasoning behind them, I question how effective they would be in their current form. I appreciate, nevertheless, that these are essentially probing amendments and it is in that spirit that I address them.
As has been observed, the insurance sector has made it clear and very public that it has a commitment to pass on savings. Having made that commitment, insurers will be accountable for it in a highly competitive market. Insurers have pointed out how they have passed on to customers the benefits of previous government action to cut the cost of civil litigation without the need for regulation. The Government, of course, are intent on monitoring the reaction of the insurance sector to these reforms and will engage with it in that regard. If the industry as a whole sought to avoid passing on these savings, that would signal that the competitive nature of the market had changed. If that were to happen, I have no doubt that the Financial Conduct Authority and, indeed, the Competition and Markets Authority would wish to investigate.
Nevertheless, I hear the message from around the Committee about the need to put further discipline in place with regard to these savings, and that is a matter that we will consider. As I say, I appreciate what is intended here. The question is how we can effectively bring that about. We have to remember that the insurers are regulated by the FCA already. Oversight is in place with regard to their conduct. With all due respect, I take issue with my noble friend Lady Berridge about there being some conflict between shareholder interest and the interest of customers.
An insurance company requires to rely on its integrity in order to maintain its resilience as an insurer. Any board of directors that abandoned integrity in favour of a larger dividend would find itself not only in conflict with its regulator but, no doubt, in conflict with its own shareholders, who would not appreciate that sort of conduct either, given that it would simply undermine the capital value of their investment. Therefore, I do not believe that there is that conflict of interest at all.
The amendment put forward by the noble Lords, Lord Beecham and Lord McKenzie of Luton, would introduce a formal requirement for Her Majesty’s Treasury to keep under review the ban on cold calling, and the amendment in the names of the noble Lords, Lord Marks and Lord Sharkey, would introduce a formal requirement for the Lord Chancellor to review the effect of cold calling and the ability to introduce regulations for a ban on cold calling. Of course, a ban on cold calling in relation to claims management was introduced in the Financial Guidance and Claims Bill and was agreed by this House quite recently. As noble Lords will be aware, the Bill inserts a provision into the privacy and electronic communications regulations, which govern unsolicited direct marketing calls, to ban such calls in relation to claims management services unless prior consent has been given. The Government consider these to be robust proposals which will add to the package of measures in place for tackling unsolicited marketing calls.
With regard to the use of the material that is obtained, there is of course provision for regulation of the legal profession. The SRA has regulations in place for the acquisition and use of such data, so that matter is already regulated. However, I acknowledge the point made by the noble Lord, Lord Marks, about the difficulty of what I would term “regulating the unregulated”, where cold calling centres are based outside the United Kingdom. I am advised that it is possible to trace more than half the cold calls received in the United Kingdom to one place—essentially a factory—based in Pakistan. But it is fleet of foot: it changes its name and location on a regular basis. That is a formidable challenge and we are seeking to approach it by means of regulating, apart from anything else, the use of the material gleaned by those means.
The amendment put forward by the noble Lord, Lord Beecham, would introduce a formal requirement for the Treasury to make regulations requiring the FCA also to prohibit certain pre-medical offers—I think that that is also in the amendment. Again, we are of the opinion that the Bill deals sufficiently with that issue as well.
As I indicated, I have heard what has been said around the Chamber about the consideration of further measures to ensure that savings are passed on to consumers, and I will give that further consideration before Report. On that basis, I invite the noble Lord to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for that detailed reply. I am sure that these are matters to which we will need to return at a later stage. One of the things that we were seeking to be sure about—and this is, perhaps, an issue that we share with the Lib Dems—is how extensive and how robust across the board are the prohibitions around cold calling. The noble and learned Lord mentioned the SRA. As I recall, when we were debating the financial guidance Bill at Second Reading, the SRA and its activities were held out as being a reason to ban cold calling for personal injury claims. But then one noble Lord in the debate said, “No, there are people getting round that by a number of means”. It is those sorts of issues that we want to be sure about, so that we can look across the piece and see that cold calling—so far as it can possibly be legally achieved within the UK—is dealt with. Having said that, I beg leave to withdraw the amendment.
Civil Liability Bill [HL]
Tuesday 15th May 2018
(6 years, 7 months ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 90-II(Rev) Revised second marshalled list for Commitee (PDF, 87KB) - (14 May 2018)
“( ) Rules of court under subsection (1) must draw attention to aspects of orders for periodical payments which may make them more suitable in cases where individuals have long-term injuries or are risk averse.”
Lord Hodgson of Astley Abbotts (Con)
My Lords, as we begin to discuss Part 2, I return to an issue I raised at Second Reading: the use—or perhaps the insufficient use—of periodical payment orders, particularly in cases where compensation is payable for long-term injuries.
To summarise the position, periodical payment orders are a form of annuity that ensures that a guaranteed sum, usually index linked, is paid to the injured party as frequently as he or she requires—weekly, monthly, quarterly or annually. PPOs have two particularly significant aspects. First, they transfer all longevity risk to the insurance company. The insured does not have to be concerned that he or she may live longer than is actuarially assumed, with the possibility of having to live in reduced circumstances for the last years of their life. Secondly, PPOs transfer all investment risk to the insurance company. The insured does not have to worry that bad investment decisions made on his or her behalf might result in a reduction in his or her income. Those are two significant factors.
I hope that it is common ground that one of the major purposes of the Bill is to ensure fairness—to ensure that individuals suffering life-changing injuries are properly compensated for the rest of their lives, however long or short these may be, and that these payments are made within a framework that is fair to the other insured individuals, who will have to pay their share of the expenses. I remind the Committee once again that I am not a lawyer—but a court must find it incredibly difficult from a purely practical point of view when faced with, say, the tragic case of a young man aged 25 who is badly injured in a road traffic accident, and the impossible task of ensuring fairness between the parties and deciding in such a case what the right single lump-sum award of damages should be. What is the life expectancy of such a person?
I have heard it argued that one does not need to be concerned about individual cases because average life expectancy over a number of cases can actuarially be determined fairly. However, that considers the case only from the point of view of the insured and, indeed, the co-insured. It is not much help to the individual injured party—injured, say, at the age of 25—to hear, “We thought you’d only live for 35 years, but here you are. I’m so sorry that you’re still living now and that the money is running out”. Nor is it fair to the insured and the co-insured, that when such a person, very sadly, dies early of complications aged, say, 40, a potentially significant lump sum is passed to his or her descendants, who have virtually no locus in the case.
In those situations, periodical payments would ensure fairness—so why are they not the default option in cases of long-term injuries and for people with low risk tolerance? There appear to be a number of structural reasons why that is so. First, from the point of view of the insurance company, a lump-sum payment is neater and more administratively convenient. In essence, one could put a pink ribbon round the file—or, in modern parlance, send the case to the cloud—and forget all about it. Further, PPOs are unattractive to insurers because of the method by which they are rated for capital adequacy purposes. I will not detain the Committee this afternoon with a detailed explanation except to say that, under the technical provisions of reserving, the combination of a best estimate of liabilities, the risk margin and the solvency capital requirements makes PPOs unattractive.
Secondly, from the point of view of the insured, particularly someone who is less financially sophisticated, an offer of, say, £6 million as a lump sum may on the surface appear to be more attractive than, say, a quarterly payment of around £50,000. I have also heard that it is not impossible that families might prefer the lump-sum route in the hope of some windfall, and there may be financial advisers who see a long-term stream of fees for providing investment management advice and might prefer a lump sum to a PPO.
Thirdly and finally, the individual judge considering the award might find it outwith the court’s role to opine too definitely on the method by which the award should be paid. All these influences, although individually not particularly significant or decisive, collectively tilt the balance away from PPOs.
The Government recognise the challenge in increasing the take-up of PPOs in paragraphs 48, 49 and 50 of their response to the report of the Justice Select Committee. Paragraph 48 states:
“The Government therefore sees many benefits in the use of PPOs to provide compensation in respect of future losses … particularly those who are most dependent upon the provision of long-term future care. The Government agrees with the Committee that it is not obvious why PPOs are used in relatively small numbers of cases”.
The following paragraph states:
“Perhaps even more tellingly, there was little enthusiasm for any changes to the law regarding PPOs in response to the consultation … It is therefore not clear what might be done to increase the take up of PPOs”.
For those of us who received today’s briefing from the Association of British Insurers ahead of this Second Reading debate, we can see the push-back already beginning. Under the section on PPOs, it says that they are,
“available in 99% of all cases … Insurers continue to make PPOs available for claimants when requested”.
I think that the use of those words indicates that it is not top of insurers’ lists to make sure that it is even Steven between the ways in which these awards are paid.
I have been seeking ways to redress this imbalance and move towards a position where PPOs might become the default option in cases where compensation for injuries will be paid out over the long term or where the injured party has a low tolerance of risk or is risk averse. Amendment 55 is intended to achieve this by requiring changes to the rules of court which would encourage or require judges to consider wider factors, in particular longevity risk and investment risk.
As I said a few moments ago, I am no lawyer, and I have no idea whether Parliament can require the inclusion of specific provisions in the rules of court without infringing judicial independence. It may be that, in the course of this debate, there are other, neater ways of achieving this shift of emphasis. So Amendment 55 is a probing amendment at this stage. However, I am convinced that the present position is not satisfactory, and the Government essentially agree that that is so. I look forward to hearing my noble friend’s reply. In the meantime, I beg to move.
Lord Sharkey (LD)
My Lords, Amendment 92 in this group would require the Lord Chancellor to carry out a review of the impact of any new rate on the extent of the use of PPOs and to lay this report before Parliament. Our amendment has the same general purpose as Amendment 55 and as other amendments in this group.
The noble Lord, Lord Hodgson, has already spoken eloquently to Amendment 55 so I can be very brief. It seems to me that all the amendments in this group are intended to provide a gentle nudge in the direction of PPOs. Their purpose is to create conditions in which the incidence of voluntary uptake of PPOs may increase. Given the scope of the Bill, not to mention the ethical questions that would be created by any reduction in the freedom to choose or not choose PPOs, this is probably as far as we can go.
I hope the Minister will be sympathetic to the thinking behind all of these amendments, coming as they do from various parts of the House. If he is sympathetic, perhaps he would be willing to meet interested noble Lords before Report with a view to drafting an amendment or amendments that he might consider bringing forward or supporting.
The Earl of Kinnoull (CB)
My Lords, in supporting Amendment 55, I will speak also to Amendment 92A. I declare my interests as listed on the register of the House, especially those in respect of the insurance industry. I can be very brief, because there have been two brief and excellent speeches before me.
Lord Woolf (CB)
My Lords, we have had great help on this subject in the preceding speeches. Perhaps I should begin by giving my thanks to the noble and learned Lord, Lord Mackay, who is in his place, because many years ago he gave me the task of looking at civil justice with a view to producing a report on access to justice, which I did. Since that time the report has had a significant influence. However, when I wrote that report I could not possibly have anticipated the changes that would be needed as time went on, and what has just been said by the last speaker emphasises the fact that perhaps there are advantages in learning from experience.
There is no doubt in my mind about the problem that this Bill is intended to deal with, particularly in Part 1. Unfortunately, I could not take part in the discussion that took place on that part because I was not in the country at the time, but I shall try to avoid saying on Part 2 what I failed to say on Part 1 and thus use up the time of the Committee. However, to some extent one has to look at the whole of the situation in order to get the context. I would emphasise that although the Government’s motives here are good, they must appreciate that there are real dangers in interfering with the normal machinery used for dealing with questions around the assessment of damages which follow injuries. It is very important that justice is done in the case of small damages claims just as it is in large claims. One of the matters that I complain about in the whole of the Bill is that it is taking on responsibilities which are better dealt with elsewhere.
First, it is obvious that the assessment of damages has always been the responsibility and under the control of the judiciary. Indeed, following my report, it was initially felt that legislation was not required because the Civil Procedure Rule Committee and other methods existed which meant that changes could be made that were flexible. What one really has to do is get the culture right, and the culture is that those who are justly entitled—not those who make false claims—are given the proper award by what justice lays down for them on the circumstances of their case. I may well come back to this subject on Third Reading or on Report because Part 1 introduced principles that, as far as I saw it from what was said, were novel in so far as they distinguished between two people with very similar claims in the same circumstances by imposing artificial caps on damages. That leads to bad justice, I would say, in the sense of unfairness, as was said by other noble Lords when considering Part 1.
Coming on to what is being proposed—particularly by the noble Lord, Lord Hodgson, in his admirable remarks in support of his amendment—I want to make it clear that this matter is very important. Obviously, it is very desirable, as a matter of principle, for the courts to be given the power to make awards that will reflect the future. You cannot complain if the situation changes, so as to make the award of compensation either too low or too high, if it is able to be put right. As I understand it, the noble Lord, Lord Hodgson, has suggested machinery for doing that very thing, which is obviously a very significant change from what has happened so far in the courts. Therefore, leaving it to the courts to exercise flexibility and carry forward the principles that the legislation could support, as far as the detail in individual cases is concerned—so that they evolve with experience as well as with the change of facts—would be a very much better and more just result for the litigant. In fact, it would lead to economies in costs, which was one of the Government’s motives in the legislation.
If we have bad law, people will want to challenge it. They will argue against it and seek to lever the facts of their case into a situation that does not justify that approach. However, having a broad and wide approach that evolves in the way I said it should, and can—because of the intervention of either the rule committee or practice directions, which can be done by judges without the committee—is a much better way forward. In principle, we want to take what has been urged by the noble Lord, Lord Hodgson, and apply it. That would leave it to those who do the work day by day to do it in the best practical way.
Lord Beecham (Lab)
My Lords, it is a great pleasure to follow the noble and learned Lord, Lord Woolf. We very much look forward to his participation at this stage and on Report.
At the outset of our discussion on Part 2, I want to set out the underlying approach that we on these Benches are adopting. The Bill and the problem that it seeks to address in Clause 8 represent a challenge to two groups. The first comprises those who have suffered serious injuries that, in many cases, will have a lasting impact on their well-being and will engender financial loss, expense, pain and discomfort. The second group includes the first one, but it potentially extends to everyone who will require the services of the National Health Service at some point. We ought not to protect the second group at the expense of the first by artificially limiting the compensation payable to victims of negligence, whether by the NHS or other parties. We should look at ways to fund any liabilities incurred by the NHS for clinical negligence claims as part of society’s financial responsibility to maintain the service, rather than looking to victims to do so.
Periodical payments, to which noble Lords have already referred, clearly have an important future role and we would certainly wish to see them carried forward. The amendments before us touch on a number of issues. Amendment 92 calls for a review of periodical payment orders within a period of six months of this part of the Act coming into force. That might be too tight a timetable. The work certainly needs to be done, but that strikes me as potentially rather early.
Lord Monks (Lab)
My Lords, I too welcome the engagement and interest of the noble and learned Lord, Lord Woolf, in Part 1 of the Bill, which we will return to at certain points on Report. On Part 2, I am one of the nudgers mentioned by the noble Lord, Lord Sharkey, in seeking to promote the greater use of PPOs in assessing people’s compensation.
A large part of the compensation in serious PI cases are the costs of care. These tend to rise faster than the price index, which is all that the index-linked gilts yield approach protects against. In the PPO regime, this is allowed for explicitly by indexing care costs to an index of carers’ earnings, but this has not been carried forward into the lump sum compensation regime, although the Damages Act allows for different discount rates to be applied for different purposes. As a result, most large cases result in significant undercompensation for the claimant if they live an average lifespan.
The PPO is a much better method of compensation, since it goes on as long as the claimant lives. I understand that it is used by the NHS and government departments. Insurance companies, on the other hand, are highly resistant to settling by PPOs unless courts impose them. Only a small number of cases go to court; the vast majority are settled outside. Understandably, insurance companies do not want an outstanding liability which might last for many years. Regulators require them to reserve on a basis stronger than index-linked gilts for lump-sum entitlements.
As the amendments suggest, there is a need for regular reviews of the discount rate, as yields have fallen steadily. I hope that the Minister can respond positively to the nudging from different parts of the Committee on this important question.
Lord Hope of Craighead (CB)
My Lords, I want to draw attention to one or two other passages in the Government’s response, to which the noble Lord, Lord Hodgson, referred in his excellent introduction. Two features caught my eye. One is in paragraph 45. The Justice Select Committee had drawn attention to quite strong representation for the Civil Procedure Rules to make it a requirement that PPOs be offered; its advice was against that, because it was reasonably clear that not every case made a PPO appropriate—one has to be selective; some cases are better suited than others. The point of mentioning that is that one could adopt the approach of amending Section 100 of the 2003 Act, which is the basis for the award of PPOs, to toughen up the requirement that they be offered in every case, but that is not what is being suggested and, I think, rightly so.
The other question is whether rules of court are best equipped to deal with the problem. That is why I draw attention to what is said in paragraphs 50 and 51 of the Government’s response. In passages that are written out in heavy print and underlined, they undertake to,
“investigate the quality and effectiveness of the advice currently available”,
with a view to endorsing,
“guidance on standard practice to ensure that claimants are properly informed”.
Will the Minister expand a little on what the Government had in mind in that passage? Was it guidance rather than amendments to the Civil Procedure Rules, guidance to lie alongside the Civil Procedure Rules or guidance which will inform the committees responsible for the revision of those rules?
What comes through from that and the following paragraph is that further investigation is in the mind of the Government. A little more information may be needed before the rules are revised in the way that the noble Lord, Lord Hodgson, has in mind. If the Minister could expand a bit on that, it would be very helpful.
Lord Judge (CB)
My Lords, I apologise to the Committee that I was not here for the first 90 seconds of what the noble Lord, Lord Hodgson, had to say, but I came puffing in as quickly as I could.
In our discussions so far, which I entirely understand and support, one feature has not yet been mentioned: the advantage of the PPO in the process from the point of view of the unfortunate man or woman who has suffered serious or catastrophic injuries. Both at the Bar and as a judge, one thing that you have to look at is how long the unfortunate individual concerned will actually live. I am sorry to say so, but when you talk to your client and say, “We have to discuss how long you will live”, or to the parents of a child who has suffered catastrophic injuries, “We are discussing how long your little boy or your little girl will live”, you are treading on what is obviously deeply sensitive ground. The answer is that it has to be discussed if you are proceeding by way of lump sum, because the calculation of damages depends significantly on whatever the medical experts say the life expectation of the man, the woman, the little boy or the little girl is likely to be.
The medical experts I dealt with were men and women of the utmost integrity. They would do their best. They would say, “Well, the best I can do is X”, or Y or Z. What you discovered after a little while doing these sorts of cases was that, actually, what they were doing—and who can blame them?—was taking an average: “We have had so many patients aged between 21 and 25 who have suffered these sorts of injuries, and they have lived for so long and then they have died”. So in addition to the sensitivities that go into a discussion of how long will the victim—the plaintiff, as they used to be in those days—suffer, be alive, and how long will the damages have to cater for his or her interests, there is also the uncertainty of the medical evidence, because no doctor can tell you.
I still remember a very distinguished surgeon from Stoke Mandeville, who, when I asked him this question in a conference just before I became a judge, said, “Well, we are asked the most ridiculous questions. We do our best. We offer you the best. The truth is that we do not know when this man or this woman’s will to live will go. When the will to live goes, that is when they will die. Some will wish to live and will have the will to live for longer than others, so what we are offering you is the best we can do”. He did not say, and it would not be fair to say, that it is speculative: it is the best they can do but, inevitably, it is almost certainly not going to be right. The end result is that the damages will be too much or too little. The great advantage of the PPO system is that it caters for however long this unfortunate injured person actually lives. I support the idea behind this amendment.
Lord Mackay of Clashfern (Con)
My Lords, I am very interested and concerned in this matter because I was very concerned about it a long time ago. The problem, I think, is to know what you should say in the rules of court, assuming you are making new rules, about this. How do you commend the PPO, because, as has just been said, a PPO is more suitable in some cases than others? I would like to hear in due course what help we can get in that respect. How do you distinguish between the cases in which PPOs are going to be good and cases in which they are not? As the noble and learned Lord, Lord Judge, has just said, the difficulty of estimating life expectancy is extremely high; it is a very difficult thing to do. In a sense, whether or not a PPO is a good thing depends to a certain extent on how secure that estimate is. How you measure that is quite difficult.
As has been said, actuaries proceed on an average. The Ogden tables we used to have long ago were primarily actuarial tables which depend on averages. As the noble and learned Lord, Lord Judge, said, the one thing you can almost be certain about is that the particular case will not be average: it will either be less or more. How you determine that, unless you are a very shrewd prophet, is quite a difficult question. That is the difficulty that faces judges in these cases every day, particularly where the likelihood is that the injury will continue to have effects long into the future.
Not only do you have to consider the injuries and the effects of the injuries, but you also have to think a bit about what the noble Earl, Lord Kinnoull, pointed out, which is that what inflation is going to do to the costs of care may vary very considerably. So I appreciate the need to do what we can to encourage PPOs; on the other hand, I appreciate the difficulty of formulating the help that judges need.
Of course, ultimately this point will be determined by the judge in charge of the case, not by any rules that may be laid down in order to provide guidance. I am not very keen, I must say, on the Executive giving guidance to the judiciary. I honestly think that that is a dangerous line. I was not very keen on doing it for the magistrates. The Home Office tried to develop some way of doing that, which I did my best to discourage because I do not believe that it is for the Executive to give guidance to the judiciary. Their roles are completely different from and independent of one another. Let the Executive get on with their work, but let the judiciary alone get on with its work.
Lord Woolf
There is an answer to the problem that the noble and learned Lord raises. It might have implications for the workload of the judiciary but I think that could be handled. We should get away from the idea that a judge should assess damages in appropriate cases only at one stage. There is no reason why you cannot have a system where the matter can be restored to a judge in a case of differences of opinion to take into account succeeding circumstances. If the power existed, the courts would find that in the majority of cases, litigants—properly advised, as they are in these big cases—would come back only when there was a real difficulty between the insurer in practice and the claimant. In that way, matters could be reviewed to reflect any differing circumstances. It was not a one-off assessment that I was advocating but the ability to change the assessment. That would apply to PPOs as it would to any other laws.
The Advocate-General for Scotland (Lord Keen of Elie) (Con)
My Lords, I am obliged to my noble friend Lord Hodgson for setting out the background to this matter. His Amendment 55 would require what he referred to as new rules of court to be made that highlight features of periodical payment orders which may make them a more appropriate way for a person with a long-term injury to receive an award for damages for future care costs. I understand that Amendment 55 and the other amendments in this group are essentially probing amendments.
“Rules of court” in Amendment 55 means the Civil Procedure Rules. The purpose of the Civil Procedure Rules—and, indeed, all rules of court—is to govern the practice and procedure of the court and the parties in court proceedings. This may be a technical issue but that does not detract from the importance of ensuring that claimants who have suffered long-term serious injuries are well informed as to the implications of their choice between a lump sum payment of damages and a PPO. I am conscious of the point made by the noble and learned Lord, Lord Mackay of Clashfern, about the care that the Executive must always exercise in circumstances where it may be perceived that they are giving directions to the judiciary. I will explain why the Government therefore take a more modest approach to this issue but one which they feel will be effective.
Of course, some Civil Procedure Rules have been made in relation to the exercise by the court of its powers under Section 2(1) of the Damages Act 1996 to order that all or part of an award of damages in respect of personal injury is to take the form of a periodical payment order. These rules already require the court to consider all the circumstances of the case, as well as the preferences of the claimant and defendant and the reasons for them. I appreciate that there are instances in which PPOs may not be available; for example, a mutual insurer such as the Medical Defence Union would not be considered sufficiently well reserved to meet future liabilities. I appreciate also that there have been reservations among insurers about the use of PPOs because of the way in which they are required to reserve for them and the capital requirements related to that.
PPOs are certainly in principle considered a better form of taking compensation for future loss than a lump sum because they provide strong protection for claimants who may be concerned about the return on a lump sum. This Government certainly support their use. At the same time, we must keep in mind that the person behind a claim has a choice and is entitled to make one in such circumstances. We consider it important that claimants making a choice in these circumstances should be properly informed, irrespective of whether their particular case reaches such a stage that the court has to consider whether to order a PPO. Of course, not every case will reach the court; many will be settled before that and, at an earlier stage, claimants have to be properly informed as to which option they should adopt.
I note the point made by the noble and learned Lord, Lord Judge, with which I entirely agree. It is perhaps moot to say that no estimate of life expectancy is ever precisely accurate because they are just that—estimates—and one takes that out of the equation where you have a PPO.
The Government remain fully committed to ensuring that appropriate advice is available to claimants in all cases and stand by the commitments they made to action in their response to the Justice Select Committee. To pick up on the points made by the noble and learned Lord, Lord Hope of Craighead, the point made in paragraph 50 of the response to the JSC was a concern to ensure that guidance was provided to individual claimants. It is our intention to put in place appropriate guidance and to ensure that it is available. We aim to do that by the end of 2018. In addition, we are investigating whether current advice received by claimants on the respective benefits of lump sums and PPOs is effective, and whether there are other ways in which the use of PPOs could be increased within the present system. At present, we intend to complete this work by the summer of 2019.
I hope that goes some way to meeting the concerns expressed by the noble Earl, Lord Kinnoull, on these matters. He raised a further question on indexing and I think the noble Lord, Lord Monks, touched on this. The reason that the ASHE 6115 index is taken is that it is the specific care costs index. It may be that wage costs have not increased at the same rate as the wider RPI, which may explain the discrepancy the noble Earl pointed out. However, the ASHE 6115 index is a specific care costs index, which is why that has been employed in the past.
Amendment 92 would require the Lord Chancellor to conduct a review of the impact of setting a new discount rate on the extent to which PPOs are made by the courts, but within six months of the provisions in Part 2 of the Bill coming into force, and then to publish a report of the results within 18 months of commencement. As the noble Lord, Lord Beecham, hinted, that may be far too tight a timescale to produce an effective report. We certainly do not consider that a requirement to carry out a review of this nature at the time proposed would be particularly informative. That is because the first review of the rate under the Bill would probably not have been completed by the time at which completing the review under this amendment would be required. Effectively, that would mean that the review would have to focus on any impact that had resulted from the setting of the rate as of March 2017 under the present law, which was a rate of minus 0.75%. I suppose that such a review may, however, be of limited use given that the legal framework for setting the rate would have changed but I suspect that it would tell us only something about the past, not the future.
I also observe that the settlement of major cases can take some years to agree, whether or not they arrive at the door of the court, so it might be some time before there is sufficient evidence to draw meaningful conclusions about changes in claimant behaviour. We do not yet have the statistical information about the effect of the March 2017 change in the discount rate on the use of PPOs. We therefore do not know whether the lowering of the rate has diminished the take-up of PPOs, although there is certainly some anecdotal evidence to that effect. It is logical to assume that this would occur, given the size of the change that took place in March 2017.
The evidence from the previous four years does, however, suggest that the use of PPOs is concentrated in the most serious and long-term cases, with the propensity to use them increasing with the size of awards up to about £5 million. They are not really employed in cases where the award of damages is lower than £1 million. That is largely because the use of PPOs is concentrated on provision for future care costs—long-term care costs, generally in cases of catastrophic injury. That is why there is a large percentage of cases in which PPOs are not considered appropriate. The National Health Service pays out PPOs in about 70% of awards over £1 million, while the equivalent figure for insurers is only about 36%, and there may be further work to be done. That is why we are going to look at the question of further guidance in order to encourage their use. Certainly, the take-up is far from negligible in serious cases.
On the comment of the noble Lord, Lord Beecham, this is not just about funding clinical negligence claims by the NHS. It goes far deeper than that; it is about ensuring fairness between claimants and defendants in the difficult process of assessing damages, particularly damages awarded for future care. I do not accept the noble Lord’s general point that we are simply trying to move the cost of future care from victims to somewhere else. That is not what we are about; this is concerned with ensuring fairness between claimants and defendants.
I have spoken about the way in which the amendments would require some sort of review. Amendment 92A would also require such a review to assess whether the fact that a PPO may be uprated by reference to an inflation index other than the retail prices index is having an impact on the relative merits of PPOs versus lump sums in the context of a revised discount rate. That would go beyond a consideration of the impact of the discount rate to the overall level of damages award, and how individual elements may be indexed for inflation. At present, the index used for PPOs is a very specific care cost index rather than the RPI.
We will, as I have indicated, be taking forward a range of initiatives to encourage the use of PPOs and to ensure that claimants are properly advised when choosing the form of their award. We hope to have the first part of that process completed by the end of 2018 and the wider investigation completed by the summer of 2019. We believe that those practical steps will encourage the use of PPOs where appropriate—we will, of course, monitor that—and create a situation in which a review requirement, such as that envisaged by the amendments, will not be necessary. Indeed, it would be more appropriate to move in this direction rather than find ourselves in the somewhat invidious position of the Executive sending out directions to the judiciary about how it should approach the award and determination of damages in such serious cases.
With that explanation of the Government’s position, I hope the Committee will be reassured that we are committed to effective action to encourage the use of PPOs. On that basis, I invite the noble Lord to withdraw the amendment.
Lord Mackay of Clashfern
Before my noble and learned friend sits down, I understood the noble and learned Lord, Lord Woolf, to have suggested that a PPO could be reviewed as the instalments were going ahead. That would be something of an innovation but it might be worth considering. I do not know whether my noble and learned friend has that in mind.
Lord Keen of Elie
We do not have that in mind. One of the concerns about such a proposal is the impact it would have on the insurers and their inclination to embrace PPOs. At present they are concerned about their reserving liability and their capital requirement on the basis of risk when it comes to a PPO. If we were to add to that equation the possibility of the PPO being revived at some indeterminate point in the future, I believe it would have a counteractive effect on the employment of PPOs by insurers. I have noted what the noble and learned Lord, Lord Woolf, said; I will take it away and consider it further, but my initial reaction is that it could act as a disincentive for the operation of PPOs.
Lord Hodgson of Astley Abbotts
My Lords, I thank my noble and learned friend for that extensive reply and other noble Lords for their contributions to this debate.
I take issue with my noble and learned friend on two matters. First, it is perfectly possible for us to deal with the question of PPOs for mutuals by setting up a proper reinsurance programme. That could be done quite easily. Therefore, to say that we would like to do this but we cannot because mutuals cannot provide it is inaccurate. We can sort that out with a certain amount of technical help.
Secondly, the noble Lord, Lord Sharkey, said that we were engaged in a nudge. Personally, I am engaged in a bit of a shove, and I hope that the noble Lord, Lord Monks, will join us in in that shove. I am not sure that my noble and learned friend has given a shove; I think it is a very delicate pressure on the arm of the industry, which I am not sure will be effective.
We heard from the noble Earl, Lord Kinnoull, about how PPOs are declining in use and from the noble and learned Lord, Lord Woolf, about the culture and question of fairness, which must be at the heart of all our discussions. I was encouraged to think that such an eminent jurist as him should think that the rules of court could provide the flexibility to enable the issues covered by my amendment to be incorporated. We are in an era where things are moving fast, and we do not want to find ourselves stuck in inflexibility.
My noble and learned friend Lord Mackay of Clashfern referred to the question of interference by the Executive with the judiciary. I made clear that I was concerned about that in my opening remarks. The amendment is designed so that Parliament, the legislature, makes its view clear. It is nothing to do with the Executive. It is giving judges a steer, but after that, it is over to them how they proceed. My worry about my noble and learned friend’s comments is that the best remains the enemy of the good. We have a system that is not working very well, but we are saying, “This is frightfully difficult, so we should not change it; we are likely to cause more trouble by changing it than we solve, let sleeping dogs lie”.
The system is not working very well. The transfer of investment and longevity risk away from the individual has to be a key part of making matters fair. It deals with important and difficult cases of the sort raised by the noble and learned Lord, Lord Judge. I hope that the Minister will agree to meet some of us between now and the Bill’s next stage, because I do not think we have got to the bottom of this. We are missing an opportunity to do something seriously helpful for people who suffer long-term, life-changing injuries. In the meantime, I beg leave to withdraw the amendment.
Lord Keen of Elie
In response to my noble friend Lord Hodgson, and a point raised by the noble Lord, Lord Sharkey, I would be perfectly content to meet them before the Bill’s next stage to discuss this. If they contact my private office, that can be arranged.
Lord Faulks
“( ) In deciding whether it is appropriate to take a different rate of return into account, the court should consider—(a) the particular nature of the loss in respect of which damages are sought; and(b) any offer by a defendant to agree a periodical payments order.”
Lord Faulks
My Lords, I begin with my declaration of interest, one I gave in Committee and at Second Reading. It is perhaps of some relevance to the debate that we are currently engaged in that I have for some years been involved in claims of the utmost severity and I am to this day instructed for defendants, particularly the National Health Service, the Medical Defence Union and insurers, but also claimants.
I move Amendment 56 in my name and that of the noble and learned Lord, Lord Hope of Craighead, who is not in his place because he had an unavoidable engagement. He knows essentially what I shall say. I cannot claim a total endorsement of any comment I may make in advance, but I can say that he supports the general tone of what I shall say in support of the amendment.
The desirability of periodical payments is clear, and has been well articulated around the House today—but not, I agree with the Minister, in all cases. The Government have very much acknowledged the need to encourage them but have so far not included in the Bill any specific provisions which would have that effect. The noble and learned Lord, Lord Judge, explained the difficulties of estimating life expectation, and he is of course right—although it may have passed his experience and practice that there is an enormous amount of literature now, particularly from the United States of America, in which very refined estimations of life expectation are provided to the court, particularly in the case of the most seriously disabled, so that you are able to enter an algorithm to see the likelihood of reaching a certain age. Having said that, it may well be the case that there is a spurious accuracy about that documentation, in view of the fact that the expectation of life of a seriously brain-damaged child, for example, has radically increased over the time when I have been in practice. An estimation made 20 years ago would simply not be right now for a child with exactly the same injuries.
Section 2(1) of the Damages Act 1996 gave the courts a power for the first time to order periodical payments, but could not do so unless the parties consented. That was preceded by a structured settlement agreement that had been reached in a particular case; it had attracted much attention and, therefore, Parliament intervened to give judges in appropriate circumstances a power of that sort. Then by Section 100 of the Courts Act 2003 the courts were enabled to order periodical payments, if they thought it appropriate. However, my experience is that they do not generally do so. In fact, I have never heard of the courts ordering periodical payments where a defendant is a secure provider but one side or another objects to such an order.
One consequence of the drastic lowering of the discount rate is that periodical payments have become much less attractive. With such a generous discount rate and the consequent rise in lump sums, there is very little incentive on a claimant to seek periodical payments when he or she can do better even by cautious investment in the market. We do not know what adjustment to the discount rate may be or, indeed, when any such adjustment may be made. Even if there is an increase to +1% as opposed to -0.75%, it may not be enough to discourage lump sums as opposed to periodical payments. It should be remembered that before the case of Wells v Wells in 1998, and for many years, the discount rate was +4.5%. It was lowered to 2.5% in 2001 to reflect the decision in Wells.
Amendment 56 is intended to provide some legislative encouragement to a party to seek periodical payments. The assumption by the courts currently is of a claimant as an incredibly cautious investor; in future, he will be regarded as a slightly less cautious investor by virtue of this Bill. Surely, if an investor is really anxious to avoid the uncertainties of the future, the best way in which he or she can do that is by an order for periodical payments with appropriate indexation. It used to be said, and indeed it has been said this afternoon, that the one thing that one knows about a lump sum is that it is either too much or too little. Inevitable uncertainties about life expectation mean that the degree of inaccuracy may be profound. Surely, then, if a sensible offer of periodical payments is made by a defendant and turned down by a claimant in favour of a lump sum, it indicates that the claimant is not nearly so risk averse as the legislation and the discount rate presumes that he is.
It is, of course, entirely a matter for the claimant what he or she wants to do with his money, subject only to the unlikely intervention of the courts to order periodical payments. It seems to me, therefore, that it should be open to the court to vary the discount rate to reflect the fact that, by turning down a reasonable offer of periodical payments, a claimant has evinced an intention to be rather more adventurous than the legislation presumes that he will be. This could either have the result of reducing the overall sum, thus making periodical payments more attractive in the light of a different discount rate, or of promoting settlements, factoring in the possibility of a court varying the discount rate in the light of sensible offers of periodical payments. One way or another, it may go some way to redressing the tendency away from periodical payments in favour of lump sums. I do not think it falls foul of what the noble and learned Lord, Lord Woolf, indicated: that Parliament should not tell judges of great experience precisely how to reflect these principles in an individual case.
The other part of the amendment concerns the particular nature of the loss in respect of which damages are sought. In substantial claims, there are a number of different heads of damage, and it may be that with some heads a different discount rate is appropriate. At the moment, the Bill talks of “classes” of case, not of different types of loss within the same case. In large claims there will be many heads of loss. They will include the cost of future care—usually the largest amount—the cost of specialised equipment; adaptations to accommodation; therapeutic and other medical treatment and loss of earnings, to name some of the main established heads of damage. Different considerations as to the appropriate discount rate may apply to different heads of loss.
In 2010, sitting in Guernsey, Jonathan Sumption QC, before his elevation to the Supreme Court, applied different discount rates to loss of earnings claims from those which he applied to other heads. That decision is not, of course, binding on our courts but it does illustrate that it may be appropriate to vary discount rates depending on the type of loss. This is done in a number of other jurisdictions.
My amendment originally contained a further factor to be taken into account in varying the discount rate, namely if a court concluded that a claimant would not in fact seek to recover a particular cost privately but would rely on the state. Very often, an award is made on the assumption that a claimant will, for example, seek to have his medical treatment and care provided privately, when that may not in fact be the case. In certain extreme cases, one is much better off receiving care for complex conditions through the state rather than, as it were, setting up a private hospital. This part of the amendment was initially accepted by the Table Office, but I was then told that it was outside the scope of the Bill. I am bound to accept that ruling but, as other noble Lords have said—and may say again—it is important that an outmoded provision, namely Section 2(4) of the Law Reform (Personal Injuries) Act 1948, is reviewed, and probably repealed, as soon as possible. I beg to move.
The Earl of Kinnoull
My Lords, I will speak extremely briefly on Amendment 57. This is merely a drafting suggestion on an issue where there is common ground with the Government. Trouble arises if you use the word “classes” to an insurance-based person like me, for whom it has a different meaning. To me, it means things like motor insurance, medical negligence or employer’s liability. I want to make sure that it is clear that one can not only follow the jurisprudence of Jonathan Sumption sitting in Guernsey—as has just been pointed out by the noble Lord, Lord Faulks—and vary things a little bit by head, but also in terms of what I call the yield curve. The yield curve is a very simple thing: the longer you invest the money, generally, the higher the interest rate you get.
For instance, if you invest the money for a month with the US Government at the moment you will get -0.25% or so; if you invest it for 10 years you will get 3% or so. On the whole, there is a gentle yield curve. That is reflected in Hong Kong and in Ontario, where they have a system of discount rates. In Hong Kong, if you will have future needs for between nought and five years in the court’s assessment, the discount rate used is 0.5%, between five and 10 years it is 1%, and over 10 years it is 2.5%. In Ontario they split it into two rather than three, and again it is based on the number of years of your future needs, which is assessed by the court: between nought and 15 years it is 0% at the moment, and over 15 years it is 2.5%.
Lord Mackay of Clashfern
My Lords, I have Amendment 57A in this group, which would add the anticipated scale or amount of the sums in question. It is worth mentioning that the amount in question may affect the rate of return.
Baroness Bowles of Berkhamsted (LD)
My Lords, I apologise for not having been able to speak at Second Reading. I will briefly intervene on these amendments, because I find the content of all of them quite persuasive. The mover of Amendment 56 touched on an important point: who owns the risk if you accept a lump sum payment instead of periodic payments? If, hopefully, the routine is that in most circumstances, one finds out what a periodic payment would look like, one needs to consider this: if you prefer to have a lump sum and take the investment risk, the person who makes that choice owns it, which in turn reflects upon how you would make presumptions about their investment strategies. I intended to touch on this when we come to my amendment in a later group, but as this is the other side of the argument, I wished to raise that point now and to say that I am in the “shove” rather than “nudge” brigade.
Lord Beecham
My Lords, the noble and learned Lord, Lord Mackay, referred at Second Reading to Clause 8(3) and the assumptions to be followed in determining the rate as set out in, notably, paragraph 3(3)(a) of proposed new Schedule A1, in which the Lord Chancellor must assume that the relevant damages are payable in a lump sum rather than under an order for periodical payments.
Paragraph 3(3)(d) of proposed new Schedule A1 prescribes an assumption that the relevant damages are invested using an approach that involves,
“more risk than a very low level of risk, but … less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims”.
The noble and learned Lord observed that the Lord Chancellor would have to have,
“a certain element of the prophet about him”,
and that:
“Getting an expert panel to agree … will be very difficult” .—[Official Report, 24/4/18; cols. 1504-05.]
Perhaps the Minister could confirm this, or make it clear that this a not-for-prophet provision.
The decisions that will be made will impinge heavily on the innocent victims of negligence or breaches of statutory duty over a wide range of circumstances, hence the noble Lord’s amendment that would provide that an order may distinguish between different classes of case by reference to the description or anticipated scale of future pecuniary loss involved. But the amendment to Section 1 of the Damages Act 1996—in Clause 8, lines 29-34—which states that the provision of the preceding subsection requiring the court to,
“take into account such rate of return (if any) as may from time to time be prescribed by an order made by the Lord Chancellor”,
is qualified such that it,
“does not however prevent the court taking a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question”.
This seems to create the possibility of the courts departing significantly in individual cases from the Lord Chancellor’s prescribed tariff. This would be welcome, but can the Minister confirm that that is the intention behind the Bill in that context?
I certainly endorse the noble and learned Lord’s Amendment 57A and I hope the Government will adopt it.
Baroness Vere of Norbiton (Con)
My Lords, in speaking to Amendment 56 I will speak also to Amendments 57 and 57A.
Amendment 56 would require the court to consider certain factors when deciding in an individual case whether it would be appropriate to take into account a discount rate or rates different from that prescribed by the Lord Chancellor. Under new Section A1(2), introduced into the Damages Act 1996 by Clause 8(1), the court is not prevented from taking a different discount rate into account if any party to the proceedings shows that it is more appropriate in the case in question. This reflects the current law in the Damages Act 1996, although in practice the courts in England and Wales, following the decision of the Court of Appeal in Warriner v Warriner, have chosen not to exercise the current power to depart from the prescribed rate.
The effect of the amendment would be to direct the court to consider the two different sets of circumstances listed in the amendment when deciding whether to apply a rate different from the prescribed rate or rates in an individual case. How the consideration of the factors would operate to assist the court in reaching a decision in practice is unclear, but it appears that the factors mentioned are not intended to be exhaustive.
The overarching effect of the amendment would be considerably to complicate individual proceedings as it would open up the potential for a different rate to be applied much more frequently than at present. This would be likely to encourage disputes between the parties—for example, over whether a reasonable PPO offer had been made. This would create uncertainty in the law and could prolong litigation and impede settlements, as the parties in any individual case would be unclear as to what discount rate would be appropriate and might be unwilling to settle without a court ruling.
When in the March 2017 consultation we asked whether the court should retain a power to apply a different rate if persuaded by one of the parties that it would be more appropriate to do so, 96 of the responses to the question supported the retention of the existing power, with 23 against. These, in general, were concerned about the problems of uncertainty, inconsistency and delay if the power were to be expanded. These difficulties would only be increased if the amendment were adopted. We believe that it is desirable for the Lord Chancellor to set a rate that is generally applicable and is not constantly called into question in individual cases. This is the core benefit of a prescribed rate and it should not lightly be set aside.
Amendment 57 would specify that, in addition to the ability of the Lord Chancellor to specify different discount rates for different classes of case, different rates could also be specified for different periods and for descriptions of future pecuniary loss. We do not consider that the amendment is necessary. New Section A1(4) already prescribes that the Lord Chancellor may distinguish between classes of case by reference to, among other things, the description of future pecuniary loss involved and the length of the period during which future pecuniary loss is expected to occur. The Explanatory Notes state:
“Subsection (4) makes clear that the power in subsection (3) to prescribe different rates of return for different classes of case includes the power to set separate rates for different sorts of future loss or for different durations of award. For example, under this power one rate might apply to damages for the first ten years and another rate to damages for subsequent years”.
I therefore reassure the noble Earl that the Bill already addresses the point he has raised.
Amendment 57A would ensure that the Lord Chancellor’s power to prescribe different rates of return for different classes of case could be applied to specify different rates for classes of case defined by reference to the anticipated scale of the award. New Section A1(3) provides that different rates of return may be prescribed under new Section A1(1) for different classes of case. New Section A1(4) clarifies that this power extends to defining classes by reference to heads of loss or duration of loss. This clarification is not exhaustive of the categories that the Lord Chancellor might adopt.
The power to set different rates of return for different classes of case is, however, already provided for, and the Lord Chancellor will decide whether to use the power to set different rates in the way that best delivers the objective of setting a prescribed rate. Such cases could indeed extend to the situation envisaged by the amendment, although this may be a difficult distinction to define and apply in practice. However, they could also be classed by reference to numerous other classes of case. It is, however, unnecessary to define what the classes may be. Given this, I do not think that the amendment proposed is necessary. On the basis of the explanation I have given, I hope that my noble friend will feel able to withdraw his amendment.
Lord Faulks
I am very grateful to all those who took part in the debate and to the Minister for her informative reply. I have to say, however, that I did find that it went two ways: on the one hand, we do not need the amendment because it is already there; on the other hand, the amendment, if effected, will cause uncertainty. That may not wholly do justice to the subtlety of the argument, but it did seem essentially to be that.
As I understand it, my noble friend said that the Lord Chancellor can choose different rates but a judge cannot, because the decision is made. That is, of course, at odds with the decision made by Jonathan Sumption and with the view of many. I respectfully submit that, although it will not be a regular occurrence, it is better for there to be a degree of flexibility for judges to order a different rate depending on the particular head of loss—as was done in the case in Guernsey and in many other jurisdictions. But I can see that I have not yet persuaded the Government of that.
As to the other part of the amendment, which relates to the consideration of an offer of periodical payments, with respect, I do not understand how that causes confusion, difficulty or uncertainty. It is a factor that a court can take into consideration—it is entirely a matter for the court. It is also, I submit, something that will assist in bringing about a settlement, because a claimant who is in receipt of a sensible offer of periodical payments may say to him or herself, “If I don’t accept this offer, there is a risk that there will be a less favourable discount rate”. That should promote settlement, which seems to be an aim that everybody concerned with these debates shares. So at the moment I am not satisfied that that would cause any difficulties.
I share with all noble Lords the desire to somehow include in the Bill or elsewhere more encouragement to use periodical payments. Therefore I would like to be included on the CC list for the meeting with the Minister so that I can bring what limited wisdom I have to try to encourage this. In the meantime, I shall consider carefully what my noble friend said. For the time being, I beg leave to withdraw my amendment.
The Earl of Kinnoull
The Earl of Kinnoull
My Lords, Amendment 58 and the others to which I will speak would alter the timing of the review of the discount rate, as set out in the Bill. Amendment 58 seeks to cut the timing of the start of that review from within 90 days of commencement to nil. Amendment 72, which I am afraid appears in another group but is worth talking about now, says that the review period will be 180 days. Amendment 94, which interferes with the commencement part of the Bill in Clause 11, says that commencement will be on the day that the Bill passes and not just when the Secretary of State decides to publish regulations. I am trying to cut down the timing of the first review appearing from 270 days plus however long it takes for the Secretary of State to commence the Bill to 120 days flat from the Bill passing.
The reason is simple. It is found in the latest annual report of NHS Resolution, which makes it clear that moving the discount rate from plus 2.5% to minus 0.75% has meant that the cost of medical negligence to the NHS, every year, will be an extra £1.2 billion. That means that every day £3.3 million is not being spent on the NHS front line. If the rate does not go all the way back to 2.5%, but is like the rate in France of 1%, that adds up to £2 million a day. So that is somewhere between £2 million and £3 million a day, which is quite a lot of money. That is why am trying to cut the review period from 270 days-plus down to 120 days. I hope the people in charge of getting the discount rate review done have on their desks, in front of their screens, a Post-it note saying, “I need to get this done quickly. It is costing the NHS £2 million to £3 million a day”. In a nutshell, that is the reason for this set of amendments.
The Deputy Chairman of Committees (Viscount Ullswater) (Con)
I must advise noble Lords that if Amendment 58 is agreed to, I cannot call Amendments 59 and 60 because of pre-emption.
Lord Faulks
My Lords, my amendment is Amendment 59. Everything that I would have said has been said very well by the noble Earl. It is clear that we need to get on with this. The cost is extortionate. There was general agreement at Second Reading that any day’s delay was too many. I accept that there are things that have to be done, but not so many things and over such a long time as is currently within the terms of the Bill. The Minister made some encouraging noises at Second Reading and I hope he can go beyond those in response to this amendment.
Lord Sharkey
My Lords, we have Amendments 60, 64, 67, 68 and 71 in this group. They all have the same purpose. All are aimed at bringing forward the date of the first review of the PIDR and I want to thank the MDDUS for its help in drafting.
Amendments 60, 64, 67 and 68 each bring forward, in the appropriate place in the Bill, the start date for the first review of the PIDR to 30 days from commencement, which now seems rather timid in light of the proposals put forward by the noble Earl, Lord Kinnoull, and the noble Lord, Lord Faulks. However, as things stand, the Bill specifies a 90-day period from commencement within which the first review must start. The likely timing for the new rate determination to take effect is set out on page 3 of the Minister’s letter to us of 30 April. He said:
“Assuming the Bill receives Royal assent this year and that the provisions are brought into force within two months, the statutory timetable means the first review would be completed before the end of 2019”.
That is to take too long. Specifically, the 90-day period from commencement to the start of the first review is too long, so is the 180 days from the review start to its conclusion, and so is the unsatisfactory commencement provision in Clause 11(1), which allows the Secretary of State to choose any commencement date that he likes.
Our Amendment 71, which I will come to an a moment, deals with the 180-day period and the noble Earl’s later amendment in this group, Amendment 94, to which he has already spoken, deals with the commencement date issue. For the moment, I will speak only to the amendments that deal with the period within which the rate review must begin after commencement. The Bill specifies 90 days. We see no reason why it should be as long as that and our amendments reduce that period to 30 days.
The protracted timetable imposed by the Bill is unnecessary and inflicts real damage. Most noble Lords would agree that the current PIDR is causing real commercial harm. It is also causing real and irreversible financial damage to the NHS. For each month that the current rate operates, the NHS must accrue an additional £300 million against future clinical negligence claims. Those are enormous sums that would be much better spent on front-line activity in the NHS.
Amendment 71 also aims to bring forward the date of the first review. It addresses the length of the consultation period, who must be consulted and the length of the whole review period. Amendment 71 replaces paragraph 2 in new Schedule A1, inserted into the Damages Act 1996 by Clause 8(2) of the Bill. Paragraph 2 as it stands sets out the various elements of the timetable for conducting reviews of the PIDR and the timetable applies to the first and subsequent reviews. New paragraph 2 also sets out who must be consulted in the course of the reviews. It stipulates that the determination of whether to change the rate must be within the 180-day review period. That period must start no later than 90 days following commencement, which is left entirely to the discretion of the Secretary of State.
Amendment 71 replicates new paragraph 2, except that it addresses itself only to the first review and makes the following changes: it shortens the review period from 180 days to 90 days; it shortens the 90-day consultation period to 60 days; and it restricts the consultation for the first review to the Government Actuary—or his deputy if the office is vacant—and the Treasury. In other words, there is no consultation with the expert panel defined in paragraph 5 of new Schedule A1. Actually, it follows the original proposal made in the September 2017 Command Paper. Amendment 71 then goes on to restore all the existing provisions of paragraph 2 so that they no longer apply to the first review but to every subsequent review.
Our amendments in this group, together with Amendment 94 of the noble Earl, Lord Kinnoull, would significantly bring forward the review. By the Minister’s estimate, the Bill would produce the first review by the end of 2019 if all goes well. Our amendments, taken together, would produce the first rate review by mid-2019, at least six months earlier. This is what we should do and I commend these amendments to the Committee.
Lord Judge
My Lords, if we are to establish an expert panel for the review, and the Lord Chancellor has not yet done so, might it be a good idea for him to decide whom he wishes to invite to join it? Unless something is done about that, just finding the panel will itself add to the time taken.
Lord Hunt of Wirral (Con)
My Lords, I declare my interest as set out in the register, particularly as a partner in the global commercial law firm DAC Beachcroft. I completely agree with the words of the noble Earl. I understand that it is a favourite expression of officials in the Ministry of Justice that they are proceeding “at pace”. This group of amendments and the important concept of a shadow process prior to Royal Assent at Amendment 89, which we will look at a little later, give the Minister a range of options from which to choose to demonstrate that he intends to do just that.
I will focus on and entirely support Amendments 58 and 94. The Bill allows a number of different periods, which could lead to delay. The amendments ask the Minister to consider better and more rigorous options. The idea of any delay between Royal Assent and commencement is of particular concern because it is open-ended and uncontrolled. As has been mentioned, in his letter of 30 April to noble Lords the Minister suggests that a period of two months may be needed, but there is no indication why. No regulations are needed. The decisions that need to be made to constitute the expert panel, as just mentioned by the noble and learned Lord, Lord Judge, are obvious ones, and even if they have not been made already, the Minister still has a few months before Royal Assent in which to consider them.
My concern is that there is nothing to keep it to two months; it could turn into two years or more. I recall that the Third Parties (Rights against Insurers) Act 2010 was an uncontroversial statute, so much so that it was first considered in this House under the accelerated procedures for Bills proposed by the Law Commission, and indeed I participated in those debates. It received Royal Assent on 25 March 2010 but was not brought into force until 1 August 2016, more than six years later. I am sure that that will not happen in this case, but it is an example of how open-ended periods can give rise to all sorts of uncertainty and problems.
I am personally attracted to the idea of removing any possible delay between Royal Assent and commencement or between the commencement of Part 2 and the start of the first review. I therefore earnestly encourage the Minister to find a way of accepting these two amendments.
Lord Beecham
My Lords, I simply wish to confirm that we on this side agree with what noble Lords have suggested, so the quicker we can get things moving, the better for everyone.
Lord Keen of Elie
My Lords, I believe that we are as one in our desire to see these provisions brought into force as rapidly and as sensibly as possible, and all of these amendments stem from the entirely reasonable, and indeed strongly argued, wish for the review to be carried out in order to minimise the impact that the present discount rate is having—disproportionately, one would venture—on defendants and in particular on NHS Resolution.
As I explained in writing to noble Lords following Second Reading, to which the noble Lord, Lord Sharkey, referred, the Government remain fully committed to beginning the first review of the rate promptly after Royal Assent and to completing that first review as soon as is practicable in 2019. To that end, I indicated that although the expert panel cannot be appointed before the power to do so has been created, preparatory work on the setting up of the panel is already under way and the Government will progress the appointment process as far as they properly can before Royal Assent. I hope that that goes some way to meeting the point made by the noble and learned Lord, Lord Judge. As part of that preparatory work, the Government intend to publish the draft terms of reference for the expert panel in time for the Report stage of the Bill in this House. However, the appointment of the expert panel cannot take place until after Royal Assent and thus the completion of the appointment process cannot be predicted with absolute certainty.
The effect of Amendment 58 and its related Amendments 63 and 66 might be to force the Lord Chancellor to delay commencement or risk the time to conduct the review being eaten into, thereby reducing its effectiveness. We have in mind the stages that have to be gone through. Amendment 59 would reduce the period of time within which the first review of the discount rate must be started following commencement from within 90 days of commencement to 10 days of commencement, and other amendments specifying 30 days have been referred to as well.
What I would emphasise is the word “within”. These are outliers, but we are determined to carry out the process as swiftly as we reasonably can. Having regard to that, however, we have to make provision for any uncertainties that may emerge, and therefore to fix too stringent a period might impact adversely upon the whole process that we want to carry out. In other words, while it is important to move quickly, it is also important to ensure that any review is completed fully and properly and is not going to be the subject of untoward challenge.
As I have said, the appointment of the expert panel to advise the Lord Chancellor simply cannot take place until after Royal Assent and even then it may still take a little time, despite the preparations that are ongoing even now. If the review starts without the panel being ready to start work, the whole task is going to be thrown into some difficulty.
The Earl of Kinnoull
My Lords, I thank all those who have taken part in this short debate—only 22 minutes, but we have discussed an awful lot of money. In good news terms, I am delighted to hear that at least some preparatory work is going on in appointing the panel, and that it will arrive in 2019.
It was good to hear praise of Amendment 71—I congratulate the noble Lord, Lord Sharkey—and what I thought were warm words about Amendment 94. However, I have quite a lot of experience with discount rates and I simply do not buy that this is so complicated that it will take 180 days. An awful lot of people here are familiar with discount rates. I am looking at one: the noble Baroness, Lady Vere, sitting next to the Minister. I find what was said plausible but thoroughly unconvincing. I wonder whether a couple of extra teabags can be put into the teapot so that we can come round when the Minister is at home, discussing the Bill, and talk about how we could trim days off. Every day that we can chop off is a big win for the country. With that said, I beg to ask leave to withdraw the amendment.
(3A) The expert panel under paragraph 5 must advise the Lord Chancellor to undertake a review of the rate of return when it considers that the nature of return on investment has changed sufficiently to justify such a review.(3B) Where a review under this paragraph has not taken place for a period of 12 months, the expert panel must report to the Lord Chancellor as to why it considers that no review is necessary.”
Lord Hodgson of Astley Abbotts
My Lords, I rise to move Amendment 61 and speak to Amendments 65, 69, 86, 90 and 91, which are consequential.
These are probing amendments, designed to tease out the Government’s thinking on the methodology for carrying out reviews of the discount rate. As I understand it, the Government intend that each review of the rate must commence within three years of the last review, irrespective of whether there have been changes in the underlying investment climate that would affect the varying rates of return on the sums awarded. I would suggest that time is not the right metric by which to settle a requirement for carrying out reviews. I agree with my noble friend Lord Faulks, who has an amendment in this group, that three years is too short in any case. I would respectfully suggest that a five-year period suffers the same strategic defects. Fixed or maximum periods will inevitably lead to an increase in attempts to game the system. My noble and learned friend the Minister will, I am sure, point out that three years is a maximum and reviews can take place more frequently.
In the world of practical politics, things will not work out like that. Changing the discount rate is a significant and potentially controversial decision. We only have to look at the immediate history, with the discount rate remaining unchanged for over 15 years during one of the biggest financial booms and busts that the world has ever seen. I believe that Lord Chancellors will be reluctant to implement the changes until forced to do so, so there will be a bunching of claims as the fixed period nears its end—whether it is three or five years—as defendants and claimants reflect on whether the upcoming review is likely to be to their advantage.
Perversely, a fixed-term system requires a review where there is no obvious reason to undertake one. If the Bill is planned to achieve fairness, a key objective must surely be to ensure that rate changes are made to reflect changes in the underlying available rates of return on investments as quickly and efficiently as possible. This group of amendments suggests a different approach, making the expert panel established under paragraph 5 of proposed Schedule A1 a permanent feature. At present, it is not: it is dissolved after each review under paragraph 5(3), which is deleted by my Amendment 90.
Amendment 61 imposes a new advisory duty on the panel to,
“advise the Lord Chancellor to undertake a review of the rate of return when it considers that the nature of return on investment has changed sufficiently to justify such a review”.
The decision to initiate the review remains with the Lord Chancellor, but he or she is given the comfort of a third party advising that a review is advisable. To ensure that paralysis does not overtake the panel, the second part of Amendment 61 requires that,
“where a review under this paragraph has not taken place for a period of 12 months, the expert panel must report to the Lord Chancellor as to why it considers that no review is necessary”.
How the expert panel would make that judgment is up to it. Bearing in mind that in the new world, investment should be assumed to be in lower-risk categories, there are multiple indices: gilts—not index-linked gilts, I hasten to add—or prime corporate bonds, which together can provide indication of changes in the likely available rates of return. All the other amendments in my name in the group are consequential.
To conclude, these probing amendments seek to move the undertaking of reviews of the discount rate from an arbitrary, time-based system to one that reflects events in the relevant real world—namely, changes in the available rate of return on investments. I beg to move.
The Deputy Chairman of Committees
I must advise your Lordships that if the amendment is agreed to, I cannot call Amendment 62 for reasons of pre-emption.
Lord Hunt of Wirral
My Lords, I rise to support Amendment 91, tabled by the noble Lord, Lord Hodgson, which is in this group. The offending part of paragraph 8 is the legislative equivalent of putting the genie back in the bottle or un-casting the die.
Let us be clear: the option of the Lord Chancellor setting no rate does not mean leaving the current rate alone, or even setting a rate of 0%. I want to outline the sequence of events that will occur: having set the rate at least twice, the Lord Chancellor will decide that it is no longer appropriate for the Lord Chancellor to set the rate at all, that he should repeal all previous rates and that the whole matter should be thrown back to the courts. The effect would be to create a maelstrom in which no one can settle a case, because no one knows what the rate would be.
These sub-paragraphs, which Amendment 91 would remove, would in effect allow the Lord Chancellor to repeal the entire discount rate review mechanism, via secondary legislation, simply by deciding that he or she has had enough. I am surprised that the Delegated Powers Committee did not raise an objection, but the meaning of the sub-paragraphs is pretty opaque. It simply cannot stand up.
The Earl of Kinnoull
My Lords, I support the noble Lord, Lord Hodgson. A standing panel would be a great advantage to a Lord Chancellor. Quite apart from the hassle of trying to reassemble a panel every whatever the periodicity is and the cost of assembling one—I assume a firm of suitably expensive headhunters would be involved—you would then have to take the panel up a learning curve as to exactly what is required of it, which would take some time. We do not need to go there.
The biggest thing, though, is that if I was the Lord Chancellor and Black Wednesday happened for a second time I would like to ring someone up and say, “Do I need to do anything here?” I would assume that, as Lord Chancellor, I would not be super-familiar with discount rates and things like that because my expertise would lie somewhere else. Having a standing panel that could answer curveball questions and interact as and when would not be expensive. It would probably cost the same as the periodic panel because of all the start-up costs associated with it, and it would be very helpful for a Lord Chancellor if something really bad happened.
Lord Sharkey
I have in this group Amendments 74, 87 and 88. Amendment 74 is a probing amendment. It provides the Committee with an opportunity to debate the value of the Lord Chancellor having a decisive role in determining the PIDR. As things stand, that is what he or she has—a decisive role. It is true that the Bill will create an expert panel to advise him and that it sets out the assumptions on which he must make that determination, but it is the Lord Chancellor who makes the decision. This poses the obvious question—why? What are the merits of having a politician making this judgment? What merit is there and what dangers might there be in having this decision in the political arena?
It is true, of course, that the rate decision has many serious consequences—for claimants but also for insurers and for the NHS, as we have discussed. These consequences are far reaching—but so are the consequences of changes to the Bank of England base rate. Changes in the base rate affect everyone who has a mortgage, every borrower and every saver. Some recent changes to the base rate have had dramatic effects on millions of people and continue to do so. For example, millions of people with savings have been dramatically disadvantaged by rate changes since 2007. Equally, millions of mortgage holders have benefited enormously from these changes. But these decisions on the base rate were taken not by politicians but by the MPC—an expert panel. If decisions on such wide-reaching and consequential matters can be taken by an expert panel without political involvement, why have political involvement in the PIDR? Why have the Lord Chancellor involved?
I raised this question when I met Ministers to discuss the Bill. The noble and learned Lord, Lord Keen, commented that the Lord Chancellor’s role was a matter of government policy. I understood that. However, we did not have time to go into the question of why it was government policy or whether there were better alternatives. We did not discuss what grounds the Government might have for maintaining the policy or whether any assessment had been made of alternative arrangements. We now have a little more time to discuss the issue and the merits of removing this role from the reach of politicians for reasons analogous to removing control of the base rate from them. I look forward to the Minister’s reply.
Amendments 87 and 88 are straightforward. They deal with the expert panel itself, as set up in paragraph 5 of the new Schedule A1 to the 1996 Damages Act, inserted by Clause 8(2). This panel is to be consulted by the Lord Chancellor in determining the rate. The Bill specifies the members of the panel as the Government Actuary, or his deputy if the office is vacant, who is to be chair, and four other members appointed by the Lord Chancellor, one of whom must have experience as an actuary, one experience of managing investments, one experience as an economist, and one experience in consumer matters relating to investments. All these roles seem pretty well defined, except possibly the last one. Could the Minister flesh that out a little? Can he give examples of the kind of persons who might qualify as having,
“experience in consumer matters … relating to investments”?
It seemed to us that the panel might benefit from an additional member with different expertise. Amendment 87 would add a member who is medically qualified and has experience of changes in medical science and their effects on life expectancy. The PIDR has a very significant effect on the damages awarded against the NHS for clinical negligence, as we have mentioned. Payouts last year amounted to £1.7 billion and the amount has been rising steeply in recent years.
Awards for clinical negligence frequently have to take into account estimates of life expectancy. The Committee will know that the PIDR has a very significant effect on damages awarded against the NHS for clinical negligence. As I said, payouts amounted to £1.7 billion last year, and much of this was determined by reference to life expectancy. Of course, actuarial methods can and do give an estimate of life expectancy, but for the most part this will be based on extrapolations of current trends. What might not be taken into account is the likelihood of discontinuous change brought about by the speed of advances in medical science. We live in a golden age of medical research. It is not a total exaggeration to say that one hears nowadays almost daily of some remarkable medical breakthrough that will in due course benefit patients by curing disease, improving quality of life and prolonging life itself.
It seems to us that the expert panel would benefit from having first-hand, direct experience of these new treatments and their likely effects. A member with such experience would make a valuable contribution to any assessment of the role played by life expectancy in determining awards. I look forward to the Minister’s thoughts on the matter.
Amendment 88 would impose a duty on the Lord Chancellor to secure that,
“each of the appointed members approaches the work of the expert panel as an expert with the object of recommending a rate of return that is fair to … both claimants and defendants”.
It could be argued, for example, that the last change to the PIDR was not fair to both claimants and defendants in that it produced a huge rise in the amounts awarded to claimants. And it works the other way: there might be rates that a panel thought unfair to claimants. If so, it would be important that that view helped form the recommendations. We see our amendments as allowing a dispassionate view of the effects of a change to the PIDR for both claimants and defendants, and this should have an explicit role in informing the panel’s recommendation. I hope that this is not controversial. In fact, I rather hope that the Minister will be able to demonstrate that the amendment is unnecessary and that the requirement for fairness is somehow already built into the procedure.
Lord Faulks
My Lords, the question of whether this should be a political decision or one taken by the panel is difficult. I thought carefully about this, as I am sure other noble Lords did. Ultimately, I respectfully submit that it should be a political decision taken by the Lord Chancellor. Of course, that decision will be critically informed by what the panel tells him or her. The provisions in the Bill provide that, when a Lord Chancellor makes a rate determination, he or she must,
“give reasons for the rate determination made, and … publish such information about the response of the expert panel established for the review as the Lord Chancellor thinks appropriate”.
My noble and learned friend will correct me if I am wrong, but, if the Lord Chancellor were to take a perverse view, ignoring all the advice or not giving sufficient reasons for it, he or she would potentially be liable for judicial review. Ultimately on the question of accountability, this is a political decision and a politician should be answerable for it.
Of course I yield to no one in my admiration for doctors—we have a number of distinguished doctors in your Lordships’ House, and they are the experts who can assist the House on questions of life expectation. However, with great respect, that is not quite the question that the panel is there to answer; it is there to answer the question of yield for investment having regard to an investor of reasonably cautious nature. While some doctors might have a view about this, I am not sure that questions of life expectation have anything to do with what is essentially an actuarial or financial calculation. Therefore, I am afraid that I am unable to support that suggestion.
Lord Mackay of Clashfern
My Lords, the Act which this Bill amends gave the Lord Chancellor this power. I suppose that, at that time, the Lord Chancellor had intimate relations with the judiciary—but he also had the responsibility of accounting to Parliament if there was a question about the matter. The connection between the Lord Chancellor and the judiciary has somewhat diminished since that time, but the Lord Chancellor still has a primary duty in relation to the judiciary that other members of the Government do not.
It is also important to have accountability in this matter. As my noble friend has just said, if the Lord Chancellor ignored the advice of the panel, he might have good reason for doing so, but it would be very difficult for him to explain it, because one would assume in this case that he or she would accept the judgment of the panel and he or she would be answerable to Parliament.
I share my noble friend Lord Faulks’s difficulty in relation to medical help. It is for the judge to decide on the length of time or the nature of the requirements for care, treatment and so on that a person may have. This particular exercise is primarily for those expert in the matter of investment.
I have perhaps interpreted the new schedule to which the amendment applies rather too generously. I assumed that there would be different rates of return fixed for different classes of case and that it might therefore be possible to change them on review—for example, to have no rate of return for a particular class or to enlarge the class that another rate of return applied to. It would be extraordinary if one could abolish this duty by the exercise of paragraph 8(2)(a). I do not think that that was intended—but my noble and learned friend may say that it was.
Lord Hope of Craighead
My Lords, perhaps I may add a footnote to the point made by the noble Lord, Lord Faulks, in favour of the Lord Chancellor having the decision. Paragraph 6(2) of the new schedule, on the way in which the panel is supposed to work, states:
“In the event of a tied vote on any decision, the person chairing the panel is to have a second casting vote”.
We then look at who is to chair the panel and see that it is the Government Actuary. I would much rather the Lord Chancellor assumed ultimate responsibility than the matter be determined in the event of a tied position by the Government Actuary. So the structure as set out supports the line taken by the noble Lord.
Lord Beecham
My Lords, I have two amendments in this group. They are fallback amendments, because noble Lords will see that I have joined the noble Lords, Lord Sharkey and Lord Marks, in signing up to Amendment 74. That is certainly my preference; these are fallback positions which at this stage I would not like to advance over the amendments in the name of the noble Lord, Lord Sharkey, although we may have to see how it goes on Report. It may be necessary to have a fallback position in light of today’s debate. I am sceptical, to put it mildly, about treating these critical issues as matters for political decision. Despite what some noble Lords have said, I would have been happier to see that replaced, but we will have to wait until Report before we come to a conclusion about that.
Lord Cromwell (CB)
Was the noble Lord speaking to Amendment 77 or to Amendment 74?
Lord Cromwell
In that case, I shall speak in support of Amendment 77 and cover Amendments 82A, 85A and 90A, which are tabled in my name as probing amendments.
I do not want to make a Second Reading speech, but will open with three points. The first is on the context of the amendments in my name, which is that we are talking about a one-off payment. It has to last the recipient the rest of their days, which is a pretty daunting prospect. Will it keep pace with inflation? Will the recipient die before or after the money runs out? Will the UK and global economies do any good in the next 10, 20 or more years? What returns will be achieved each year from now until the recipient’s death? No matter how clever the Lord Chancellor or expert the panel, these will remain unknowns or, at best, haphazard guesses.
The one thing we do know is that if the discount rates rise, which this Bill is intended to achieve, returns to recipients will fall. By raising the discount rate, we are saying that the investor must—they have no choice—take on more risk. We oblige them to do so. This calls into question the underlying principle of achieving 100% compensation.
Let us not take false comfort from the idea of an expert panel. This is a group of five people who will have to come up with a series of “best guesses” and then seek to arrive at a “best guess of those guesses” to suggest to the Lord Chancellor. The Lord Chancellor remains free to override them.
My concern is that, in its enthusiasm for reducing costs to the NHS and others, the panel will be encouraged in various ways to impose risk on recipients which they are not equipped to gamble with. If the panel does not do so, the Lord Chancellor may. I expressed my concerns about the make-up of the panel at Second Reading, so I will spare your Lordships a repeat of that. We should not forget that the Chancellor is acting for the Government in many of the highest-value cases. That seems a conflict of interest.
What should we do? If the panel is trying to determine a rate on which so much life-altering importance hangs and if we are allowing the Lord Chancellor potentially to vary that rate, we need to be assured that, as far as possible, the rate arrived at is the result of a transparent process and not some magic number produced from a black box and then applied.
My amendments seek to achieve three things: to oblige the Lord Chancellor to a greater extent than the Bill suggests to take account of the panel’s deliberations; to make the panel more transparent in its deliberations and conclusions; and to enable the panel to take into account the realities that the recipient will face in the real world—taxation, inflation and management charges. In the Bill, it is the Lord Chancellor who may take these things into account.
Anyone who has worked in investments knows that such costs are a key determinant of actual returns. With RDR and MiFID II, such charges—for example, management charges—are becoming far less opaque than they used to be. Surely the panel should present the Lord Chancellor with a fully baked rate, not a half-cooked one that has significant ingredients missing.
Turning to the specific amendments, Amendment 77, to which my name was added, obliges the Lord Chancellor to take proper account of the panel. It relates to Amendment 78 in a later group, but that requires matters not to be left simply to the Lord Chancellor’s opinion. I anticipate others speaking to Amendment 77, so I shall leave it there and speak to Amendments 82A, 85A and 90A which are in my name. On Amendments 82A and 90A, the expert panel are supposed to be the experts but they are denied the opportunity to consider the rate in the round, rather than give the Lord Chancellor the half-baked suggestion I referred to a moment ago. The Bill as drafted just provides the Lord Chancellor with opportunities to select his or her own rate. Amendments 82, 82A and 90A place the making of key assumptions where they belong: with the expert panel. Amendment 90A also requires a reasoned explanation by the panel of its decision. This is vital for transparency and understanding. It is also the basis, one hopes, for its voting and for discussion with the Lord Chancellor, including any override that he or she may choose to impose.
Finally, Amendment 85A in my name is again about transparency. Under the Bill as drafted, the Chancellor must give reasons for and publish,
“such information about the response of the expert panel … as the Lord Chancellor thinks appropriate”.
No, my Lords: the Lord Chancellor should publish what the expert panel advises and give a reasoned explanation if he or she departs from its advice. Echoing the point made by the noble Lord, Lord Sharkey, a few moments ago, just as the Bank of England publishes the voting pattern, so the voting pattern cast by this panel should be published. Only then will we have a clear basis for understanding how the rate has been suggested, whether the Lord Chancellor has altered it and, if so, why. The setting of the rate, we should remember, will have fundamental effects on the lives of people in very distressing circumstances. Surely, they and we have the right to an understanding of what has gone on. My amendment builds on what is already proposed in the Bill but will, I suggest, lead to clearer and more transparent outcomes that are therefore more meaningful, more useful and less open to the temptations of distortion.
Lord Mackay of Clashfern
My Lords, I want to say just one thing about the nature of the Lord Chancellor’s judgment in this case. The noble Lord, Lord Cromwell, said that the Lord Chancellor is acting on behalf of the Government, but that is not the nature of the decision: it is the Lord Chancellor’s decision as representing the Lord Chancellor himself. He has the responsibility of a personal decision in this matter, in the way this Bill is drafted. Certainly, when I had responsibility for these matters, it never occurred to me that I should consult the Cabinet about it.
Lord Keen of Elie
My Lords, I begin by acknowledging the point made by my noble and learned friend Lord Mackay of Clashfern. The Bill makes perfectly clear that this is a decision of the Lord Chancellor as Lord Chancellor, and it is in that context that it has to be seen and understood.
Amendment 61 would replace the proposed three-year maximum review cycle for the second and subsequent reviews of the rate with a system under which the need for the rate to be reviewed would be determined by the expert panel by reference to changes in returns on investment. Of course, there are then consequential and supplementary amendments. The effect would be to add a new and distinct responsibility to the role of the panel. It would in effect, as I believe my noble friend Lord Hodgson acknowledged, require a standing panel to be created. If more than a year had passed since the rate was reviewed, the expert panel would be required to assess the need for a review and then to advise the Lord Chancellor to review the rate if it considered that the nature of return on investment had changed enough to justify a review. If the panel decided that this condition had not been satisfied, it would have to report its reasons for this view to the Lord Chancellor.
The concept of a review based on changes in investment returns was canvassed as an alternative to a fixed review period in the Government’s 2017 consultation on how the rate should be set, and it was supported, let me be clear. However, basing the review requirement on changes in investment returns would, we believe, create more uncertainty and be less predictable than a regular fixed-date review. The introduction of a requirement for the panel to consider the need for a full review annually could further fuel such uncertainty.
I appreciate the concerns raised by the noble Lord and others at Second Reading about the potential for a fixed review period to prompt undesirable litigation behaviour and the possibility of what is sometimes termed the gaming of the system in anticipation of a change to the rate. However, this problem would not be avoided by the system which the amendment proposes. Litigants would still know when the panel would be required to consider whether the rate required reviewing. Indeed, such occasions would be more frequent under the amendment than under the three-year cycle proposed in the Bill. One can imagine a stop-start mentality emerging leading up to the time when the panel was expected to report.
A further consequence of the amendment would be that the expert panel would have, in practice, to exist independently of the review of the rate, rather than being convened by the Lord Chancellor for each review, as the Bill currently provides. In effect, a standing panel would be required, which would have to exercise judgment as to the timing of reviews, rather than confining itself to the technical matter of advising the Lord Chancellor on the factors that might be considered in the setting of the rate, which is the purpose of the expert panel. The amendment would therefore make a very significant change to the proposals in the Bill regarding when the rate should be changed. The Government’s proposals for a fixed-period maximum cycle for the review of the rate have, as I say, been developed through consultation and been the subject of pre-legislative scrutiny, and we consider that they provide a simple and certain method by which reviews can largely be predicted.
Amendment 74 would require the Lord Chancellor to adopt any recommendation from the expert panel as to whether the rate should be changed and, if so, what the rate should be. Clearly, such a change would diminish significantly the responsibility and accountability of the Lord Chancellor for any review outcome—indeed, it would essentially remove it. Amendment 74 would also remove the requirements on the Lord Chancellor, the panel and the Treasury set out in paragraph 2(6) and (7) of new Schedule A1 to comply with or to take into account the duties of the Lord Chancellor in relation to the setting of the rate that are set out in paragraph 3 of new Schedule A1. What we would have is the elevation of the panel from an advisory role to essentially an executive role. That would be a major change and clearly greatly alter and increase the role of the panel.
The creation of the expert panel to advise the Lord Chancellor is, of course, one of the most important changes introduced by Clause 8. The panel is central to the Government’s proposals for the way in which the rate is set, introducing new expertise and transparency. The panel will play a very important role in providing assistance to the Lord Chancellor in setting the rate, but it would not in our view be appropriate for the panel’s recommendations to bind the Lord Chancellor in deciding whether the rate should change and what it should be. The setting of the discount rate requires the weighing of different potential outcomes for individuals in relation to a range of possible rates. An element of value judgment will ultimately be required. It is important, therefore, that the decision-maker should be politically and publicly accountable for decisions on the rate. That is why the Lord Chancellor is, in our view, the appropriate person to make that choice. Indeed, this was recognised by the Justice Select Committee, which stated in its report that:
“Setting the discount rate has repercussions on the taxpayer through Government expenditure and also consumers through its impact on insurance premiums and inflation; therefore we think it is right that the decision to set the discount rate lies with the Lord Chancellor”.
We agree with that assessment.
In addition to being influenced by the pre-legislative scrutiny carried out by the Justice Committee, the proposals we have put forward have been developed through the public consultation process. In response to the question of by whom the rate should be set, the largest single group of support was for the rate to be set by the Lord Chancellor following advice from an expert panel. I note the support for that which has been given, in particular, by my noble and learned friend Lord Mackay of Clashfern, expressing his experience as Lord Chancellor and underlining the distinct role of the Lord Chancellor in this context.
Lord Sharkey
The Minister talks about the consultation and the preferences expressed there. As I think I mentioned at Second Reading, there was no majority in favour of the Lord Chancellor being involved. There was a majority for other methods, not the Lord Chancellor.
Lord Keen of Elie
I acknowledge that. As I said, the greatest number of responses were in support of that particular proposal. I reiterate that.
I understand that Amendment 74 is a probing amendment but it would at a stroke remove many of the benefits that the proposed reforms in the Bill are seeking to achieve. This is because paragraph 3 of the new schedule governs how the Lord Chancellor is to decide what the rate should be, and Amendment 74 would remove paragraph 3 from the schedule. The essential change made by paragraph 3 to the present law is that in future the rate is to be assessed on returns reasonably expected to be achievable from a diversified low-risk portfolio of investments. This has regard to how claimants actually invest and the returns available to them. This evidence-based process of assessment will replace the hypothetical approach of the present law, which leads to the rate being set largely by reference only to returns from UK index-linked gilts.
Our evidence is clear that claimants simply do not invest all their awards in UK index-linked gilts; in other words, claimants do not pay Her Majesty’s Government to look after their money. Our research indicates that setting the rate on this basis leads to awards of compensation that are expected to produce on average around 135% of the funds anticipated to be necessary to meet the claimant’s losses, although this drops to 120% to 125% after taxation and the costs associated with the management of investments have been accounted for—a point that I will return to in a moment. The new system will put the setting of the rate on a far more realistic basis and bring the average closer to the target of 100%. This will be fairer for both claimants and defendants.
In support of this process, the paragraph sets out a number of key assumptions that the Lord Chancellor must adopt in deciding what the rate should be and a number of supporting factors he or she must take into account. It also enables the Lord Chancellor to identify and apply further assumptions and to take into account further factors in determining what the rate should be. Amendment 74 would remove the entire framework provided by the Bill for the basis of the setting of the rate. The effect would be that, unless the Supreme Court were to decide to adopt a different basis for the setting of the rate in a future case, the rate would continue to be set on the basis of the present case law, principally the 1998 decision of the House of Lords in Wells v Wells, which was referred to by the noble and learned Lord, Lord Hope, at Second Reading; it is a case on which I believe he sat. This would remove the central aim of the reforms to provide a fairer, more certain and more sustainable system for both claimants and defendants, and would remove any possibility of overcompensation and its impact on the National Health Service.
Clearly, we want seriously injured individuals to be fully compensated for all the losses caused by their injury. They should receive the full and fair compensation that is legally due to them. We do not seek to change the overriding objective of 100% compensation. The problem is that at present the rate has to be set largely by reference to UK index-linked gilts. But our evidence is that this is not how such claimants actually invest and therefore we have to move on.
I add that it might be a little odd to adopt the noble Lord’s Amendment 74 in light of his Amendment 71, which encourages us to have the Lord Chancellor fix the first rate without recourse to the panel at all. There seems to be a slight tension between the two amendments. I have expressed my view on Amendment 71, and we are going to look at that again, but I do not find it easily reconcilable with Amendment 74, albeit I acknowledge that it is a probing amendment.
Lord Sharkey
I simply observe that I do not think lawyers have an exclusive right to exercise and run conflicting arguments.
Lord Keen of Elie
Generally speaking, they are alternative arguments.
Amendment 77 would add an obligation on the Lord Chancellor to take into account the response of the expert panel in determining what the rate should be. Of course, that is exactly what the Lord Chancellor will do. Indeed, why would the legislation require the Lord Chancellor to consult the panel and require the panel to respond if the Lord Chancellor was not required to consider the panel’s response? Of course, there may sometimes be merit in stating every detail of a process in primary legislation but I suggest that it is not necessary in this case.
Amendments 82A, 85A, and 90A, spoken to by the noble Lord, Lord Cromwell, relate to the procedures and responsibilities governing the operation of the panel. Clearly, the expert panel has an important advisory role but it is not appropriate or desirable to load it with the additional responsibilities suggested in the amendments. Paragraph 2(7) of new Schedule A1 already requires the panel to take into account the duties of the Lord Chancellor under paragraph 3. Paragraph 4 requires the Lord Chancellor to give reasons for his or her decision and to publish information about the response of the panel. As the noble Lord, Lord Faulks, observed, ultimately the Lord Chancellor’s decision on the matter, as it is disclosed, will be amenable to judicial review. It is not a case of the Lord Chancellor receiving the expert panel’s views and simply ignoring them. Clearly, such a perverse course of action, which one would not anticipate, would leave his decision-making power amenable to review.
The obligations are expanded by the commitments that we gave to the Justice Select Committee to consult the panel about the allowances to be made for taxation, investment management charges and inflation in the setting of the rate and, over and above that, to publish the panel’s report to the Lord Chancellor at each review. It is not a case just of disclosing what the panel’s advice may have been but of undertaking to publish the panel’s report and then to give reasons for the decision that the Lord Chancellor has made.
As I touch upon that, I recollect that the noble Lord, Lord Sharkey, raised the question of the experts on the panel. I will come on to the question of a medical expert in a moment but I note that with regard to the position of someone concerned with consumer investments, one would be interested there in the context of someone who acted as a financial adviser to those who made investments as consumers at various levels. That, I understand, is what is contemplated at that point.
As I have sought to underline, the overall thrust of the amendments is that the panel should, in effect, carry out a pre-review of the rate. This is not the intended role of the panel. The panel’s role is advisory. It will be consulted by the Lord Chancellor and it will provide the Lord Chancellor with its views. The report of the panel and the Lord Chancellor’s decision and his reasons for the decision will be published. But the role of the expert panel is not to take away from the role of the Lord Chancellor. It is not the role of the panel to make a decision on what the rate should be. Its role is to provide expert support to the Lord Chancellor.
At the end of the day it is the Lord Chancellor who will make the necessary determination and will be publicly answerable for the determination he makes. Therefore, we consider that the decision must be for the Lord Chancellor, who will take that decision in his role as Lord Chancellor and be legally and politically accountable for it. The process of the setting of the rate is going to be transparent. The panel has been created for a very important purpose—namely, to bring new expertise to the process of setting the rate—but it is not its role to second-guess the outcome of the final review by the Lord Chancellor.
Amendment 84 would require the Lord Chancellor to base the allowances to be made for taxation, inflation and investment management costs on recommendations from the expert panel. The Lord Chancellor is already required by paragraph 3(5) of new Schedule A1 to make appropriate allowances for each of these three items. This will be an evidence-based exercise requiring judgment as to what the standard allowance should be against the range of possible individual circumstances that might be foreseen. The expert panel forms an integral part of the Government’s proposals. It will introduce additional expertise but, at the end of the day, the final decision must be for the Lord Chancellor. The amendments proposed by the noble Lord, Lord Cromwell, would in my submission take the role of the panel way beyond that of an expert consultative role.
I turn to Amendment 87, which was spoken to by the noble Lord, Lord Sharkey, and would extend the membership of the expert panel to include a medical representative. Here I concur with the view already expressed by my noble friend Lord Faulks. On one view, the effect of this amendment would be to broaden the general expertise within the panel, but I should explain that its role is intended to focus purely on matters relating to financial rates of return, in order to provide advice to the Lord Chancellor. The Bill therefore provides for the panel to be chaired by the Government Actuary and that the other members should have experience as an actuary, a manager of investments, an economist and, as I indicated earlier, in consumer matters relating to investment—for example, as a financial adviser.
The Government consider that this range of expertise is the most relevant for providing advice on what the relevant investments and rates of return are likely to be, and will be the most useful source in formulating advice for the Lord Chancellor. While medical expertise is relevant when determining a lump-sum amount of compensation to which the discount rate is to be applied, or in estimating the life expectancy of a claimant, these are separate issues to the setting of the discount rate and would be outside the remit of the panel, as an expert panel advising the Lord Chancellor. We do not see that a medical expert would contribute to the process of the expert panel.
I turn next to Amendment 88, which was also spoken to by the noble Lord, Lord Sharkey, and would require the Lord Chancellor to use the power to appoint the four appointed panel members to secure that each of those members approaches the work of the panel as an expert with the object of recommending a rate of return that is fair to the interests of both claimants and defendants. The appointed panel members are indeed intended to be experts in their fields. The expertise that they will bring to the process of setting the rate is one of the most significant reforms introduced by the Bill. The Government made it clear in their response to the Justice Select Committee that they intend to recruit experts who will act as independent experts in providing their advice, not as representatives of specific interest groups. This is not a representative panel; it is, I emphasise, an expert panel.
The appointed panel members will be required to disclose potential conflicts of interest and, under paragraph 3(2) of new Schedule A1, to take account of the duties imposed on the Lord Chancellor as to how the rate is to be set in deciding what response to give to the Lord Chancellor’s consultation. The mix of expertise stated in the Bill strikes, we suggest, a correct and fair balance between the various areas of knowledge that would be required. The proposed additional requirements on the Lord Chancellor in Amendment 88 are therefore unnecessary.
This amendment, however, also seeks to indicate what the objective of the work of each of the appointed panel members should be. The panel as a whole will play a very important role in providing advice, as I say, to assist the Lord Chancellor in setting the rate. It is very important that this advice is fair, which is why the Bill sets out the range of expertise referred to. However, the role and objective of the panel is to advise the Lord Chancellor on matters relevant to the setting of the rate by the Lord Chancellor. The role of the individual appointed members will be framed accordingly. We consider that the requirements on the Lord Chancellor under the terms of the legal framework for the setting of the rate, coupled with the advice from the panel of experts, who will bring a balanced range of expertise, and the requirements in the Bill which provide that the Lord Chancellor will give reasons for his or her decision, underline the way in which the decision-making process will be accountable and transparent. It will also have the objective of being impartial.
Amendment 91, which I believe was spoken to by my noble friends Lord Hodgson and Lord Hunt, who is still with us, would remove the provisions in paragraph 8 of new Schedule A1, which interpret provisions in relation to the setting of the discount rate to cover the possibility of the Lord Chancellor deciding on the occasion of a review to set no rate or no rate for particular classes of case, on the one hand, and changes from that situation, on the other. In fact, that new paragraph would reproduce the provisions in the Damages Act 1996 which indicate that the court must take into account such rate of return—if any—as may from time to time be prescribed by an order made by the Lord Chancellor. This wording implies that the Lord Chancellor might decide to set no rate under the present law. The provisions in paragraph 8(2) to (4) are intended to clarify how this power would operate.
Lord Hodgson of Astley Abbotts
My Lords, I am grateful to all noble Lords who have taken part in this wide-ranging debate. Perhaps I might return to Amendment 61, where we began 54 minutes ago, and say to my noble and learned friend on the Front Bench that the purpose of this amendment was to assist the Lord Chancellor, not to undermine him. It was designed to give him some air cover by somebody saying, “Oi! You need to be doing something about the rates of return”. There was no fixed term to this; they could turn up at any time and say that. The idea was that they would somehow do it every year, but it would not be. It could be more frequently if interest rates changed sufficiently to justify the rate going up and down.
A permanent panel would have a role. The noble Lord, Lord Sharkey, talked about the MPC, which is not the same sort of thing but it has a collective institutional memory. If you dissolve the panel after each time it sits, and start again de novo with the next review, that seems a waste of the experience, knowledge and know-how of making these things work that would be built up in the operation of a panel. My noble friend Lord Faulks said that it is a political decision and I agree. It is, which is why Amendment 61 says:
“The expert panel under paragraph 5 must advise the Lord Chancellor to undertake a review”.
It does not say that he must; it says that it must advise him and at that point the Lord Chancellor may say, “No thank you” and make his own decision.
Let us consider this situation. The Lord Chancellor has a wide range of duties so somebody will have to tip up one morning and say, “Lord Chancellor, it’s time you had a review of the rate”. Somebody in the MoJ will have to survey the rates of return available and the unlucky official who has to do that will know that it will be an unpopular thing to say because the Lord Chancellor will not want to get into the controversy of having to establish and justify a new rate. That will not be a popular moment, so the much more likely time for it to happen is when the unlucky official comes along and says, “Lord Chancellor, the three-year period”—or five-year period—“is coming to an end and you’ve got to do something”. We will have this series of events at the end of the period prescribed, depending on whether the Government accept my noble friend Lord Faulks’s amendment to have five years as opposed to three. I suggest that, from the point of view of efficiency, applicability and fairness, an expert panel being able to say to the Lord Chancellor, “It’s time we had a review” is a much better way to proceed and much more in keeping with the arrangements and purposes behind the Bill.
We shall obviously go no further on this tonight, but perhaps I can put it on the shopping list for when my noble and learned friend is kind enough to say that we can come and talk to him. In the meantime, I beg leave to withdraw the amendment.
Lord Faulks
Lord Faulks
My Lords, we have had a debate effectively asking the Government to get on with the process of fixing the discount rate. We have now had a debate about who should be on the panel and how they should go about exercising the function of deciding the discount rate. This group of amendments is to do with a shorter, but very important, issue—namely, the regularity of reviews.
It is plain, I suggest, that there must be regular reviews, and much more regular than in the past. One of the problems that existed, and still exists until the law is changed, is that there was no particular period in which the Lord Chancellor had to exercise his or her power to alter the discount rate. It was very rarely done, not least because of the potentially significant political consequences of the decision. When, finally, the then Lord Chancellor, Ms Truss, altered the discount rate in 2017, it had the most dramatic effect. While more regular reviews are desirable, the question is: how regular should they be?
The problem about having a review every three years is that parties to litigation will have a quite understandable tendency to try to guess the outcome of the determination of the new discount rate and to game the system. I do not wish to imply anything inappropriate about such gaming; it may well be done by either side in a dispute, and is simply a factor in the uncertainty involved in negotiations, where a party thinks it would be to their advantage either to wait until after determination of the discount rate or to ensure that a trial or settlement is concluded before the discount rate is altered.
Large claims take some time to get to court. A brain-damaged baby does not have to begin a claim—or, at least, a claim does not have to be begun on their behalf—until after he or she attains their majority at the age of 18. The normal limitation period for personal injuries is three years, but there are exceptions in terms of date of knowledge and, under Section 33 of the Limitation Act 1980, there is the power to disapply the limitation period in certain circumstances.
In a complicated criminal negligence case, it may be a number of years before there is clarity in terms of causation and, indeed, prognosis, once all the various experts’ reports have been assembled and exchanged, and there have been meetings of appropriate experts. There is then the problem of finding a court date for trial.
There is thus plenty of time and room for manoeuvring. In my view, a three-year period is definitely too short. I would have favoured, if I had been asked, a seven-year period, but I suggest in this amendment five years as a compromise. If any evidence is needed of the gaming of the system, it is apparent now. That evidence may be anecdotal, but there is such an accumulation of this anecdotal evidence that it simply cannot be ignored. Parties are either anxious to conclude their cases before the putative date of the variation of the discount rate or to delay matters. There is much speculation as to when this Bill will become an Act. I fear that such manoeuvring will take place almost continuously if the three-year period is maintained.
I therefore ask my noble and learned friend the Minister seriously to consider altering the period to five years, which will mitigate to some degree the uncertainty that prevails on discount changes. Uncertainty, I accept, is inevitable in litigation, but where there is such a degree of uncertainty, with potentially large consequences in the size of a claim, it militates against settlement. Settlement of claims avoiding court hearings is surely desirable and unless the Government change the frequency of the review, I fear that there will be a very real increase in the number of claims that do not resolve themselves. Alternatively, there will be a number of applications to court to try to adjourn matters or accelerate them to reflect some perceived advantage to one side or another. I beg to move.
The Earl of Kinnoull
My Lords, I shall speak very briefly to Amendments 72, 73 and 75. Essentially, the points I made about the initial review apply here as well, and I shall not repeat them. But it seems to me that the sparking off of a review within a review period —not right at the end—because something has made the Lord Chancellor feel that there had better be a review now indicates that there is probably a need for one, either up or down. Therefore, I feel that we should trim the period of the review down. This is only a discount rate—it is not a very big thing and can be done relatively quickly. The three amendments merely suggest a way of trimming it down. Perhaps I may suggest to the Minister that when we have that very large cup of tea, we kick this around as well. It would be a great shame if future trimming reduced the rate heavily. There may be people whose cases are being settled at the wrong rate, so we have a duty to try to do things at a reasonable pace.
Lord Faulks
Does the noble Earl not accept that there is a risk that if there is such a frequent review, those who are parties to litigation will simply feel that they are in a permanent state of uncertainty about what the discount rate may be? They have to rely, for at least a reasonable period, on a certain discount rate.
The Earl of Kinnoull
I am sorry if I have confused the noble Lord. I am merely saying that once the review has been sparked off by the Lord Chancellor’s decision—it does not matter what the periodicity is; I was very interested in the arguments advanced by the noble and learned Lord—it should take place at a reasonable pace, because somebody is suffering if it is done slowly. That is the purpose of trying to trim the rates. This is not difficult; one discount rate has been set by a group of people who will have exactly the right sort of skills. I therefore think it can be done a bit quicker but, as I said, it is probably best discussed not in the Chamber but with the Minister.
Lord Beecham
I am not really persuaded by the logic of the amendment of the noble Lord, Lord Faulks. It is not as if all claims will be faced with a five-year period. If a case is brought two years before a review, the courts will be dealing with a more recent determination than if it had been five years. I do not see the advantage of the noble Lord’s proposition. There will be some cases that will obviously be closer to that date than others.
Lord Faulks
May I help the noble Lord? When you are coming up to a review period, whenever that is—whether of three years or five—there will be an element of one party or another seeking to guess the outcome. My point is that you do not come up to that cliff edge so often if it is five years rather than three.
Lord Beecham
Yes, but if you bring your case a year or two before a review, whether it is a three-year or a five-year review, your position is not changed, is it? I just do not see the logic of the amendment, and I will not be supporting it.
Baroness Vere of Norbiton
My Lords, the amendments in the group alter how often reviews of the rate take place and shorten the timing of the review period. Some of the points I shall make have been touched on in previous groups but, I feel, are worth repeating in this context.
The three-year period adopted in the Bill represents a compromise approach based on the responses to the March 2017 consultation. A wide range of views were expressed as to how often the rate should be reviewed, from automatic reviews at short intervals to every 10 years. The most popular options among the substantial majority who favoured fixed-period reviews were: one year, with 28 responses; five years, with 23 responses; and 21 favouring something in between.
In adopting a three-year period, we were conscious that any fixed period will at some stage influence litigation behaviour. In our view, three years strikes a reasonable balance between the risk of continual, or at least over-frequent, anticipation of rate changes associated with a shorter period influencing litigation behaviour, on the one hand, and the risk resulting from a longer period of more dramatic changes to the rate, on the other.
We believe that the more frequent reviews under a three-year cycle should lead to smaller adjustments in the rate on each review than that under the five-year cycle proposed in Amendment 62. This should reduce concerns about the size of any change in the rate as a result of the review, which should also reduce any temptation to distort the litigation process in the hope of benefiting from a significant advantageous change to the rate. We continue to believe that a three-year maximum review period represents a reasonable compromise between the different views held in this House and outside it.
Amendments 72 and 75 would shorten the period within which a review of the discount rate must be completed, from 180 to 120 days. Amendment 73 would shorten the time available to the expert panel to deliver its response to the Lord Chancellor from 90 days to 75 days. We fully recognise the need to ensure that reviews are conducted promptly and do not take up an excessive amount of time. However, it is equally important that sufficient time is available to enable the review to be properly informed and to give the expert panel and the Lord Chancellor an adequate period to consider all the issues that may arise.
We have drawn on the experience of reviewing the rate under the present law in proposing the time periods now in the Bill. It may be helpful to explain how the 180-day period allowed for in the Bill is made up. Turning to the first 90-day period, each review will require the analysis of up-to-date evidence on investment returns and investment behaviour to ensure that a fully informed decision is reached. The expert panel will need to consider this evidence in detail and prepare a thorough report for the Lord Chancellor. We consider that the 90-day period allowed for in the Bill represents a challenging but reasonable deadline for the panel to provide this. Turning to the second 90-day period, the Lord Chancellor will in turn need to consider the panel’s report and, as is the case under the current framework, consult HM Treasury. As the panel will be introducing new expertise into the review process, it is important that the other parties involved have the benefit of its considered views. Again, we consider that the 90-day period allowed for in the Bill is reasonable for this part of the review.
We therefore consider that the overall period of 180 days is reasonable to ensure that proper preparation of the review and careful consideration of the issues can take place. A significantly shorter period, such as that proposed in the amendment, could reduce the thoroughness and effectiveness of the review process. On the basis of the explanations I have given, I hope that my noble friend will feel able to withdraw the amendment.
Lord Faulks
I am grateful, or fairly grateful, to all noble Lords who spoke in this debate. I am sorry that the noble Lord, Lord Beecham, is entirely at a loss to understand the purpose of my amendment. Quite a number of other people seem to favour five years, so it is not a complete outlier. In fact, as many seem to favour five years as three years or any other period.
As my noble friend conceded, whatever period is selected is in a sense a compromise. It must be arbitrary. I am grateful to my noble friend for answering not only this group of amendments but an earlier group when dealing with the mechanism of the time limits for the Lord Chancellor to go through the process of conducting the review and appointing a panel. We have already been told that our suggestions are inappropriate in that respect, but it is nice to be told again. That was clearly in the speaking note.
As to the question of why three years, my noble friend said that there may be smaller adjustments after three years rather than five. With great respect, that depends on the economic climate. There may be some enormous economic event—we are not unfamiliar with those, sadly—which means that there could be a dramatic change in a short period. I am unconvinced by that argument.
My main point was gaming. I have personal evidence and experience that it is going on at the moment. Clearly, it is anecdotal, but I suggest that three years is definitely the wrong period. I will withdraw my amendment now. I shall do my best to accumulate better evidence to try to convince the noble Lord, Lord Beecham, among others, and the Government, that five years is a better period. In the meantime, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
Lord McKenzie of Luton (Lab)
My Lords, I beg to move Amendment 78 and shall speak to our other amendments in the group: Amendments 82, 83, 85 and 80A. I should stress that, like much else that we have debated over the past two days in Committee, these are probing amendments. Amendment 78, together with Amendment 77, just debated, strengthens the role of the expert panel in setting the discount rate. Although the Bill provides that the Lord Chancellor must consult the expert panel, nothing in the legislation provides a link between the panel’s report and the Lord Chancellor’s final version on the discount rate after each review.
Amendment 82 removes paragraph 3(4). It is this provision which gives the Lord Chancellor unfettered discretion when setting the discount rate, and we believe it should be removed. It has been pointed out—a point made by the noble Lord, Lord Cromwell—that the Lord Chancellor has a conflict of interest when deciding the discount rate, as the Government are a defendant in many high-value claims. This would constrain the Lord Chancellor’s involvement. Perhaps we can hear from the Minister on that point.
Amendment 83 would ensure that the Lord Chancellor is not influenced by any other external issue. The Bill provides that, in addition to the advice given by the expert panel, the Lord Chancellor can take account of other anecdotal evidence on investment behaviour. Amendment 83 would prevent that.
Amendment 85 deletes the Bill’s provision that does not limit the factors which may influence the Lord Chancellor when making a rate termination. This is an extremely wide power. Perhaps the Minister can tell us why it is considered to be necessary and give us examples of how it might be used.
Amendment 80A would remove the provision which allows that the investment of relevant damages involves,
“more risk than a very low level of risk”.
I recognise that this is a fundamental issue, and we offer it at this stage as a probe. In doing so, I would like to share some of the advice that we got from APIL, which said:
“The first thought of someone who receives compensation following a catastrophic, life-changing injury is not ‘how can I make the most of this fantastic windfall?’. It is instead ‘how can I eke out my compensation payment to make sure it lasts long enough to look after me and my family for the rest of my life?’ Or ‘will my compensation payment keep pace with inflation in the long term?’”
Injured people need a fair system which recognises the fact that people with life-changing injuries should not have to gamble with the compensation which is carefully calculated to last for the rest of their lives. The fact that many people are so risk averse that their compensation investments may not even keep up with inflation is often overlooked.
They are right to be risk adverse. The compensation they are given is all they will ever have. When undercompensated, they survive—rather than live—in fear of what will happen when the money runs out and cannot see a way forward. Damages must, therefore, be calculated on the assumption of very low risk investments and the system should be reviewed on a regular basis. This is an issue of need: the actual concrete needs of people who have been injured through negligence must be met in a fair and just 21st-century society.
The basis of the Government’s legislation is that claimants should invest in “low risk” rather than “very low risk” investments. It relies on analysis from the Government Actuary’s Department and, in particular, the outcome of an assumed investment strategy based on a portfolio of “low risk” investments.
We understand from the Ministry of Justice that portfolio A forms the basis of the Government’s thinking. An investment strategy which relies heavily on hedge funds and equities cannot possibly be considered “low risk”.
In addition, the GAD analysis has identified that a significant number of claimants would not receive 100% compensation under the favoured model: they would have a 30% chance of being undercompensated by 5% or more if the discount rate were set at plus 1%; they would have a 19% chance of being undercompensated by 5% or more if the discount rate were set at plus 0.5%; they would have an 11% chance of being undercompensated by 5% or more if the discount rate were set at 0%.
Where does that leave the principle of Wells v Wells? Is that still the Government’s thinking and, if so, how is it consistent with that data?
The proposal by the Government to move from “very low risk” to “low risk” is inherently unfair for claimants and it is fairness to injured people which has to take precedence here. Nothing has changed since Lord Scarman said in Lim Poh Choo v Camden and Islington Area Health Authority:
“There is no room here for considering the consequences of a high award upon the wrongdoer or those who finance him. And, if there were room for any such consideration, upon what principle, or by what criterion, is the judge to determine the extent to which he is to”,
be supported on the grounds of compensation payable? How does the Minister respond to that point?
It is, surely, the duty of society to ensure that vulnerable people are treated fairly, according to their needs. In such a society, people whose lives have been shattered by negligence should never be put into the position of having to take chances with their compensation on a volatile stock market. Someone who has been through probably the worst thing ever to happen to him should be allowed to be a risk-averse, safe investor. The person whose life has been shattered because someone else was negligent should not have to worry about whether his funds will run out before he dies.
Lord Faulks
My Lords, I was about to warmly welcome the noble Lord, Lord McKenzie, to our Bill until he described my amendment as “heinous”. I do not seem to be going down very well with the Opposition Front Bench this evening. It reminds me of happier days when I was on the Government Front Bench and met with a similar lack of enthusiasm.
I would like to speak to Amendment 79, which raises a rather different point from others in the group, although I have not sought to decouple it. The point is that claimants’ lawyers are, understandably, imaginative in finding different heads of damage to include in schedules to enable them to recover on their client’s behalf the maximum possible by way of damages. One growth area that emerged was the cost of investment advice. When the discount rate was 4.5%, there might have been some basis for that claim for investment advice, particularly in the case of large sums recoverable by way of a lump sum as opposed to periodical payments. However, the approach of the court in Wells v Wells in 1998 assumed an extremely cautious investor who invested his or her money only in gilts—ILGs. That rather removed the justification for any specific and additional claim for investment advice. Following Wells, the Lord Chancellor in June 2001 changed the rate to 2.5 %, where it remained until 2017.
It always seemed to me that, if the assumption in Wells was of a highly risk-averse investor, it made little sense to award damages to reflect the cost of investment advice on the assumption that he would, in fact, be rather more adventurous in his investment strategy. I am glad to say that this was the view of the Court of Appeal in the case of Eagle v Chambers in 2004, 1 Weekly Law Reports 3081, a case in which I acted for the defendants. I can see a potential argument being advanced that, with the change in the assumption that damages are invested using a slightly less cautious approach, it may be argued that Eagle v Chambers is no longer good law and that the cost of investment advice could be removed.
I do not in any way seek to decry the point made by the noble Lord, Lord McKenzie, about financial exclusion generally. However, I suspect that bulky reports from financial investment advisers will be submitted to the court, suggesting what the cost of investment advice might be. Even with the benefit of MiFID II, that advice may not be as transparent as one would like; it will certainly be expensive, particularly when intended to cover a long period. The cost of the advice, perhaps being obtained on both sides, will significantly add to the burden on the part of a defendant, whether that defendant be an insurance company, the National Health Service or another public body. One way or another, ordinary members of the public will be paying for this.
One construction of the rather opaque paragraph 3(3) of new Schedule Al, inserted by Clause 8, is that the rate has been fixed on the assumption of proper advice on the investment of damages, in the sense that advice is understood to have been taken or not taken in fixing the rate but it is not to be the subject of a separate claim. In other words, in fixing the discount rate the investment advice is understood to have been done by the Government. My amendment seeks to make what may be the proper construction of the Bill explicit to prevent an additional cost of litigation, and to make it clear that the decision in Eagle v Chambers remains good law. I look forward to hearing the Minister’s response on this issue.
Lord Hope of Craighead
I have one point to add to the remarks of the noble Lord, Lord McKenzie, on the effect of the different approach to the level of risk. One factor which was mentioned by Lord Lloyd of Berwick in Wells v Wells was the need to have a relatively stable, constant fund from which funds could be drawn as the need arose over a long period of time. The risk he was contemplating in that part of his judgment was not that of the funds running out, just that the value of the fund would diminish as the stock market went down. In its turn, this would prejudice the viability of the fund to maintain itself at the appropriate level as time went on. The risk we were contemplating then, in looking at the appropriate rate of return, was differentials in performance which would affect the ability of the fund to meet ongoing costs which would not fluctuate. They were the constant costs of equipment maintenance or nursing services which the injured person had to meet from time to time: a level rate of costs, against a fluctuating value in the fund available to pay for them.
There is much to be said for reducing the level of risk to the minimum possible compatible with the aims of the Government, to avoid the problems of fluctuation which affect the viability of the fund. I mention this because it is another factor which lies behind the point made by the noble Lord, Lord McKenzie. As the noble Lord, Lord Faulks, has pointed out, the advantage of the Wells approach is that investment advice was not needed. I am not quite sure how these things are structured, but if the fund were to be put in the hands of an adviser, there is usually a performance factor taken out of the management of the fund. It is not so much investment advice as the cost of managing the fund. The larger the fund, the more likely it is that the best way of handling it is to put the whole fund into the hands of an investment adviser who would simply manage it accordingly.
It is rather difficult to extract from that a recoverable figure of the kind that the amendment in the name of the noble Lord, Lord Faulks, is directed at. There is a lot to be said for just taking that factor out of the award altogether and leaving it up to the individual to decide how best to have the money managed. If it is a management figure, then that is all right: it is just part of the choice that the injured person makes. It should not be added in as an additional element of damages.
The Earl of Kinnoull
My Lords, I will speak briefly to Amendments 80 and 81 in my name. I congratulate the noble Lord, Lord McKenzie, on his heart-rending speech, but it seemed only to go back to saying, “My goodness, PPO is a good idea”. So many of the risks which the noble Lord identified would be sorted out by that, but that is in the past.
New Schedule A1 to the Damages Act is inserted by Clause 8(2). At Second Reading, I said that I was worried that paragraph 3(3) did not give sufficient clarity to what was being asked for in the investment. I was concerned that, without that clarity, there could be a plethora of new Wells v Wells cases, with people trying to grapple with what was actually meant. Amendment 80 probes the word “investments” in the phrase,
“the assumption that the recipient of the relevant damages invests the relevant damages in a diversified portfolio of investments”.
We should at least be clear that those investments were debt securities, not equities.
Secondly, I thought it would be helpful to try to define a “very low level of risk”. That does not actually mean anything to me, with my background, and I suspect it does not mean anything in law. I have tried to define it as the level of risk you have when you buy UK Government debt security. These are probing amendments and I regard this as a discussion, but clarity in this area of the Bill would be greatly to the advantage of everyone concerned.
Baroness Bowles of Berkhamsted
My Lords, we are dealing with sensitive issues here. Nobody wants claimants to get a raw deal, but we need to examine presumptions that we appear to be writing in, especially in the light— as has just been mentioned again—of the possibility of periodic payments. In his reply to the first group of amendments, the Minister seemed to say that the possibility of periodic payments was a lot more open than it appears to be, due to the statistics.
Amendment 80B is another probing amendment. I tabled it because the language of paragraph 3(3)(d)(ii) of new Schedule A1—it is much easier to say “the last three lines at the bottom of page 9”—does not seem quite right. The wording concerns how it is to be assumed the relevant damages are invested and says to assume,
“less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims”.
My amendment deletes the whole sub-paragraph, but it is a vehicle for probing and there are less extreme ways to fix it.
I understand the intention of the words: the claimant should be reckoned to invest in a cautious and advised way, perhaps more cautiously than an individual who does not have the same vulnerability. Paragraph 41 of the Explanatory Notes explains it as,
“less risk than would ordinarily be taken by a prudent and properly advised individual investor (who is not a claimant) with similar investment objectives”.
Those investment objectives clearly need to be the purposes set out in paragraph 3(2) of new Schedule A1, at lines 25 to 31 of page 9, which includes, for example, that the damages,
“would be exhausted at the end of the period for which they are awarded”.
However, the actual wording in the three lines at the end of page 9 does not seem to say the same thing. The first two lines—
“less risk than would … be accepted by a … properly advised individual investor”—
are broadly okay, but it then says,
“who has different financial aims”,
which is very different from the “similar investment objectives” of the Explanatory Notes. I am therefore slightly puzzled. Was the intention to state that they are different because they are not a claimant, is it a mistake, or have I missed some other point?
Lord Hodgson of Astley Abbotts
My Lords, I will briefly support the noble Baroness, Lady Bowles of Berkhamsted, in what she just said. It is easy for us to overlook what quantitative easing has done to the returns on savings and fixed interest. It has been a much longer-running saga than was anticipated, and it is still carrying on. If we are to set up a system that precludes people investing in equities, which gives some protection against that, we will be doing no service to the people who need this money as part of the way to recover from terrible injuries they received. The last line on page 9,
“who has different financial aims”,
does not add anything at all to the situation and will merely provide fuel and funds for lawyers to discuss exactly what that means in cases in future years.
Lord Keen of Elie
I am obliged to all noble Lords for their contributions. The noble Lord, Lord McKenzie of Luton, began by referring to the briefing from APIL—the Association of Personal Injury Lawyers. I am familiar with it, and indeed, the association invited me to speak at its annual conference, where I confirmed that we would take the Bill through Parliament. I have not cleared my diary for next year. Much of what they had to say, which was repeated by the noble Lord, was, as the noble Earl, Lord Kinnoull, pointed out, met by the need to encourage the uptake of periodical payment orders. We are committed to that and we will take it forward in various ways. They need to be embraced more thoroughly, not only by claimants but by defendants —insurers—as well. Nevertheless, I make that point.
The noble Lord referred to the case of Wells v Wells, which has been mentioned before. There we saw the reference to what was essentially construed as “very low risk investment in UK gilts”, and we are moving away from that. However, there is an additional element in that, which is volatility: you have an investment portfolio which may be subject to volatility, and you may find that it is at a low point at a stage when you need to withdraw capital funds. That has to be factored in as well, and we appreciate all that.
On the suggestion that we are somehow inviting people to invest their savings, or a majority of them, in hedge funds, that will not do at all. The portfolio A that was examined included 13% UK equities, 15% overseas equities, and 18% of alternative investments which could be modelled as hedge funds. We have to see all this in context. We took clear evidence on the nature of a low-risk portfolio, and there was reference, for example, to widows and orphans, but we are in a different climate in this context. We are not seeking to move away from the idea of 100% compensation. I will come on to the probing amendment of the noble Baroness, Lady Bowles, on setting the rate by reference to not only a floor but, I suggest, a ceiling—there are reasons for that—and the question of investment objectives, as distinct from different financial aims.
Amendment 78 seeks to amend paragraph 3(2) of new Schedule A1 by removing the words,
“in the opinion of the Lord Chancellor”,
from the requirement that the Lord Chancellor must decide the rate on the basis that,
“the rate of return should be the rate that, in the opinion of the Lord Chancellor, a recipient of relevant damages could reasonably be expected to achieve”,
if he invested the relevant damages for the purpose of the assumed objectives. The effect of the amendment would be to prevent the Lord Chancellor seeking to justify a rate on the basis that it seems perfectly reasonable in his subjective opinion when, by any objective assessment, the rate proposed is not supportable.
The noble Lord referred to an “unfettered discretion” and conflict with a political interest, but we are talking about the Lord Chancellor making the decision in his capacity as Lord Chancellor. He does not have an unfettered discretion. He is subject to public law duties in the exercise of his functions. Any decision of the Lord Chancellor as to what the rate should be must be rational, and any failure in rationality can be challenged by way of judicial review. I have already touched upon that and the question of disclosure, and I shall not repeat it.
It is necessary to have reference to the opinion of the Lord Chancellor in relation to setting the rate because the setting of the discount rate is not now, and will not under the proposed legislation, be a precise science—it cannot be. The decision to be made on the rate will require the weighing of different potential outcomes for individuals in relation to a range of possible rates. An inevitable degree of subjective assessment is involved in this process. That is why it is appropriate that, although there is an expert panel, that subjective assessment is made by the Lord Chancellor, albeit with the reasons being given and explained, with a rational analysis of the information submitted to him.
Amendment 78A would require the Lord Chancellor to assume, when considering the damages to which the discount rate would apply, that the relevant damages would be payable as a lump sum or partly as a lump sum. The current wording of the Bill requires the Lord Chancellor to assume that the relevant damages will be payable wholly as a lump sum. We do not consider that this amendment is necessary. The discount rate will only ever be applicable to damages payable as a lump sum, and in setting the rate the Lord Chancellor will have regard to that.
Amendment 79 would include the requirement to assume, among the assumptions which the Lord Chancellor must make under paragraph 3(3) of new Schedule A1 in determining the discount rate, that the cost to the claimant of investment advice shall not be recoverable by way of damages. I appreciate the point made by my noble friend Lord Faulks about the need to be clear about how investment management costs are to be treated in setting the rate, but we do not consider that this amendment is necessary.
Paragraph 3(5) of the schedule provides for the Lord Chancellor to make such allowance for “investment management costs” as he thinks appropriate. This provision has been included on the basis that under the current law the cost of investment advice is not, for the reasons explained by my noble friend Lord Faulks, recoverable as a head of damages and therefore needs to be taken into account as a factor in setting the discount rate. Should the law change, an allowance in the setting of the discount rate would then become unnecessary, as the claimant would already have the benefit of the compensation for the costs. However, we understand that paragraph 3(5) reflects the current law and can adapt to changes in the law. Therefore, we do not consider that it casts doubt on the present law regarding the unrecoverability of investment costs as a head of damage. That is a feature of fixing the discount rate.
Amendment 80, tabled by the noble Earl, Lord Kinnoull, seeks to change one of the assumptions that the Lord Chancellor is required to make under paragraph 3(3) of the new schedule. Under the amendment, the recipient of the relevant damages would be assumed to invest in a diversified portfolio of investment grade listed debt securities rather than a diversified portfolio of investments. The range of investments to be assumed to be made and included in the diversified portfolio under the amendment is clearly narrower than that under the proposed assumption in paragraph 3(3)(c) at present.
The Bill does not restrict the investments that are to be assumed, save that the overall investment approach must be assumed to fall within the range of risk described in paragraph 3(3)(d). We consider that this approach avoids the rigidity of tying the assumptions to a single type of investment. The Lord Chancellor and the panel can therefore assess what the appropriate investments should be in the circumstance of the review. In making their assessment, the Lord Chancellor and the panel will have to have regard to evidence of how claimants actually invest and the returns actually available to investors. We consider that to be a more sustainable system for the future.
Lord McKenzie of Luton
My Lords, I thank the Minister for that very detailed reply and all other noble Lords who have spoken in this debate. On a small point of detail, I think the noble and learned Lord referred to 80% hedge funds. I do not think that is the figure I mentioned, but even at 18% it seems surprisingly high—but there we are.
One outstanding issue is that of how those who are compensated actually make their investments. I draw a parallel with the pensions system. We have just spent quite a long time in this House and at the other end looking at default arrangements for people who have a pension pot and want to transfer it or cash it in on some basis. Encouragement to try to get those individuals to take advice of one sort or another is exercised quite extensively. I raised the same point in relation to people receiving compensation for injury and damages. What happens when they get the cheque? Is there any encouragement for them to get independent guidance on where they should get such advice from? That is still a bit of a mystery to me, even after the debate. I do not know whether there is anything more the Minister can say on that point. The presumption is that individuals will make their own arrangements with presumably regulated advisers. But what about those who do not? What is the process and system that encourages them to avail themselves of investment advice?
Lord Keen of Elie
I do not know whether the noble Lord wants me to respond to that but I will, very briefly, if I may, with the leave of the House. Where you have major claims for catastrophic injury, the lawyers involved for the claimants are highly sophisticated. One clear message that I received when discussing this with claimants’ lawyers was that they are concerned not only with the processing and pursuit of the claim itself but with establishing a framework within which the claimant will be able to live. I imagine that almost invariably involves the provision of suitable investment advice, albeit no one is obliged to accept it.
Lord Faulks
My Lords, in practice, when these cases come before a court, particularly where there is a party who lacks capacity, a judge, before approving one of these orders—they have the right to approve or disapprove a settlement—must be satisfied that appropriate advice has been taken on the split between periodical payments and a lump sum and that, generally, it is a satisfactory settlement from the court’s point of view. If they are subject to the Court of Protection, the court will then be able to manage investments according to the best interests of the protected party. If I may say so, the noble Lord has a good point on what happens to those who do not need the approval of the court or who are outside the protected party, and who are like anybody else who comes into a large sum of money in any other context. They will be well advised to take advice: some do; some, I fear, do not.
Lord McKenzie of Luton
I am grateful to the Minister and to the noble Lord for that education and further information. I still take away the point about where those who do not take advice end up. There is a difference between people receiving compensation for damages—where in most instances it is a one-off arrangement to last them for the rest of their life—and somebody who wins the pools and has a stash to invest, which they may do wisely or foolishly.
The genuine point is this: it is important to be comfortable that people will be as encouraged as they can be to take advice—I know you cannot force them—and to know that any gaps have been covered in our deliberations on the Bill. That is particularly important in this era of scammers and cold-callers. We know the impact that they can have on people’s pensions and there is a real parallel here. Having said all that, I think I have probably said enough, and I beg leave to withdraw the amendment.
“( ) For the purposes of this paragraph, the Lord Chancellor may adopt the membership and work of an expert panel already established by the Lord Chancellor prior to this Schedule coming into force.”
Lord Hodgson of Astley Abbotts
My Lords, this is another “hurry up and get this thing done” amendment, as we discussed extensively earlier today, particularly on the group beginning with Amendment 58. During the course of the responses that my noble friends on the Front Bench gave in that debate and others, my horse was shot—not once but twice. Or at least it was wounded, so I will be very brief.
I suggest merely that as a Committee we agree that we wish to see the new system brought into effect quickly as possible. This amendment is designed as empower the Lord Chancellor to begin preparatory work on setting up the expert panel and putting it to work before Schedule A1 comes into effect. My noble friend Lord Hunt of Wirral, who unfortunately was unable to stay for the rest of the debate, has written to my noble and learned friend on the Front Bench about this, citing precedents of where it has proved effective in the past to get things moving quickly, and the Minister has acknowledged those particular suggestions.
I hope that the Government will work in parallel and not end-to-end, because that will enable us to shorten the period by bringing this new system into effect. The whole discussion around Amendment 58 was about the length of time that it could take. The quicker we can find ways to shorten the proceedings the better, and this amendment might take a couple of months off that procedure if we can get the expert panel in place now. I beg to move.
Lord McKenzie of Luton
My Lords, we support the thrust of this amendment. Matters would have been helped had there been a stand-in panel in the first place.
Baroness Vere of Norbiton
My Lords, Amendment 89 would allow the Lord Chancellor to establish a panel informally before the Bill has received Royal Assent. As we indicated in responding to earlier amendments, the Government share the objective of ensuring that the first review of the rate is begun and completed as promptly as is practicable. With that in mind, we have committed in response to the Justice Select Committee report not only to issue a further call for evidence to obtain any additional relevant information but to commission the Government Actuary’s Department to carry out further research and analysis.
The solution proposed in the amendment to the question of how to get the panel working at the earliest possible date is certainly imaginative, but it assumes that there will be a material difference in the time by which the proposed “shadow panel” and the “real panel” will be able to carry out that work. That is not necessarily the case. The panel will need evidence and analysis to carry out its work. That will take time. There are also the considerations that the process of recruitment should be in accordance with the principles of public appointments and that the review process must be open and transparent.
I am grateful to my noble friend for his suggestion, but I do not think that in a subject as sensitive as the setting of the personal injury discount rate I can accept it. I can, however, reassure him that the necessary steps will be taken to ensure that the first review of the rate following the passage of the Bill will be conducted as swiftly as possible, while also on as fully informed a basis as it possibly can be. In the light of this, I hope that my noble friend will feel able to withdraw his amendment.
Lord Hodgson of Astley Abbotts
I am grateful to my noble friend, but I am less reassured—my horse has got up and started moving around again. I thought it had been shot but in fact it has not. “As soon as possible”, “as quickly as possible”, “we shall be working on it”, “we’ll do everything we possibly can”, “there’s no question of delay”, and, “we have procedures to go through and we’ll have to take evidence”—all this sounds like things are being slowed down again and the very thing that we were driving at in the amendment has been run into the rails, to continue with my horseracing metaphor. However, the hour is late and I beg leave to withdraw the amendment.
Civil Liability Bill [HL]
Tuesday 12th June 2018
(6 years, 6 months ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 90-R-I(Rev) Revised marshalled list for Report (PDF, 139KB) - (11 Jun 2018)
17:47 - Division on Amendment 18 - Ayes: 205 / Noes: 218 - Amendment 18 disagreed.
19:02 - Division on Amendment 47 - Ayes: 169 / Noes: 183 - Amendment 47 disagreed.
The Deputy Speaker (Lord Geddes) (Con)
My Lords, before calling Amendment 1, I must advise the House that if Amendment 1 is agreed to I will not be able to call Amendment 1A due to pre-emption.
Amendment 1
Baroness Vere of Norbiton
(1A) An injury falls within this subsection if it is—(a) a sprain, strain, tear, rupture or lesser damage of a muscle, tendon or ligament in the neck, back or shoulder, or(b) an injury of soft tissue associated with a muscle, tendon or ligament in the neck, back or shoulder.(1B) An injury is excepted by this subsection if—(a) it is an injury of soft tissue which is a part of or connected to another injury, and(b) the other injury is not an injury of soft tissue in the neck, back or shoulder of a description falling within subsection (1A).”
Baroness Vere of Norbiton (Con)
My Lords, I shall speak to all the government amendments in the name of my noble and learned friend Lord Keen in this group. These amendments concern putting the full definition of “whiplash injury”, to which the measures in Part 1 will apply, in the Bill. Amendment 4 introduces a limited power to amend the full definition of whiplash injuries by means of affirmative regulations.
The Government have carefully considered the view of the Delegated Powers and Regulatory Reform Committee that it is important, in order to get a full understanding of the Bill, for “whiplash injury” to be defined in full in the Bill rather than in regulations. We have also reflected on the similar views put forward by noble Lords during recent debates in this House. We agree with the merit of these arguments, and as a result I now bring forward amendments to achieve this.
The Government’s proposed full definition is focused on soft tissue injuries to the neck, back and shoulder. It is particularly important to ensure that claims for soft tissue injuries to the shoulder, which are already routinely included in many current whiplash claims, will also be covered. The detailed definition provides clarity and certainty for both claimants and defendants. We have listened to experts and also broadened the definition to injuries to the shoulder to mitigate against claims displacement. It is consistent with the Bill’s aim of bringing into scope all relevant claims and injuries so we can effectively tackle the continuing high number of whiplash claims which so impact on the cost of insurance premiums for ordinary motorists.
As many noble Lords recognised in previous debates, it is essential that the full definition can be adapted so it can respond to future medical developments or changes in the behaviour of the claims market. If it cannot be amended promptly it could have an adverse impact on genuinely injured claimants and insured motorists. We therefore propose a further amendment to introduce a limited power to amend the definition by regulations. We have discussed this issue in detail with noble Lords from across the House in recent weeks and believe that many in this Chamber agree that this is necessary. Amendment 4 would therefore permit the Lord Chancellor to amend, by regulations, the definition of “whiplash injury” to include other soft tissue injuries to the neck, back or shoulder or to exclude or refine the description of soft tissue injuries to the neck, back or shoulder.
The power to amend the definition the Government are seeking is limited. No changes can be made for three years to ensure the current definition has time to bed in. Before making any changes, the Lord Chancellor must first undertake a review of the current definition and publish a report including the decision about whether to amend it. Any amendments must also be subject to consultation with the statutory consultees set out in the Bill, which are the Lord Chief Justice, the Chief Medical Officers for England and Wales, the Bar Council and the Law Society, among others. The power could not be used within three years of the previous review. I believe that the definition and power to amend, as proposed in the government amendments, reflects the will of the House. They are clear, reasonable and proportionate to the problem. I beg to move.
Baroness Vere of Norbiton
Lord Berkeley
Lord Berkeley (Lab)
Amendment 2A is in my name and that of my noble friend Lord Young of Norwood Green who, sadly, cannot be here today. It is the result of a lot of discussion in Committee about how to avoid what is otherwise a very useful Bill having an adverse effect on vulnerable road users, who could be defined as cyclists, pedestrians, motor cyclists—those who can sometimes suffer most from injuries such as this. I am also grateful to the Minister for agreeing to see us a few weeks ago, when we had a useful discussion.
We were able to table this amendment only yesterday because we struggled to come up with wording that does not affect the main Bill but that protects vulnerable road users and allows them to continue, if they need to, to get legal aid under the present arrangements, rather than increasing the minimum figure to £5,000. We concluded that, as the Minister and many other noble Lords have said, this Bill is about whiplash and nothing else. As I understand it—I hope the Minister will confirm this when she responds—it is only about whiplash and nothing to do with any other kind of legal aid claim that might be needed for other issues, road traffic or otherwise.
I had a long discussion with the clerks on this issue, as well, and it seemed to me that what was needed was something that would exclude vulnerable road users from the particular issue we are talking about—raising the legal aid limit—if they suffer whiplash. One might ask how a pedestrian or a cyclist is going to suffer whiplash if they are not in a car, but they probably could, for whatever reason, if they are hit by a car.
We then looked at Clause 1(3) and I, as a non-lawyer, started to get a bit confused as to who the phrase “the person” referred to. Is it the person who suffered injury, or the person who might be alleged to have caused the injury? It seemed to me that there is a reasonably elegant solution—which I am sure my legal friends will say does not work—that clarifies what is meant by “the person” in subsection (3). If the amendment were accepted, it would be clear that:
“For the purposes of this Part a person suffers a whiplash injury because of driver negligence if … when the person suffers the injury”,
that person,
“is using a motor vehicle other than a motor cycle on a road or other public place”.
I think that this is quite an elegant solution, providing an exception to this Bill for vulnerable road users who are not in cars, and who therefore would not be included.
I hope that that short explanation is helpful. I look forward to other comments and in the meantime, I beg to move.
Baroness Vere of Norbiton
My Lords, I have listened carefully to the noble Lord and appreciate the change he would like to make. In our view, however, the existing clause already makes it sufficiently clear that the person who suffers a whiplash injury because of driver negligence is the person who is either using the motor vehicle or who is a passenger in the motor vehicle at the time of the accident. The amendment therefore seems to add no practical difference to the construction of the clause.
In relation to vulnerable road users, I reassure the House that the clauses of the Bill relating to whiplash do not extend to cyclists, passers-by or pedestrians outside the vehicle or vehicles involved in the accident. However, I am aware that such road users remain captured by the Government’s non-Bill measure to increase the small-claims limit for road-traffic-accident-related claims to £5,000. We will deal with this issue in more detail a little later today, but I can say that we are sympathetic to the arguments made in relation to vulnerable road users and will continue to consider the matter. For the reasons that I have set out, I urge the noble Lord, Lord Berkeley, to withdraw his amendment.
Lord Berkeley
My Lords, I am grateful to the Minister for that explanation. One of the reasons for tabling the amendment was to probe her response. I will read it very carefully but in the meantime I beg leave to withdraw the amendment.
Baroness Vere of Norbiton
Baroness Vere of Norbiton
“Power to amend section 1
(1) The Lord Chancellor may by regulations amend the definition of “whiplash injury” in section 1, but not so as to include an injury of soft tissue other than soft tissue in the neck, back or shoulder.(2) Before making regulations under subsection (1), the Lord Chancellor must—(a) review the definition of “whiplash injury” in section 1,(b) as part of the review, consider whether to amend section 1,(c) prepare and publish a report of the review, including a decision whether or not to amend section 1 and the reasons for the decision, and(d) lay a copy of the report before Parliament.(3) After laying the copy of the report before Parliament and before making regulations under subsection (1), the Lord Chancellor must consult—(a) the Lord Chief Justice;(b) the General Council of the Bar; (c) the Law Society;(d) the Chief Medical Officer of the Department of Health and Social Care;(e) the member of staff of the Welsh Government designated by the Welsh Ministers as the Chief Medical Officer for Wales;(f) such other persons or bodies as the Lord Chancellor considers appropriate.(4) The Lord Chancellor may not carry out the first review under subsection (2) before the end of the period of three years beginning with the day on which section 1 comes into force.(5) After the first review, the Lord Chancellor may not carry out a review under subsection (2) before the end of the period of three years beginning with—(a) if regulations under subsection (1) were made following the previous review, the day on which those regulations came into force, or(b) if no regulations under subsection (1) were made following the previous review, the day on which a copy of the report of the previous review was laid before Parliament.(6) A statutory instrument containing regulations under this section is subject to affirmative resolution procedure.”
Baroness Vere of Norbiton
Lord Woolf
Lord Woolf (CB)
My Lords, I thank the noble Baroness, Lady Chakrabarti, and the noble Lords, Lord Beecham and Lord Marks, for allowing me to speak first to this amendment, which also relates to Amendments 17B, 18 and 30. I also record my gratitude to the Minister for the courteous manner in which he has promoted the Bill and for being prepared to discuss its contents with me.
I draw attention to my interest in the register. I also disclose that I have a son who is a QC practising in clinical negligence. What is most relevant so far as my own career is concerned is having chaired the access to justice inquiry and helped with the implementation of its recommendations, in my then capacity as Master of the Rolls. The recommendations included different tracks and procedures for disposing of civil claims.
The one that we are concerned with today is the disposal of small claims by what is known as a small claims court. As noble Lords would expect, this was designed to provide speedy and simple justice for litigants who are not usually represented. The assessment by a court of damages has always been accepted as a purely judicial responsibility in England and Wales, as far as I know, and that responsibility has been reflected in many decisions of the courts. The Personal Injury Bar Association published a paper that referred in this regard to the speech of Lord Blackburn in Livingstone v Rawyards Coal, 5 App Cas 25, at page 39—a decision as long ago as 1880. Lord Blackburn said:
“I do not think there is any difference of opinion as to its being a general rule that, where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation”.
Another well-established legal principle is that, if you are wrongfully injured, the wrongdoer has to take the victim as he finds them. The effect of whiplash injuries, with which we are concerned, can vary substantially according to the physical and mental sturdiness of the victim. This means that the appropriate amount of damages for a whiplash injury can vary substantially when applying the rule to which I referred. I suggest that they are not suited to a fixed cap, as proposed by the Government.
Lord Marks of Henley-on-Thames (LD)
My Lords, we share the Government’s objective of reducing fraudulent whiplash claims, but we do not agree that the proposed arbitrary reduction in damages for all claimants, fraudulent or genuine, coupled with removing judges from the assessment of damages, is a proper way in which to address it. For that reason, I shall concentrate on supporting Amendment 18, so eloquently and comprehensively spoken to by the noble and learned Lord, Lord Woolf, with his strong appeals to principle.
We welcome banning cold calling, whether by claims management companies, car hire companies, car repair companies, solicitors or anyone running a calling operation for any of them. Section 35 of the Financial Guidance and Claims Act makes a start in banning cold calling, but its main weakness is that it does not outlaw the use in this country of information obtained by cold calling, often from abroad, and the definition of claims management services in that Act looks to me insufficiently broad. By amendments in the fourth group, we try to address the use of information from cold calling.
We welcome prohibiting settlement of whiplash claims without medical reports from properly accredited clinicians. So those provisions on cold calling and medical reports are targeted on reducing or eliminating fraud. However, the proposed radical reduction in the level of damages to the Government’s very low tariff is a blunt instrument that would indiscriminately cut to the bone compensation for genuine claimants as well as for fraudulent ones. The purpose of general damages in personal injury cases has, as the noble and learned Lord, Lord Woolf, explained, always been to compensate claimants, so far as money can, for the injuries they have suffered as a result of the negligence of defendants. Clause 2 abandons that principle in whiplash cases. If Amendment 18 is carried, Clause 3 would be meaningless, so we would expect the Government to accept Amendment 30 in the name of the noble and learned Lord, Lord Woolf.
Viscount Hailsham (Con)
Will the noble Lord also observe that this clause is only permissive and does not require the Lord Chancellor to make an uplift?
Lord Marks of Henley-on-Thames
My Lords, I am very grateful for that intervention, which is absolutely right. The point about an uplift is that, if it is just, it should be given. We say that there may be a whole range of circumstances where it is clear that an award greater than the tariff figure is justified. We would regard it as far better than insisting on a finding of exceptional circumstances to permit the courts, as per our Amendment 20, to increase a tariff award where satisfied simply that it would be in the interests of justice to do so. Were Amendment 18 not carried so that Clause 2 survived, we would propose to pursue that amendment to improve Clause 3, which would then remain.
Viscount Hailsham
My Lords, I shall comment on an amendment that has not been spoken to—Amendment 12, which I think will be articulated by the noble and learned Lord, Lord Judge—and, more precisely, on the proposed new clauses, spoken to so admirably by the noble and learned Lord, Lord Woolf.
Amendment 12 seems manifestly sensible. Of course the Lord Chief Justice should be consulted by the Lord Chancellor. That is particularly important when one bears in mind that many Lord Chancellors nowadays are not lawyers and will therefore be entirely dependent on the advice of their officials, who might themselves not be lawyers. Therefore, it seems admirable that we should put into statute a requirement that the Lord Chief Justice be consulted. If the Minister says, “But of course he will be”, all I can say is that Ministers sometimes have a curious habit of forgetting the obvious and their obligations. For example, I was rather surprised about three weeks ago when the noble Lord, Lord Callanan, during the debate on Brexit, said that Ministers had never used the phrase “meaningful vote”. That was a curious lapse of mind, and it may well be that Lord Chancellors will forget the obligation to consult the Lord Chief Justice. Therefore, I am all in favour of the amendment and I hope the Government will concede the point.
Perhaps I may move more directly to the proposed new clause in the name of the noble and learned Lord, Lord Woolf, and Amendment 18. I do not have the experience of the noble and learned Lord but for many years I practised as a personal injury lawyer. I do not do so any more, so there is no need for me to identify an interest, but I used to do a lot of work in personal injury law. Indeed, I was instructed by my noble friend Lord Hunt and I was very grateful for the briefs in those days. Back then, we were informed about the level of damages by the guidance of the Court of Appeal and by the reports, which in those days were available in the current law citator. There really was no difficulty in operating within the parameters set by the judiciary.
That takes me to my objections to what the Government are proposing. The first is a very deep-seated reluctance to see the Executive or Parliament interfering with essentially judicial positions. I am bound to say that that informed my real reservations about the determination of Parliament to impose tariffs in homicide cases, set out in a schedule to the Act. I deprecated that. This is another example which we should be very cautious about. We need to ask ourselves what the essential characteristic of justice is. It is to respond to the individual and varied cases that appear before the courts. The effect of imposing a cap of this kind is to prevent the trial judge being able to respond to the particular aspects of the case in front of him or her, and in my view that is, by definition, unfair.
There is a further point that I venture to intrude on the observations of the noble Lord, Lord Marks. It is perfectly true that the Bill provides for an uplift, but the uplift requirement is discretionary on the Lord Chancellor; it is not mandatory. The Lord Chancellor may provide for an uplift in regulations but he or she does not have to do so.
I am sorry to be pedantic about this, but your Lordships will know that on many occasions I have spoken in pretty derogatory terms about the statutory instrument process that we have. This is another example. Let me acknowledge at once that we are doing it by the affirmative procedure, which is a lot better than doing it by the negative procedure, but the cap will be determined by statutory instrument. Who, pray, is going to set the cap? I can tell you: it will be officials. Unless the Minister of the day is particularly well informed and/or intrusive, the cap will be determined by officials without interference. I am bound to say that I find that a very unpleasing prospect.
If, therefore, the noble and learned Lord, Lord Woolf, is minded to press his amendment and his proposed new clause and to test the opinion of the House, unless my noble and learned friend is even more persuasive than he customarily is, I anticipate that I will support the noble and learned Lord.
Lord Judge (CB)
My Lords, it is a great comfort to hear the noble Viscount, Lord Hailsham, say that he agrees with what I am going to say before he has heard it. Now, perhaps he will not mind hearing it.
We have to face the reality that there are a huge number of fraudulent claims for damages arising from alleged whiplash injuries sustained in road traffic accidents—far too many of them. We also have to remember that a large number of perfectly honest claims are made as a result of injuries suffered in road traffic accidents. We have to find a pragmatic solution to the problem of fraudulent claims, given that the cost of contesting them in court tends hugely to outweigh the amount of money that is at stake if the claim is not substantial. Whiplash injury cases, in the way that will now be defined in the Bill, are not cases that attract vast sums of money in damages. I particularly welcome the requirement of medical evidence, which provides some level of protection against the fraudulent. I welcome also the prohibition on cold calling, and I think there is something in the provision for uplift.
Can we be clear, though, that some claims absolutely reek of fraud? I suspect many of us know, for example, of a case where, at traffic lights with two cars in a line and none behind, the front car moves forward across the junction, not too fast, and is followed by the second car. Then, suddenly, the front car slams on its breaks for absolutely no reason, resulting in an impact. I am certainly aware of at least one case—perhaps we all are. It was not a case in court but was narrated to me by a friend, who was rather mortified to find that, after a small accident, the recipient of the injuries in the other car came out of the car saying, “Whiplash, whiplash!”, and had no other word of English to speak. He then found that his insurance company had received claims for no less than four people, when there was only one person in the car. As I say, these cases reek of dishonesty.
I hope that, if this part of the Bill is enacted, insurance companies will continue to remember that before a claim can be made for whiplash injuries, there has to be a claim and the claim should be contested as and when there is evidence of fraud. They cannot just sit back, otherwise they will find themselves paying out more and more. Some cases reek of fraud and they should be contested, and the easy way of doing nothing much more than that should be avoided. The police should be informed and the evidence should be handed to them so that at least they can investigate. I know that they have many other things to do, but a few knocks on doors and the word would go around the fraudulent area of this particular universe saying, “Hang on, there’s something going on here”. That too might discourage the odd dishonest claim.
What I cannot accept is a solution which means that a dishonest claim is handled in exactly the same way as an honest one. We cannot have dishonesty informing the way in which those who have suffered genuine injuries are dealt with. That is simply not justice. There should not be any idea that an honest claim for a whiplash injury made by the victim of a car accident should be less well compensated than an identical injury suffered by someone at work. There are all sorts of ways in which injuries can be caused; indeed, a slip in the street or a fall down the stairs can result in a whiplash injury, so there are many perfectly ordinary ways in which these injuries can be sustained. We need a process that produces the same result for the same victim who has honestly suffered the same consequences.
The Earl of Kinnoull (CB)
My Lords, I declare my interests as set out in the register, particularly those in respect of the insurance industry. The 2017 Conservative manifesto provides an interesting lens through which I feel one ought to consider various amendments in this group. It states the following in a section entitled, “Cutting the cost of living”:
“We will reduce insurance costs for ordinary motorists by cracking down on exaggerated and fraudulent whiplash claims”.
At a high level, the Bill seeks to do that principally by dictating how whiplash claims procedures will work in the future; that is, through the use of a tariff. Several amendments in this group seek to interfere with the principle of a tariff either by removing it or by making it rather more generous than market forces allow today. Both of these approaches seem to fly directly in the face of that express manifesto commitment. I remain very much of the view that any tariff should be set out in the Bill, just as the Delegated Powers and Regulatory Reform Committee has recommended.
We are in extraordinary and difficult circumstances here, with around 1% of the population of the UK annually successfully concluding a whiplash claim. I submit that a social and political necessity trumps jurisprudential purity, such as that advanced by my noble and learned friend Lord Woolf, even before considering the manifesto commitment point that I made earlier.
A tariff will bring benefits in terms of certainty and the potential for ordinary citizens to file claims online easily, without the need for external professional help. Any reduction in hassle and the costs of processing a claim will inevitably benefit everyone. Indeed, we heard at Second Reading how a tariff system seemed to work well in Spain. Deleting Clause 2 would deny those benefits. It would certainly deny the Government the ability to deliver on their manifesto commitment because the hugely unsatisfactory status quo would simply continue, with a numerous minority of our fellow citizens continuing to abuse the current environment to their financial advantage. Therefore, I strongly oppose Amendment 18.
Turning to the quantum in the tariff table, I accept that the issue is rather a Goldilocks one. If the quantum is too generous, the problem of exaggeration and fraud will persist. If it is not generous enough, the genuinely injured will be badly dealt with. The Government have attempted to walk this line in their draft statutory instrument; I make no comment on the numbers it contains. The structure of the Bill allows the Lord Chancellor to vary the tariff with suitable safeguards.
I fear that Amendments 10 and 17B are too generous because they depend on the Judicial College numbers, which are derived from cases heard. The numbers are actually above where the market—if I may call it that—is today because the cases that tend to get to court tend to have non-standard features, such as being more complex or involving psychological issues. Therefore, I fear that if either of these amendments were adopted, there would be no saving per the impact assessment—possibly even a negative saving—and thus they too defeat the Government’s manifesto commitment. Accordingly, I oppose them.
In turning to Amendment 30, I start by expressing my support for Amendment 12, which restores constitutional balance in a very elegant way. Indeed, I congratulate the noble and learned Lord, Lord Judge, on his excellent speech. Amendment 12 goes some way to addressing the issues that were set out well by the noble and learned Lord, Lord Woolf, in introducing Amendment 30. However, Clause 3 is not only a fully important part of a package to frustrate the designs of the claims industry but an important part of a strategy to deliver the manifesto commitment. On that basis, I feel that this amendment should also be resisted.
Lord Pannick (CB)
My noble friend Lord Kinnoull referred to “jurisprudential purity”. I would prefer to describe it as the essential role of the judiciary in deciding what compensation is appropriate. I would be very grateful if the Minister would tell the House whether there is any precedent for a Minister, rather than judges, deciding on the appropriate level of compensation for a civil claimant when that compensation is being paid not by the state—I recognise that that may be a different matter—but by a private wrongdoer or, more accurately, their insurance company. I suggest that either there is no precedent or this is rare, for a very good reason: put simply, judges, not Ministers—or their civil servants, more accurately—have expertise and independence in this area. For those reasons, I strongly support the speech made by my noble and learned friend Lord Woolf.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, I confess to having found this group of amendments rather difficult. As I observed in Committee, the real question as I see it in Part 1 is whether it is right to fix especially low awards for whiplash injuries suffered in road accidents, to deter the disproportionate number of false claims which undoubtedly are made following such accidents. That is what Clause 2 does: it seems to me impossible to escape that conclusion. Obviously and inevitably its effect, therefore, would be to penalise those who genuinely claim for such injuries sustained in that way. They are to pay the price of the policy underlying Clause 2, the policy of deterring the dishonest. Obviously, one regrets that.
Whether to pursue that policy and, if so, to what extent and how vigorously—in other words, how far to reduce the awards so as to make the making of a false claim less attractive—is, it seems to me, par excellence a political question. It is purely a political question and therefore I, for my part, see no particular point in involving the judiciary as Amendment 12 would do. We know what the judiciary regards as the appropriate level of damages for honest claims of this sort: the Judicial College guidelines clearly tell us that. Therefore I do not support Amendment 12.
To my mind, the real question is the altogether more fundamental question raised by my noble and learned friend Lord Woolf’s Amendment 18 and that is the one I confess that I find the more difficult. I flagged up my concerns about this and about the whole of the Part 1 policy in Committee. My noble and learned friend suggests that the proposal will create an undesirable precedent and introduce injustice into the system. Of course, I recognise the force of these criticisms and to a degree I share his doubts as to whether the incidence of false claims remains grave enough to justify this wholly exceptional measure. However, at the end of the day I am reluctantly persuaded that this provision is justified: it is surely intolerable that we are known as the whiplash capital of the world, so I have concluded that it is open to government, as a matter of policy, to seek to deter dishonest claims in this way.
I do not suggest that there are any exact analogies between the law of compensating injuries negligently caused and what is here proposed. I accept that the criminal injuries compensation scheme, to which in effect my noble friend Lord Pannick and the Minister referred—statutory awards for injuries criminally caused—is a very different creature, but it should be recognised that broad questions of policy can and on occasion do have a part to play in this area of our law. For example, the courts have held, under what lawyers here will recognise as the Caparo principle, that in certain circumstances claims are barred altogether, not just restricted. In short, there is no duty of care held to arise, even when injury follows on from what otherwise would be plain negligence, where it is held, for whatever reason, that it would not be fair, just and reasonable to compensate in those circumstances. For example, years ago in the case of the Yorkshire Ripper, the police were held exempt from claims despite their failure to apprehend the killer, which manifestly they should have done, and, as we all recall, a series of subsequent women died.
On balance, my conclusion is that there is a sufficient policy reason here for restricting damages in this case. With some hesitation, I shall not feel able to support the amendment tabled by the noble and learned Lord, Lord Woolf.
Lord Hunt of Wirral (Con)
My Lords, this group contains 18 amendments, of varying importance. I declare my interest as having been a partner for 50 years—this year—in the global commercial law firm DAC Beachcroft LLP. I was so pleased to see the noble Lord, Lord Morris of Handsworth, in his place earlier because for many years I had the honour to act for the Transport and General Workers’ Union when, on the instructions of Mr Albert Blyghton, I went into battle to recover substantial damages where people had been seriously injured.
In supporting the words of the noble and learned Lord, Lord Brown of Eaton-under-Heywood, and the noble Earl, Lord Kinnoull, I remind the House that here we are dealing with a racket, as described by the noble Lord, Lord Blencathra, which has grown up in this country thanks to what is termed the compensation culture, encouraging not just fraudulent but spurious—I think that is a better description—claims, which have now made us the global whiplash capital. I greatly regret that.
After all, in this group of amendments we are talking about only minor injuries. As has been pointed out by the noble and learned Lord, Lord Brown, there has been a political decision. I remind noble Lords that in the Red Book in 2015, the then Chancellor of the Exchequer, Mr George Osborne, said:
“The government will bring forward measures to reduce the excessive costs arising from unnecessary whiplash claims … including by … removing the right to general damages for minor soft tissue injuries”.
I am not sure everyone here was present when we had a debate—and we have had a number of subsequent debates—about the need to tackle this whiplash culture.
Not everything George Osborne said in that Autumn Statement was received with universal acclamation but I well remember that that particular announcement was welcomed on all sides of the House. “At last”, we said, “we’re going to get rid of the whiplash culture”. There was a clear consensus in this House that the law and the courts had allowed a racket to flourish, leading to a manifest and substantial injustice—the injustice of millions of law-abiding insurance policyholders having to pay over the odds to fund this mass of bogus claims. We can point the finger at the insurance industry, perhaps, for allowing too many but we are talking not just about insurance-funded claims but about a whole range of minor claims, and we have to decide as a House whether we intend to fulfil what I understood we had agreed to do about this racket.
I congratulate my noble and learned friend the Minister on the determination he has shown to end this racket and to end the injustice. We have identified an injustice and we have promised to act to end it.
There is a judicious balance in the Bill, as one would expect, and those with genuine minor injuries have nothing at all to fear from it. The option of doing what George Osborne initially recommended, namely to remove general damages completely from soft tissue claims, has perhaps wisely been abandoned in favour of the proposed tariff. In Amendment 1, as we have already heard, the Government have further answered their critics in this House by putting a clearer definition into the Bill. It is not perfect but it is a lot better than the previous one in the draft regulations. It comes closer to capturing the scale of the problem.
I thought we had a consensus in this Chamber in July last year, when we debated the need to tackle the regulation of claims farmers during the passage of the then Financial Guidance and Claims Bill. I highlighted at the time the work of Carol Brady, in her excellent report in 2015, and the need to follow the money. Noble colleagues on all sides of the House agreed in that debate that these were important measures; now, we have to tackle the money itself, in the form of damages and solicitors’ fees, and we are of course suddenly beset by an enormous number of last-minute amendments. I must share with the House that, following the then Chancellor of the Exchequer’s announcement, I was told: “Don’t think for a moment that this will ever pass, because the jobs of thousands of those employed in the claims management industry will be lost. They will fight hard to stop the Government’s action”.
Why should the noble and learned Lord, Lord Woolf, of all people, be challenging the Government’s stated intent here? I have already heard the depressing rallying call of access to justice. In truth, I worry about some of the briefings that we have received in preparing for this debate. They really seek to delay what action the Government are taking. I know that the noble and learned Lord, together with many other Members of this House, has received instructions from me personally in the past and I have huge respect for him. We must surely recognise, as the noble Earl, Lord Kinnoull, reminded us, that the Government committed in the manifesto at the last election to tackle the rampant compensation culture around whiplash claims—the same culture which pays the bills for those who continually text and call us with offers of money for nothing. We must not allow our eye to be taken off that ball.
The noble and learned Lord, Lord Woolf, referred to the Judicial College guidelines. Amendments 11, 17A and 17B propose sagely that those guidelines are the cure of all ills, but they are really not the answer to the question we have to address. I do not know the guidelines off by heart but I know this particular section, because it reminds us that,
“the figures … merely represent what other judges have been awarding for similar injuries”.
That is all the guidelines do. They also say:
“The figures in this new edition recognise that … the general increase in RPI … since … 2015 has been 4.8%”.
With respect to the good work that the Judicial College does to make awards consistent, the guidelines simply record the numbers previously thought of by other judges over the years and then uprate them for inflation. These and other amendments proposed by the noble and learned Lord, Lord Woolf, in fact oppose the entire substance of Part 1. They ask us to agree to leave the problem to the judges to sort out.
I respectfully answer that the courts have had many years to contain the problem but I have yet to see any conspicuous success. The assessment of damages by judges is based on a ratchet effect; it can go up but it can never slip back, as the Judicial College guidelines themselves admit. Judges do not redress the balance at any time. On one recent occasion when they had the opportunity to do so—the noble and learned Lord may recall Heil v Rankin in 2000—the judges increased damages for all but minor injuries and left the damages for those alone, so the control effect is simply absent. That is why it is now up to Parliament to do what needs to be done.
I conclude by reminding colleagues that a graphic illustration of leaving such matters solely to the discretion of judges can be found in a High Court appeal case last month, Molodi v Aviva Insurance. A whiplash claim was initially accepted by the county court judge, even though Mr Molodi had lied on a number of aspects of his case. The High Court judge in Manchester, Mr Justice Spencer, threw the claim out and issued a salutary warning to the judiciary,
“it is also pertinent to recognise the problem that fraudulent or exaggerated whiplash claims have presented for the insurance industry and the courts. This was recognised in March 2018 when the Ministry of Justice published a Civil Liability Bill … proposing new, fixed caps on claims … The problem of fraudulent and exaggerated whiplash claims is well recognised and should, in my judgment, cause judges in the County Court to approach such claims with a degree of caution, if not suspicion”.
The need to issue such a general warning to fellow judges belies the suggestion that we can safely leave this issue for judges to control. The tariff is sorely needed. It applies the brake, which only the Government can apply, not the courts.
Lord Faulks (Con)
My Lords, I repeat my declaration of interests made at previous stages of the Bill. The noble and learned Lord, Lord Woolf, and others have advanced powerful arguments in favour of protecting the entitlement of those genuinely injured who seek compensation for whiplash. Coming from such a distinguished source, these arguments clearly demand a great deal of respect around the House. It is therefore—to adopt a phrase used by judges—my misfortune not to agree with the noble and learned Lord’s amendment. The noble and learned Lord, Lord Brown, referred to the fact that judges from time to time decide matters of policy and relied on the case of Caparo and the fair, just and reasonable test. It is of course for Parliament to decide fairness, justice and reasonableness, and it should approach this problem with that in mind.
It is undoubtedly true that some genuine claimants who have sustained whiplash injuries will be entitled to rather less than they would have been if the Bill becomes law, but we need to stand back and consider the policy driver behind these changes. At Second Reading, the Minister pointed out that there has been a 70% rise in 10 years in the number of road traffic accident-related personal injury claims. Of these, 85% are for whiplash-related injuries. In 2016-17, there were 670,000 whiplash claims—it is rather surprising that anybody gets into their car at all—yet we know that we have more of these injuries than any other European jurisdiction notwithstanding the considerable improvement in standards of road safety in this country and the adoption of neck restraints and the like. All this costs motorists and consumers a great deal, and the cost of premiums falls particularly harshly on those who live in rural communities and have to drive cars and on the young, who may find it difficult or impossible to pay premiums.
Lord McNally (LD)
My Lords, I have some trepidation in speaking before a former Lord Chancellor does, but perhaps what I have to say will help. I am grateful to the noble Lord, Lord Faulks, for reminding the House that I was the Minister who took through the LASPO Bill and I have been watching the Labour Front Bench nodding in unison at every word that could possibly embarrass the Government. However, the origins of what we are doing now lie with the last Labour Government, who shared then the growing cross-party consensus that we were becoming a more litigious society, driven by a compensation culture and a determination to have our day in court—the noble Lord, Lord Faulks, referred to Jack Straw’s campaigning on whiplash—and the response to that was the setting up of the Jackson report under Sir Rupert Jackson.
It is interesting to note that one of the reasons for the setting up of the Jackson report under the Labour Government was that the costs in civil litigation were often disproportionate to the issues at stake. Lord Justice Jackson, who has just retired, spoke at the Cambridge law faculty on 5 March 2018 and, reflecting on his reforms, he said that the problem was that,
“Almost everyone perceives the public interest as residing in a state of affairs which coincides with their own commercial interests”—
he might have said professional interests as well.
My locus in this is not as a lawyer—I have told the House before that when I was a Minister I once said to a visiting distinguished American lawyer, “I must explain that I am not a lawyer”, and he said, “Then I shall speak very slowly”—and, given the array of legal advice and talent we have already heard, I tiptoe into this with trepidation. This is based partly on a family experience of a whiplash, which was clearly fraudulent but the insurers thought that the cost of defending was greater than simply settling. That left me with the experience of not only a fraudulent claim but a fraudulent claim which was sustained by the obvious collusion of both the solicitors and the doctor concerned. Therefore, the noble Lord, Lord Hunt, is right to talk about a racket in which many respectable professions are involved. Those overseeing those professions have a duty of care to root out those who are complicit in these frauds.
As I have said, there was a growing cross-party consensus that something must be done. I confess that seven years ago I answered a Question from the Dispatch Box assuring the House of the urgency with which the Government were dealing with the issue of whiplash. I say to my Front Bench and to the noble and learned Lord, Lord Woolf, for whom the affection and respect I have is overwhelming, that I worry his amendment is just another one kicking the problem down the road when everybody else who speaks on it recognises that there is a problem. This has been said on a number of occasions: we are dealing with not the kind of catastrophic life-changing injuries that the noble Lord, Lord Faulks, often refers to when we discuss medical negligence, but the very lowest level of claims where, as the noble Lord again said, many people would not even think of claiming if they were not spurred on by the claims management industry out of its own self-interest.
I fully endorse what my noble friend Lord Marks said about the need for others to take responsibility, not least the industry itself, for fighting fraud and making attempted fraud not worth while. I worry that the legislation says that we need a medical certificate. Somebody said, maybe in a private briefing, that there was one doctor who had a kind of Roneo of letters that he just signed. If you are going to have a medical check in this, you have to make sure that it is not part of the fraud because in the past it has been.
Nevertheless, it is rather sad that we have this collection of amendments. I look forward to the usual forensic dissection of them by the noble and learned Lord, Lord Keen. There are some good and some not so good ideas in there, but I do not want us to see something that becomes a wrecking amendment when we have waited for far too long for this. Perhaps because I am not a lawyer I do not share the fear from the noble and learned Lord, Lord Woolf, that we are setting some terrible precedent that will weaken the role of the judiciary. I do not see that at this very low end of the process. I hope that, in our usual way in this House, we can extract some of the good ideas that have been put forward but not lose the sense of urgency with which the Bill, at last, tries to address a real problem in a practical way.
Lord Mackay of Clashfern
My Lords, I will speak primarily about the amendments that my noble and learned friend Lord Woolf has proposed. This part of the Bill is concerned only with claims for pain and suffering. It has nothing to do with any other form of loss. Other forms of loss are easily quantifiable, but loss arising from pain and suffering is a development of the law that has very little in the way of structure.
When I was a junior at the Scottish Bar long ago these matters were often the subject of jury claims. Pain and suffering was an element in a jury claim. The judges were warned against suggesting a figure to the jury. You can imagine how difficult it was to provide a summing up that dealt with that. I remember well that one of the senior judges that I knew had a formula in which he said, “This is a sum to mark your sense of the pain and suffering that the claimant has suffered”. That was done by juries; it was before the time that judges were involved in this, and therefore it was a jury question. It has all the character of a jury question in the sense that there are no rules that I know of—none has so far been quoted—to determine the amount to be given. How has that been done? As my noble friend has just quoted from the judicial guidance, it has been done by collecting what others have decided in other cases. There is nothing specifically judicial about that. I think almost any of us could manage to deal with that; you do not need to be a very experienced judge to do that kind of calculation.
Baroness Berridge (Con)
My Lords, I have spoken at every stage of the Bill and I first thank the Minister for his time discussing matters with me.
For those who have been in your Lordships’ Chamber for the entirety of this debate, it is interesting to note how blame has been passed around like a squash ball. Is the fault that of the Government for not acting quickly enough, the insurance companies, those dastardly claims management companies or the judiciary for not getting a handle on this earlier?
While there is undoubtedly a problem with fraudulent claims, the one group not to blame is those people who are genuinely injured in this manner in an accident. Some of these cases indeed reach court: I have the privilege of representing those people.
Before I proceed, let me also comment on the matter of low-end claims or minor claims. I have met many a claimant for whom the difference in damages now proposed by the introduction of the tariff, taking some damages from four figures—£1,200 or £1,400—down to the likes of £470 is a significant matter for many people’s incomes up and down this country. I cannot have it portrayed that this might not make a great deal of difference to many ordinary people in the country.
From my experience in your Lordships’ House, we are in an unusual situation. We have so often spoken of the scrutiny of legislation needed here to avoid unintended consequences. But in this Bill, the intended consequence—whether that is the conscious intention of the judge or the virtually certain consequence of the legislation—will be to affect that group of people. Therefore, we are in the unusual situation where an amendment is laid on Report that is like a Second Reading point, because it is a point of principle about the Bill. It is also affects a point of principle that, as a law student, was the DNA of our justice system. It was taught to you from the moment you entered your lecture theatre—where, I have to say, I was taught by some amazing people.
I have thought much since Second Reading about how these genuine claimants might respond—the hundreds of folk who I have had the privilege of sitting with in waiting rooms on the northern circuit when I was a barrister—bearing in mind that they also, of course, care about their premiums and the societal implications of fraud, which is alleged to be so prevalent. It is these people to whom the justice system and the amount of compensation must be explained and make sense.
In my view, a genuine complainant might respond: “Her Majesty’s Government say that the insurance companies are to blame as well. Have you made them do everything possible before depriving me of my compensation?”. In fact, we know that insurance companies have often made commercial decisions to pay out for possible claims just to get rid of a claim at an earlier stage because it is cheaper—even suggesting to people that they might have been injured although they themselves have not mentioned it. Her Majesty’s Government have not asked the insurance companies to stop this behaviour first. The insurance companies have paid out without medical reports, so would it not be fairer to genuine claimants to have a period with the medical reports that the legislation will make mandatory before reaching for such a drastic policy solution?
Secondly, a genuine claimant might respond: “Was this situation so dire for the insurance companies that insuring everybody was really at risk? How are their profits doing?”. A report from Direct Line Group, the largest insurance group, shows profits for the financial year 2017 of £610.9 million—a leap of 51.4% on 2016. Dividends were up 40.2%. In its interim report in 2017, one of the reasons it gave was fewer than expected bodily injury claims. It is not the only insurance company to give this reason at the moment. I quote from the Insurance Times of 24 May this year:
“Fewer whiplash claims have helped Sabre Insurance Group’s gross written premium return to 2017 levels. Sabre said: ‘Pricing action was taken in early March to reflect the improving claims trends, specifically lower whiplash claims frequency’”.
Could the insurance companies not be asked to use perhaps a fraction of these profits to fight the fraud before genuine claimants have to be affected by such a policy decision? I could not help but notice that genuine claimants might actually see the flaw in the system: if, for example, Harry Kane were to get injured in a road traffic accident and was unable to captain England, that would probably merit more in compensation than my having a whiplash injury.
Genuine claimants might respond to the Government and ask, “With those enormous changes that you made as a result of the Jackson review and LASPO, introduced in April 2013, what happened then to premiums and savings made?” I repeat the figures I outlined in Committee. Insurers have saved £8 billion in claims costs between 2010 and 2016. The figure to date is £11 billion. But premiums have gone up from £385 in the second quarter of 2013 to £493 in the last quarter of last year, according to the ABI’s own premium tracker—an increase of 28% since the LASPO changes. Would not a genuine claimant ask, “Can the Government just make sure that the premiums will actually come down so that my compensation that I should have got will in fact be reallocated in lower premiums to everybody else, and not in higher profits for the insurance companies”?
Unfortunately, the legislation at the moment is unable to ensure that. There is nothing wrong with higher profits. Pension funds need them—I recognise that. But this is genuine claimants’ compensation that we are asked to redistribute in this way. I agree with the principle mentioned by the noble and learned Lord, Lord Brown of Eaton-under-Heywood, that this is a policy decision. For the reasons I have outlined, I do not think that we have reached the point—although the time is fast approaching—to so affect genuine claimants and their understanding in the waiting rooms of our courts throughout this country of what a justice system should deliver. More can be done, so unfortunately, at this time, I cannot support the Government.
Lord Sharkey (LD)
My Lords, I will speak briefly in support of Amendment 18, in the name of the noble and learned Lord, Lord Woolf, and, as a consequence, I will not be speaking to my Amendments 9, 10 and 17.
As this Bill has progressed, I have repeatedly pointed out that the tariff levels proposed by the Government lack any substantive justification. It remains entirely unclear why these specific amounts have been chosen. What is clear, of course, is that they are very substantially lower than the amounts currently awarded. What is also clear is that they require genuine claimants to suffer a very large reduction in damages in order to try to reduce the incidence of alleged fraud or unmeritorious claims. The incidence of such claims is highly contested and relies, in part, on data that unhelpfully categorises dropped claims as probably fraudulent.
The noble Lord, Lord Faulks, if I heard him correctly, asked if there can be any doubt about the incidence of whiplash claims. The answer is yes; such a doubt exists, for example, in the House of Commons. The House of Commons Justice Select Committee discussed the question in its report of 15 May this year. Paragraph 2 of its conclusions and recommendations states that,
“we are troubled by the absence of … data on fraudulent claims and we find surprising the wide definition of suspected fraud that is used to collate the ABI’s statistics. In particular, the failure by the ABI to break down their figures by the nature and type of claim, and to isolate RTA PI claims broken down by type of road user, is a significant and regrettable omission that weakens their evidence base”.
The committee went on to recommend that,
“in the interests of accuracy, the Government work with the ABI to develop a more nuanced approach to avoid conflating innocent—if unexpected—consumer behaviour with fraudulent activity”.
It seems wrong in principle to look to genuine claimants to pay for what may reasonably be characterised as, at least partially, a failure of the insurance industry’s own practices. The long-standing practice of no-med settlements springs to mind here.
The Government’s proposals would also create serious anomalies, as mentioned at Second Reading and in Committee, and as the noble and learned Lord, Lord Woolf, has again mentioned today. A whiplash injury of 24 months’ duration suffered at work would attract damages of up to £6,500. Under the Government’s proposed tariff, that injury would attract £3,725 in a road traffic accident, which is obviously undesirable and unjust. Finally, as far as I can see, the Government’s forecast reduction in the cost of fraudulent claims takes no account of dishonest claimants trading up. The Government’s proposed tariff may well deter small claims, but it may equally encourage dishonest claimants to attempt to move up the duration ladder to compensate.
I believe that we should remove Clause 2, which would leave the determination of damages where it currently is, with the judiciary. It would give the Government and the insurance industry time to reflect further on how better to assess the level of fraud and time to work out how to reduce it without unreasonably burdening genuine claimants, creating unacceptable and unjust anomalies in awards and creating incentives for larger dishonest whiplash claims.
Lord Beecham
My Lords, I refer to my interest as an unpaid consultant to my former legal practice. A distinguished former Member of this House in the late 19th century, Lord Bowen, who served as a Lord of Appeal in Ordinary, was a noted wit. He it was who wrote:
“The rain it raineth on the just
And also on the unjust fella;
But chiefly on the just, because
The unjust hath the just’s umbrella”.
In its enthusiasm to deprive the unjust claimant in whiplash cases of the umbrella of justice, the Government’s measures, embodied in Clauses 2 and 3, will effectively remove it from the just claimant—a reversal of Lord Bowen’s scenario. As the noble and learned Lord, Lord Woolf, asserted, this is,
“a proposal which involves a genuine victim of whiplash injuries receiving reduced damages in order to deter a dishonest claimant from bringing a claim”.
Let me be clear. There can be no one in this House who wishes to facilitate false claims. All of us support the need for any claim to be founded on objective medical evidence, and it is right for this to be a requirement of any out-of-court settlement. However, as the Bar Council points out, the effect of the Bill as originally drafted, and the draft regulations that have been published, would result in reductions of between 22% and 89% in compensation for the victims of whiplash injuries for up to two years, coupled with the costs that they will have to bear no longer being recoverable by the defendants. Thus the compensation under current Judicial College guidelines, set in 2017, for a four to six-month duration of injury, would drop from a range of £2,150 to £2,703 to £470 under the draft regulations, and for a 10 to 12-month duration from £3,257 to £3,810 as a range to £1,250. Of course, the new arbitrary figures for damages would relate only to the time factor and not, for example, to the intensity of any pain suffered.
The amendment proposed by the noble Lord, Lord Sharkey, comes closer to the Judicial College guidelines, but it would be better in my submission simply to delegate the responsibility for certain tariffs to the college rather than to either Ministers or Parliament. That should be a matter for the judiciary.
The Minister’s letter of 7 June contains some welcome changes to the Bill as drafted, including a triennial review of Part 1. However, it contains a statement that underlines the problematic nature of the Government’s response. The Minister avers:
“The Lord Chancellor should set those tariffs which will act to disincentivise unmeritorious claims to reduce costs for all motorists but which will also continue to provide a proportionate amount of compensation where genuine injury is suffered”.
In other words, a genuine claimant is to recover less compensation than he would otherwise receive in order to deter the fraudsters.
But why are the insurers not more rigorous in their assessment of claims, and what happens when the fraudsters cotton on to the implication that they simply need to moderate their claims and the insurers will be content to pay up, effectively on demand, without demanding proper examination of the claim? As the noble and learned Lord, Lord Woolf, averred in a note circulated some time ago, this proposal,
“involves a genuine victim of whiplash injuries receiving reduced damages in order to deter a dishonest claimant from making a claim”.
There is of course disagreement about the extent and cost of fraudulent claims, which should certainly be resisted by insurance companies. It has been suggested that they have been too ready to settle dubious claims rather than risk the costs of defending them. But, importantly, the insurance industry’s own estimates show that the amount paid out on whiplash claims declined by 17% between 2007 and 2016, while premiums rose by an average of 71%. Meanwhile, premium tax—imposed, of course, by the Government—doubled to 12% between 2014 and 2017, and the cost of repair bills has risen by 33% since 2013. The noble Baroness, Lady Berridge, gave us further illustrations of where costs are rising. I remind your Lordships at this point that there is not a consensus on the number of fraudulent complaints brought and settled hitherto. Of course fraud must be deterred—but again I say, not at the expense of genuine victims.
Another consequence that is highly likely to flow from the Bill’s proposals is on the working of an already overstretched court system, with the increased number of litigants in person already causing delay likely to rise even further. Perhaps the forthcoming courts and tribunals Bill will impact on this, as more people who work in the system will be empowered to offer advice—although not representation, which is no longer available from legal professionals. However, there must be a risk in reducing the level of expertise in this way.
Amendments 6 and 8 in this group would restrict the application of the clause to 12 months rather than two years. Most cases are in that category, and two years of pain and discomfort is surely too long for the lowest level of compensation. Injuries that are serious enough to last over one year and up to two years are not “minor” by any reasonable definition. The effect of the reductions in damages is the removal of the right to claim full compensation. These are arbitrary and disproportionate measures.
Amendment 7 deletes an unnecessary requirement to mitigate the effect of damages which of course is already part of common law. We on these Benches support Amendment 9. On Amendment 10, there has been much pressure, understandably, for the tariff to be in the Bill. However, the problem with that amendment, and generally with Clause 2, is that the figures would be determined by the Lord Chancellor—with all due respect to former Lord Chancellors in your Lordships’ House. Our view is that, while any changes would be made by secondary legislation, the setting of the tariff should be determined by the Judicial College—and we concur with the argument of the noble and learned Lord, Lord Woolf, in that respect—in accordance with the practice as exemplified by the 14th edition of the Guidelines for the Assessment of General Damages in Personal Injury Cases. It should be for the judiciary, not the Government of the day, to determine this, and we do not favour Amendment 10 on that ground.
Amendment 12 goes some way to meet that requirement, but still leaves it open to the Lord Chancellor of the day—now, of course, no longer necessarily someone well-versed in legal matters, as other noble Lords have pointed out—to take a position contrary to that of the judiciary. This could be a troublesome precedent for other areas of justice at a time when it seems to be increasingly difficult to recruit judges of calibre, let alone with the experience of the noble and learned Lords participating in today’s proceedings.
Amendment 29A follows in seeking to leave out Clause 13 and giving the court power where it seems that the tariff is inadequate in respect of damage inflicted. We on these Benches support Amendment 46, which would require regulations for the FCA to report on the effect of insurance practices in relation to premiums and savings.
The noble and learned Lord, Lord Woolf, made a powerful case for removing Clauses 2 and 3 from the Bill. If the real concern is the prevention of fraud, with which we all concur, we should look at other measures. These could include heavier sentences for insurance claims fraud, higher no-claims bonuses and, above all, not punishing a genuine claimant for the misdemeanours of the fraudulent or the laxity of the insurance industry in resisting the fraudster. Of course, the role of claims management companies demands rigorous examination and action.
In the light of our support for the noble and learned Lord’s proposal to delete Clause 2, we will not push our amendments to Clause 2 today, as we hope that the clause will disappear. However, should it remain, we will need to bring our amendments back at Third Reading.
The Advocate-General for Scotland (Lord Keen of Elie) (Con)
I am obliged to noble Lords for their contributions. I will speak to Amendment 6 and to Amendments 7, 8, 9, 10, 11A, 12, 17, 17A, 17B, 18, 19, 20, 25, 26, 27, 29A, 30, 32, 39 and 46. I hope noble Lords will forgive me if I take a little time over some of the points.
I begin by picking up on some of the observations made by noble Lords but will begin with a generality. I sometimes have the feeling that, were some noble Lords faced with an enormous edifice, their response would be, “You have to explain how every component part is held together before I am prepared to believe that I face an edifice”. The reality was outlined by my noble friend Lord Faulks, who pointed out that there has been a 70% rise in whiplash-based claims in the past 10 years, during which time the number of road traffic injuries reported has dropped dramatically and during which time Thatcham Research has identified that the safety of seats and headrests in cars has improved in something like 88% of vehicles on the road, up from 18%.
Seven hundred and eighty thousand personal injury claims arising out of road traffic accidents were reported in 2016-17. That is the totality. Of those, 670,000 were whiplash claims. It is an astonishing statistic, and the edifice, let alone its component parts, is enormous. As some have already observed, there is clearly widespread abuse.
We have heard reference to the need to test the validity of claims. I noted the reference of the noble Lord, Lord Beecham, to the impact on the courts of increased litigation. One has only to stop and imagine the impact of trying to litigate 650,000 claims in the courts in order that liability can be established and the claim can be tested in each case. The cost implications of that go wider than just the impact on the courts.
There was a call from the noble Lord, Lord Marks, to do more to test the validity of claims. Again, one of the difficulties is the sheer magnitude of the problem that we now face. He also alluded to the need for further measures in relation to aspects such as cold calling, which feed this enormous industry.
To address that point, the GDPR and the Data Protection Act 2018 ensure that, where personal data is obtained through an unlawful cold call, further use of that data will not be allowed, and indeed the ICO can impose very large fines. In addition, the Financial Guidance and Claims Act bans any legal person, not just claims management companies, from making unsolicited calls relating to claims services without having first obtained consent. Crucially, changes made by that Act make it explicit that any organisation in the United Kingdom cannot make unlawful cold calls and, in addition, cannot instigate others to do so on their behalf. Notwithstanding that, there is an enormous unregulated industry out there, much of it based abroad where we cannot touch it, and it continues with these practices. It is a major social problem and requires a policy decision.
Touching on the matter of the damages, the noble and learned Lord, Lord Woolf, referred to a highly complex judicial process, but I take issue with that. As my noble and learned friend Lord Mackay of Clashfern pointed out, the assessment of damages for pain, suffering and loss of amenity is essentially a jury question. Whether you give it to a judge or a jury is neither here nor there; it is essentially a jury question and it always has been.
Lord Woolf
My Lords, we have had a good debate and all the points have been explored, so I shall not detain your Lordships for long by seeking to review the evidence which has been given, in excellent speeches, on behalf of both sides of the argument. However, there is a serious point to make. I would suggest that the vital feature at the core of my case for deleting Clause 2 is very clear: it results in injustice and it is known to result in injustice. Indeed, no one can deny that it results in injustice. There has never been a case where legislation deliberately introduces injustice into our law. It may be that it is only in regard to small claims, but surely it is important that we pause before we do that.
The Deputy Speaker (Baroness Garden of Frognal) (LD)
If Amendment 10 had been agreed, I would not have been able to call Amendments 11 or 11A by reason of pre-emption.
Amendment 11
Lord Keen of Elie
The Deputy Speaker
If Amendment 11A had been agreed, I would not have been able to call Amendments 12 to 17A by reason of pre-emption.
Lord Keen of Elie
Lord Woolf
Lord Keen of Elie
“Review of regulations under section 2
(1) The Lord Chancellor must carry out reviews of regulations made under section 2.(2) The first review must be completed before the end of the period of three years beginning with the day on which the first regulations under section 2 come into force.(3) Subsequent reviews must be completed before the end of the period of three years beginning with the day on which the previous review was completed.(4) The Lord Chancellor must prepare and publish a report of each review.(5) The Lord Chancellor must lay a copy of each report before Parliament.”
Lord Keen of Elie
“(b) it is the case that—(i) the whiplash injury is, or one or more of the whiplash injuries are, exceptionally severe, or(ii) where the person’s circumstances increase the pain, suffering or loss of amenity caused by the injury or injuries, those circumstances are exceptional.”
Lord Keen of Elie
Lord Sharkey
“(i) of the whiplash injury, and(ii) that the claim does not arise from cold-calling,and”
Lord Sharkey
My Lords, Amendments 32 and 39 return to the issue of cold calling, the problems of which we have debated on many occasions in this House. Our latest attempts to curb the menace of cold calling became law with the passing of the Financial Guidance and Claims Act, but, despite frequent debates and new laws, there remains significant uncertainty as to whether our current set of regulations is as effective as it should be. In particular, as we said in Committee, we are concerned at the extent to which cold calling will continue to drive fraudulent claims for RTA whiplash injuries. The Commons Justice Committee shares these concerns. Paragraph 133 of its 15 May report says:
“We conclude that the Government’s current package of reforms creates a risk of increasing cold calling by, or on behalf of, CMCs; we welcome the restrictions on cold calling in the Financial Guidance and Claims Act, but believe they do not go far enough and that an outright ban should be introduced. In the meantime, we recommend that the Government monitor the effectiveness of the proposed restrictions, particularly on calls from overseas, and that technical remedies are urgently explored to tackle any loopholes that might be exploited by overseas operators to circumvent the restrictions; we ask that the Government report to us on progress with this within a year of the proposed restrictions being implemented”.
In Committee we discussed amendments that would require an assessment of the real-world effect of all the current regulations trying to prevent cold calling. We also discussed the possibility of trying to cut off the revenue streams of cold callers by banning the commercial use of data so collected. I think that the Minister understood our concerns: he acknowledged, as he did again this afternoon, what he referred to as, “the problem of regulating the unregulated”. He mentioned that the Government were seeking to approach this problem by regulating the use of material gathered by cold calling, and we entirely support this approach. There is a widespread unease that we have not really cracked this problem yet—and I believe that the Minister shares at least some of this unease.
Our Amendments 32 and 39 do two things. First, they give the Minister the opportunity to address the House once again on the issue of whiplash and cold calling. Secondly, they propose yet another method of coming at the problem of cutting off the revenue stream of cold callers. Clause 4 sets out new rules against settlement of whiplash claims before medical report. Amendments 32 and 39 extend these rules to cover whiplash claims arising from cold calling. Amendment 32 does this by making it a breach to settle without seeing appropriate evidence that the claim does not arise from cold calling. Amendment 39 allows the Lord Chancellor to specify the form of any evidence required to demonstrate that the claim does not in fact arise from cold calling. Both amendments mirror the provisions in the Bill to ban pre-med settlements.
I realise, as I think we all do, that clamping down on cold calling is a difficult and complex business—but it is also vital. I hope that Amendments 32 and 39 will suggest to the Government a way forward in their attempts to cut off revenue streams and I very much look forward to the Minister’s reply. I beg to move.
The Deputy Speaker (Lord Faulkner of Worcester) (Lab)
I advise the House that if Amendment 32 is agreed I shall not be able to call Amendments 33 and 34 for reasons of pre-emption.
Lord Beecham
My Lords, I shall speak very briefly to the amendments in my name and that of my noble friend Lady Chakrabarti. There is not, I think, a great deal of difference across the House on the need to ensure that there are proper medical reports and that the MedCo website should be used. The amendments would allow the Government to employ others with medical qualifications, in addition to MedCo, if that was thought to be helpful. Our amendments expressly state that there must be appropriate medical evidence of injury. The amendments are fairly straightforward: we do not dissent from those of the noble Lord, Lord Sharkey, and we hope that the Government will look sympathetically on the amendments here.
Lord Marks of Henley-on-Thames
I shall speak very briefly to Amendments 35 and 36, both of which concern medical reports. These and also Amendment 39, to which my noble friend Lord Sharkey spoke, are in my name. The purpose of Amendment 35 is simple. While it is very difficult to prove, there is widespread concern that the quality of medical reports and, sadly, sometimes the quality and genuineness of those who provide them, is low.
Of course, it is notoriously difficult for clinicians to give reliable evidence of whiplash injuries, both because the symptoms are self-reported—and reported differently by different patients depending on their robustness—and because patients’ accounts are hard to test objectively. Assessment of the likely duration of whiplash injuries, which becomes increasingly important in view of a cliff edge-type tariff, is also very challenging because the course of recovery is extremely difficult to predict and varies from patient to patient, again often dependent on no more than the robustness of the patient concerned. However, some clinicians develop considerable experience of these injuries, and a sensible system of accreditation, with the assistance of MedCo—which is already involved in assisting with the criteria for qualifications to produce medical reports, and quality assurance—ought to be able to encourage some consistency. That is why we seek the incorporation of a reference to MedCo in the legislation.
Amendment 36 would require the Lord Chancellor,
“by regulations make provision for the cost of obtaining appropriate medical evidence … to be recoverable by a claimant who succeeds … unless the court decides that such recovery would be contrary to the interests of justice”.
This is a topic on which I have sought reassurance from the Minister in previous stages, and I have received some. But the current position is that recoverability is a matter of discretion. With the proposed change in the small claims limit and the proposed new portal, we would like to hear a statement that it is intended that in all cases where a claimant, even one below the small claims limit, succeeds in recovering damages for pain, suffering and loss of amenity under the tariff, the cost of obtaining the medical report, which will be compulsory, will go with it, unless doing so,
“would be contrary to the interests of justice”.
Baroness Vere of Norbiton
My Lords, the amendments in this group all relate to either the provision of medical reports in relation to the ban on pre-medical offers for whiplash claims or the cold-calling provisions.
I start by reassuring noble Lords that the cost of medical reports is already recoverable in personal injury claims where the defendant insurer has admitted any part of liability. They will continue to be recoverable following these reforms, including in the small claims track following the proposed increase of the limit to £5,000.
The amendments in the names of the noble Lord, Lord Beecham, and the noble Baroness, Lady Chakrabarti, place the requirement for medical reports to be,
“provided by an accredited medical expert selected via the MedCo Portal”,
or other experts specified by the Lord Chancellor in regulations. Currently, the Civil Procedure Rules require any initial medical report in support of a whiplash claim to be sought through the MedCo IT portal, which, as noble Lords will be aware, was established to improve the independence and quality of medical reporting. The Civil Procedure Rules also require that all MedCo medical reports must be provided by an accredited medical expert.
These provisions were made through the Civil Procedure Rules for a reason. The Civil Procedure Rules are flexible and their use allows for rapid responses to changed circumstances. MedCo is an industry-owned and operated company, and it would be very unusual to enshrine the purposes of such an organisation in the rigid structure of primary legislation. MedCo was formed to take forward government policy in relation to medical reporting. However, circumstances may change, as could MedCo’s role. Alternative accreditation schemes may be added or it may become necessary to appoint another organisation to operate the current process. Were the use of the excellent MedCo process to be put in the Bill, the ability to respond to such changed circumstances would be lost, and genuine claimants could suffer as a result. I therefore urge the noble Lord, Lord Beecham, not to press his amendments.
Amendments 32 and 39, in the names of the noble Lords, Lord Sharkey and Lord Marks, seek to add a requirement relating to claims sourced through cold calling to the Government’s prohibition on the making or seeking of settling whiplash claims without medical evidence. While I fully understand the noble Lords’ motivations in tabling these amendments, I believe it would not be appropriate to widen the ban on seeking or offering to settle a whiplash claim without the claimant first seeking medical evidence to also include claims which may have been sourced via a cold call. This could discriminate against genuinely injured claimants.
Lord Sharkey
I thank the Minister for her reply about cold calling. It is a pity because, as I said in moving Amendment 32, there is a widespread feeling that things are not working. I hesitated to say this in the previous debate but I got three calls over the weekend—I thought it might be more appropriate to mention that now rather than earlier. There is a common unease, as my quoting the report from the House of Commons Justice Select Committee shows.
It may get better, and I hope it does, but, as I am sure the Minister knows, I was deeply involved—as was the whole House—in trying to craft regulations in the then Financial Guidance and Claims Bill, which were substantially watered down when they reached the Commons. When they left here, they were much stronger than they turned out to be after the other place had had its way with them. Again, that seems to reinforce the possibility that actually we have not yet got a grip on this. I ask the Government to reflect on whether or not the current package of regulations is going to work and exactly how we will monitor its working. In particular—addressing the point the noble and learned Lord, Lord Keen, made a moment ago—given that these factories in Pakistan can generate a million calls a day, then close down and reopen next door as another, separate legal entity, how are we going to deal with that if not by cutting off the revenue? I would welcome a conversation—perhaps not on the Floor of the House—about what progress we think we have made in the existing regulations in cutting off the flow of the revenue. In the meantime, and pending that kind of conversation, I beg leave to withdraw the amendment.
Lord Keen of Elie
Lord Keen of Elie
Lord Sharkey
“(4A) The Treasury must, within one month of the passing of this Act, make further regulations specifying that the Financial Conduct Authority is to require all insurers holding a licence to offer UK motor insurance to publish a report—(a) on the loss cost savings achieved as a result of the provisions of Part 1 of this Act, and(b) how, and the extent to which, such savings have been applied to reduce motor insurance premiums.(4B) The first such report from insurers must cover the period of 12 months beginning with the first day of the month immediately after the commencement of Part 1 of this Act and must be sent to the Financial Conduct Authority by the end of the period of 15 months beginning with the commencement of Part 1 of this Act.(4C) The regulations must grant the Financial Conduct Authority the power to require further reports on an annual basis. (4D) The Financial Conduct Authority, within the period of 18 months after the commencement of Part 1 of this Act, must make and publish a reasoned assessment of whether it is satisfied that each such insurer is passing on to customers any cost benefits arising from Part 1 of this Act.(4E) The regulations under subsection (4A) must make provision for the Treasury to grant powers to the Financial Conduct Authority to enforce a requirement for insurers to pass on loss cost savings, achieved as a result of the provisions of Part 1, from insurers to consumers through a reduction in the cost of premiums if, after the period of 30 months following the commencement of this section, the Financial Conduct Authority advises the Treasury that such powers are necessary.”
Lord Sharkey
My Lords, Amendment 46 is in my name and those of my noble friend Lord Marks, the noble Earl, Lord Kinnoull, and the noble Lord, Lord Beecham. I am grateful to them all for their support. The amendment addresses the question of pass-through. How much of the savings generated for insurance companies by whiplash reforms would in fact be passed on to motorists, in the form of reduced premiums?
Most of the insurance companies wrote to the Lord Chancellor in March. The penultimate paragraph of their letter said that,
“the signatories to this letter today publicly commit to passing on to customers cost benefits arising from Government action to tackle the extent of exaggerated low value personal injury claims and reform to the personal injury Discount Rate”.
There would obviously need to be clarity about: the definition of a cost benefit; whether all customers would share the promised distribution or just those with motor insurance; and how the savings would be passed on. This might be in lowered premiums or just the promise of lower than expected premiums in the future, for example.
The House of Commons Justice Select Committee again noted the problem in its May 2015 report. Paragraph 3 of its conclusion and recommendations said:
“Potential savings to motor insurance customers are central to the policy justification for these reforms, but we conclude that the Government’s estimate of the pass-through rate may be over-optimistic, given the lack of robust evidence and the unenforceable nature of insurers’ promises to reduce premiums”.
The committee recommended that,
“if the reforms are implemented, the Government work with the ABI and either the Prudential Regulation Authority or the Financial Conduct Authority to monitor the extent to which any premium reductions can be attributed to these measures and report back to us after 12 months”.
Our amendment would require the Treasury to make regulations specifying that the FCA would require all motor insurers to publish a report on the savings made as a consequence of the whiplash reforms in the Bill, and how and to what extent these savings have been applied to reduce motor insurance premiums. It specifies the period to be covered by these reports as 12 months after commencement and how long the insurance companies would have to submit reports to the FCA, which would be three months. The FCA would then have a further three months to make and publish a reasoned assessment of whether the insurers have made the promised passed-on savings. The amendment also gives the FCA the power to request further reports from insurers annually as it sees fit. Finally, it would ensure that the FCA has the power to force the insurance companies to pass on savings if they have not done so, or done so sufficiently, within 30 months of commencement.
I think most if not all noble Lords would agree that the insurers should be held to their promise. To do that, we need to monitor and assess whether they have in fact held to their promise and, if they have not, to have the power to force them to do so. To do these things requires a tough and experienced regulator. Only the FCA has the resource, reputation, toughness and experience to be the regulator to do that, which is why this amendment gives it the job.
I know that the Minister feels strongly that insurers must be held to their promise and I realise that achieving this may be a rather complex matter. However, it is critical that we achieve it. It would be absolutely scandalous if savings made by insurers as a consequence of the Bill were retained by insurers. Amendment 46 sets out a method by which we can hold insurers to account for their promises. I beg to move.
Lord Keen of Elie
My Lords, we have on several occasions referred to the savings under these measures, which will be passed on to consumers by motor insurers. I understand that a number of Peers clearly have concerns about ensuring that this actually occurs.
I should say that the Government hold firm that the highly competitive nature of the motor insurance sector will mean that insurers have little or no choice but to pass on savings to consumers or risk being priced out of the market. An in-depth investigation by the Competition and Markets Authority in 2012 found that the motor insurance market is highly price-sensitive, driven by low levels of market concentration and high levels of penetration by price comparison websites. Resulting estimates indicate that 85% of insurance savings from whiplash measures will be passed on to the consumer. Finally, as the noble Lord, Lord Sharkey, observed, motor insurers providing cover to 84% of the UK market have already written to the Lord Chancellor to make the welcome commitment that they will pass on any savings.
That said, the Government are not unsympathetic to the underlying intention of Amendment 46, as tabled by the noble Lord, Lord Sharkey. The point is that having made a firm commitment, insurers should be accountable for meeting it. It is, however, important that any amendment in this regard is drafted with care so that it is effective but does not also impose requirements that push beyond the recognised remit of regulators such as the Financial Conduct Authority. I also observe that we must ensure that any legislative requirement in this area does not infringe on the very important area of competition law.
I therefore confirm that the Government will accept the views of Peers and develop an amendment, to be tabled in the House of Commons, that meets these requirements and provides an effective means for reporting on the public commitment made by the insurance sector, showing that it results in savings being passed on to consumers and thereby holds insurers to account. This is quite a complex and delicate process and it is ongoing at present.
I add only one further matter. Requiring a report to be made within 12 months of commencement is not likely to be the best way forward because claimants have a three-year period in which to make claims. After the Bill receives Royal Assent, there will therefore be an overhang for up to three years of claims that fall outwith the requirements for the tariff to be applied. We will have to look carefully as well at what point it would be appropriate for a report to be made and laid before Parliament. However, that is under active consideration and, in light of that indication, I hope the noble Lord will consider it appropriate to withdraw his amendment.
Lord Sharkey
My Lords, I am very grateful for the Minister’s answer and encouraged by it, too. I take the points about being careful on competition law and the period over which we assess the insurance companies’ return to the people they insure. I will follow with interest the progress of a government amendment as it goes through the House of Commons. Having said that, I beg leave to withdraw the amendment.
“Restriction on increase in small claims limit for relevant personal injuries
(1) In this section, the “PI small claims limit” refers to the maximum value (currently £1,000) of a claim for damages for personal injuries for which, in accordance with Civil Procedure Rules, the small claims track is the normal track.(2) Civil Procedure Rules may not increase the PI small claims limit in respect of relevant injury claims to an amount above £1,000 for the first time unless—(a) the Lord Chancellor is satisfied, and has certified in writing, that on the day the rules are to come into force, the value of £1,000 on 1 April 1999 adjusted for inflation, computed by reference to CPI, would be at least £1,500, and(b) the rules increase the PI small claims limit to no more than £1,500.(3) Civil Procedure Rules may not increase the PI small claims limit in respect of relevant injury claims on any subsequent occasion unless—(a) the Lord Chancellor is satisfied, and has certified in writing, that on the day the rules are to come into force, the value of £1,000 on 1 April 1999 adjusted for inflation, computed by reference to CPI, would be at least £500 greater than on the day on which the rules effecting the previous increase were made, and(b) the rules increase the PI small claims limit by no more than £500.(4) In this section—“CPI” means the all items consumer prices index published by the Statistics Board;“relevant injury” means an injury which is an injury of soft tissue in the neck, back, or shoulder and which is caused as described in paragraphs (b) and (c) of section 1(3) (negligence while using a motor vehicle on a road, etc.);“relevant injury claim” means a claim for personal injury that consists only of, or so much of a claim for personal injury as consists of, a claim for damages for pain, suffering and loss of amenity caused by a relevant injury, and which is not a claim for an injury in respect of which a tariff amount is for the time being prescribed under section 2.”
Baroness Hayter of Kentish Town (Lab)
My Lords, Amendment 47 stands in my name and those of my noble friends Lord Bassam, Lord Beecham and Lord Monks. We need this amendment because, on the back of wanting to take action on what are claimed to be fraudulent whiplash claims, the Government propose to remove legal help from a swathe of people with genuine personal injury claims. This is not simply unnecessary but wrong.
When the Government introduced fees in employment tribunals, the absence of legal advice and representation frightened many away from taking cases to court and we saw a drop-off of some 90%. In family courts, where legal aid was largely withdrawn, we have again seen the difficulties when people are unrepresented. Denying legal advice undermines the commonly held view—I thought it was commonly held—that justice should be open to all and not just to those able to pay.
Lord Bassam of Brighton (Lab)
My Lords, I rise to support my noble friend Lady Hayter and specifically to speak to Amendments 47 and 48. It is worth saying that we are trying to bring forward and implement part of the Jackson recommendations.
My noble friend Lady Hayter has covered most of the ground better than I could ever dream of doing in making her powerful and persuasive case from the Front Bench. If we could, we would have brought forward a different amendment and found a simpler way of inserting into the Bill a restriction to the Government’s ability to raise the small claims limit for personal injury to £1,500. This amendment, imperfect though it is, goes some way towards tackling that problem. It is our contention that, by raising the limit in the way they have, the Government intend to seriously disadvantage those with an entirely legitimate personal injury small claim and prevent them gaining access to justice and legal advice.
I have no doubt that most of us privileged enough to sit in this House, or in the other place, have little fear of taking on those in authority and power—some of us rather enjoy it. That is not the case if you are a nurse or a teacher, a farm or shop worker, or you work in a factory and have limited spare time, financial resources and ability to tackle issues of personal injury. This amendment seeks to protect those people. As has been said on numerous occasions, the Government are proposing to make changes to the small claims limit, not on the face of the Bill but by other, back-door means. This will impact on hundreds of thousands of people injured through no fault of their own. It will pitch the nurse, the teacher, the shop worker, the factory worker and the land worker against the insurer, on their own and in their own time. The insurers will be able to afford lawyers and wily negotiators, but the injured will be expected to take on these forces with no help whatever.
The Minister, who I am sure is a fair man, may say that the system that deals with this is simple, but it is not designed by those who have to confront it. We all know that there are many who cannot use portals and online means of tackling these issues because they do not have the training or expertise and feel uncomfortable in the online world. The Minister may say that insurers will not fight a case which they know they are going to lose but that does not stop them playing hardball because they choose to. Why would they not, faced with a claimant on their own? Insurers also have a duty to their clients. I trust that the Minister will not say—as he did before the Justice Committee—that claimants can get help from the CAB, because anyone who knows anything about the diminished state of free legal advice services in this country would be only too happy to take him to see how they are struggling and the queues, delays and frustration that are routine.
From this perch, I could recite case after case where insurers have fought injury claims to the bitter end for reasons that frankly perplex lawyers for the claimants. However, we have limited time so I will briefly quote just two of many cases provided to me by Thompsons. One claim involved a care assistant in her early 40s who injured her right elbow and upper arm when lifting a patient. She was using the correct technique but did not have the equipment required to complete the task properly. The employer denied liability throughout and fought the case for more than a year before it was eventually settled for a sum that would have fallen within the new proposed small claims limits. The other case, which would also fall within the new limits, involved a senior staff nurse who tripped over wires that had not been properly protected and covered. Her employers fought the claim right up to the point when the trial was due to begin. Our amendments seek to ensure that those who do not have a corporate lawyer behind them do not fall prey to another racket—the routine denial of claims by insurers, just because they can.
The amendment seeks to ensure that claimants always have advice on the value of their claim so that they do not undersettle. It also provides that, where insurers deny liability, the claimant has someone by their side to advise them and, if necessary, represent them in relation to the issue of liability. It does not propose that the costs recoverable by the lawyer for the claimant are open ended; they will be the same fixed costs that would be recoverable if this case were in the fast track.
As my noble friend Lady Hayter has outlined, the second amendment in this group is specifically aimed at ensuring that those injured can have access to medical advice in their case and recover the cost of medical reports that might be necessary. That is essential and will be a contribution towards ensuring that there is no significant undersettling, which is a major issue in these cases. These amendments are about fairness and equity in the legal process. They may not seem to the Minister to be vast in their extent, but they are numerous. Although they do not always involve large sums of money—which noble Lords may feel uncomfortable talking about—this House has a duty to try to ensure fairness and balance in the legal system. Even at this late stage, the Minister could make a commitment to retaining the limit in accordance with Lord Jackson’s recommendation.
Lord Monks (Lab)
My Lords, I will add briefly to the points that have been made by my noble friends on Amendment 47. I declare an interest: I am associated with Thompsons Solicitors, one of the largest trade union solicitors in the country. In its current form, the Bill will deter claims for personal injury for many vulnerable, low-paid people. The inequality of arms which exists when someone tries to bring a case will be overwhelming for many people. I note from UNISON’s brief—which most noble Lords got—that it did a survey of people it had helped to get compensation. This found that 63% would not have taken the case if they had not had a guarantee of legal support and an opportunity to recover costs. There is an absence of good information about the effects of these changes, so that is probably as good as any. There will be a deterrent effect on this sector of personal injury.
When speaking to an earlier amendment, the noble Lord, Lord Hunt, was rather dismissive of the access to justice argument, which a number of lobbyists have drawn to the attention of those who follow this subject. The information supplied by UNISON and others shows that there will be a lot of people who will not take cases who otherwise would have done under the present limit. On this side of the House, we are looking to temper that kind of approach by the Government. The noble Lord, Lord Hunt, will know from his experience with the Transport and General Workers’ Union—to which he referred—that for low-paid and vulnerable people a period off work for an injury or illness is a big deal. It is not to be assumed that employers will automatically cover the cost. These people experience the cost of illness more than those of us in comfortable jobs.
Amendment 47 seeks to tie the Government to the recommendations made by Lord Jackson in his review of civil litigation costs. These said, in effect, that there should be an increase in the small claims limit only when inflation justifies it. The Justice Committee in the other place very much agreed with that in its recent report. That is what leads to the figure of £1,500, an increase based on changes in the CPI, rather than the £2,000 which the Government are pressing for. I note that the Justice Committee was deeply unimpressed by the inability of the Ministry of Justice to quantify the impact of raising the small claims limit for employer liability and public liability claims to £2,000. That is the crux of the issue addressed by the amendment. I hope that in light of these points, and those made so ably by my colleagues, the Minister will soften a little bit and look at the plight of the people at the bottom, the most vulnerable, those who are struggling, those who lose money when they are ill and off work, and so on. Without labouring it too much, I hope that the Government can see our point rather more clearly than they have done so far.
Lord Judge (CB)
My Lords, as it has not emerged that the amendment is the property of the Opposition, perhaps I may add a few words in support of Amendment 47.
Lord Justice Jackson’s report was a remarkable document. It exhaustively analysed the entire structure of our civil justice system. It would not have supported the present Government’s position. I would love to read out the Justice Committee’s report—but, if I did, we would be here awfully late and no one would want to hear it. However, can we briefly recognise that the Justice Committee report is not adverse to the Government’s proposal but deals a series of hammer blows, each one individually worth noting?
“We recommend the Government should not increase the small claims limit to … £5,000”.
Bang.
“There is no policy justification for including vulnerable road users within the reforms proposed”.
Bang.
“We recommend that they be excluded from any higher small claims limit that is imposed on other RTA PI claims”.
Bang.
“We are deeply unimpressed by the inability of the Ministry of Justice to quantify”.
Bang.
And so it goes on. This is not one of those reports with recommendations that obscure their meaning, and perhaps the Minister will consider that as an important feature of this debate.
Lord Keen of Elie
My Lords, I will not begin with a bang but I will address the points that have been raised.
I begin by pointing out, with great respect, that the noble Baroness, Lady Hayter, may not be entirely correct in some of the propositions she advanced. She said that the £1,000 limit had been with us since 1999. It has been with us since 1991. The small claims limit in respect of claims other than personal injury and housing claims is now £10,000 and operates effectively and efficiently at that level. That has to be borne in mind as well.
The noble Baroness spoke with her consumer hat on and referred to the small guy. Reference was made to the worker with limited ability to deal with his claim. The noble Lord, Lord Bassam, referred to workers being pitched out on their own with no help and alluded to a number of examples given by Thompsons solicitors—I shall come back to that in a moment—of where they were perplexed by the way in which claims were dealt with by insurers. The noble Lord, Lord Monks, said rather modestly that Thompsons solicitors were one of the largest firms of trade union solicitors in the country. They must be the largest by quite a long way. They are well established and have been for many years. Why do we refer to them as trade union solicitors in this context? It is because one of the great benefits of union membership for workers is the availability to them of legal advice and assistance when they require it in respect of a claim, particularly one arising in the course of their employment—which is why legal aid is not available in those circumstances. So, far from the little guy, the worker, being pitched out on their own without any help, they almost invariably have the assistance of probably the largest and most established firm of trade union and personal injury solicitors in the country.
I do not decry that—it is an immediate and obvious benefit—but the disbenefit of increasing the small claims limit is that the extent to which the union will recover its legal costs will be more limited, and that will have an impact on trade unions. I understand that and one has to take it into account in the overall scheme of these provisions.
Lord Bassam of Brighton
The noble and learned Lord will probably accept that somewhere in the region of 6 million people are members of trade unions. That leaves a rather larger workforce who are not represented by trade unions. Those employees are in a more vulnerable position than that faced by those who are represented by a union. My guess is—perhaps the noble and learned Lord can help me here—that the majority of people will not be able to access the support they would get if they were a trade union member. So most people who come up against this limit will be affected by that.
Lord Keen of Elie
I note what the noble Lord says about national trade union membership, and no doubt the unions will try harder to recruit more widely. One of the obvious benefits they can hold out is the provision of legal advice and assistance for those who become members. I accept that there is a balance to be struck.
Amendments 47 and 48 seek to restrict the increase in the small claims track limit for whiplash injury claims to a maximum of £1,500, as opposed to the proposal that there should be an increase to £5,000. They also seek to restrict the ability of the Civil Procedure Rule Committee to make further amendments to the upper limit. As we have indicated before, motor insurance premium costs are increasing as insurers pass on the cost of dealing with the continuing high number and cost of whiplash claims. I referred earlier to the 2017 election manifesto provision that the Government were committed to cracking down on these claims and ensuring that the money saved was returned to consumers through lower premiums. These amendments would maintain the burden on ordinary motorists by restricting the flexibility of the Government to reduce the costs of civil litigation through changes to the Civil Procedure Rules.
Whiplash claims are generally straightforward and do not routinely require legal advice. The small claims track is suitable for such claims. It is designed to be accessible to litigants in person, and the Government are working closely with stakeholders to develop a comprehensive package of guidance and support for users.
The Government have chosen to increase the small claims limit for road traffic accident personal injury claims to £5,000 for good reason. This limit, as I said, has been set at £1,000 since 1991 and, as compensation levels have risen, the small claims track no longer covers the same breadth of claims as it once did. Following consultation, the Government believe that increasing the limit for RTA personal injury claims to £5,000 is a careful and proportionate increase, particularly having regard to the fact that the limit for other claims, with the exceptions I mentioned earlier, is now £10,000. A level of £5,000 will facilitate early and expedited settlement under the proposed tariff structure and will encourage insurers to challenge unmeritorious claims, many of which are not now challenged because of the potential legal costs.
A decision to tie such limits—currently, for good reasons, enshrined in secondary legislation—to a restrictive primary legislative process would be inflexible. The Civil Procedure Rule Committee, under the leadership of the Master of the Rolls, sets out the rules of procedure to ensure that the civil justice system is fair, open and effective. It is the body that sets the financial upper limits for the current three tracks of the civil justice system following consultation. That system has operated effectively for some time. It is flexible and it is appropriate that procedural changes should be made in this way to the civil justice system.
However, we listened to points made earlier about the position of those who are considered to be vulnerable road users. Noble Lords will be aware that they are already excluded from the provisions of Clause 1, and it is proposed that they may be exempted also from the £5,000 limit on the small claims track. We are giving further consideration to that at the present time.
Amendment 48 seeks assurances as to the recoverability of the cost of a medical report in respect of whiplash injury claims, notwithstanding the increase in the small claims track limit. That has been addressed already. The amendment also seeks to change the nature of the small claims track itself by permitting a claimant to recover their legal expenses. We consider that, given the nature of the small claims track for personal injury claims, it would be wholly inappropriate to introduce the recovery of legal expenses. The small claims track was designed to be a low-cost process accessible to litigants in person. The rules have been purposefully and carefully drafted to ensure that both parties share the financial burden of litigation and pay their own legal costs—or, in the case of a union member, have them met by the union. That is a key advantage of the process.
A number of noble Lords have questioned why insurers do not do more to challenge potentially inflated or fraudulent claims, particularly whiplash claims. Part of that answer lies in the cost of defending a claim in the fast track. Increasing the small claims limit so that more of these straightforward whiplash claims—where the insurance industry tells us that liability is admitted in around 90% of cases—are heard in a small claims court will encourage insurers to challenge unmeritorious claims. By contrast, challenging a claim in the fast track is an expensive process that insurers not unnaturally seek to avoid. So there are very clear cost advantages overall in increasing the limits for the small claims track. Where a case is considered to be of a degree of complexity such that it would not lend itself to the small claims track, clearly the court can direct that it should go on to the fast track.
Therefore, in respect of Amendment 48 in particular, the idea of having different cost rules in the small claims court based on the type of claim would create confusion, would undermine the whole purpose of the small claims track and would potentially be unfair to all users of the court system. In these circumstances I invite the noble Baroness, Lady Hayter, and the noble Lord, Lord Bassam, not to press their amendments.
Baroness Hayter of Kentish Town
I thank not the Minister but the noble and learned Lord, Lord Judge—I will get him to move things in future. He is so much more effective than I am.
I was very disappointed by the tone of the response. I stand here as the shadow Consumer Minister, talking about consumers, and we get a sort of suggestion that this is all about keeping trade unions happy. As my noble friend Lord Bassam said, sadly there are only 6 million people in trade unions—I wish it was more. It is exactly the low paid and the people who are most vulnerable to this who are not represented by trade unions—but, even if they were, I do not accept that that makes putting up the limit somehow acceptable.
I will not take up time. I acknowledge a movement on vulnerable passengers—for which, as a cyclist and a pedestrian, I am grateful—but I am afraid that the Government’s own figures show that, by their changes, one in four of the people compensated today would no longer be compensated. If on that basis the Minister thinks that we will save costs—in other words, it is injured people who will pay—I do not think that that is good enough. It should be done not behind the scenes but in the Bill. I beg leave to test the opinion of the House.
“( ) Rules of court under subsection (1) must draw attention to those aspects of orders for periodical payments which may make them more suitable in cases where individuals receive large sums of damages, have long-term injuries or are risk-averse.”
Lord Hodgson of Astley Abbotts (Con)
My Lords, we come to a matter that we discussed at some length in Committee, so I will cut to the chase. An award of damages that will be paid out over a long period—for example, to provide care to someone previously injured in their 20s—is based on two very important assumptions: how long the person will live and what rate of return can be expected from the sum awarded. If the damages are awarded in the form of a lump sum, these two factors assume a particular and increased importance. The first of these factors, the length of time that a person is expected to live, is inevitably based on averages, so if the injured person lives beyond the expected average then there is a risk that the individual will spend the last few years of their life in financially straitened circumstances. As regards the second factor, if the investment performance falls below that which is anticipated then a similar outcome will result.
As we have already discussed, there is a way for the individual to avoid both the longevity risk and the investment risk. He or she can do so by taking the award in the form not of a lump sum but of a periodical payment order, a PPO. Under a PPO, part or all of the award can be paid weekly, monthly, quarterly or whatever to suit the injured party, and paid normally on an inflation-proof basis for the rest of a person’s life. Sadly, though, we have discovered that PPOs appear to be the poor relation as regards the methods of awarding damages. We discussed in Committee the various structural reasons why this was so—the preference of insurance companies for a swift solution and the capital required to back a PPO, the potentially seductive nature of a very large lump sum compared with the more modest amount of a periodic payment and so on.
My amendment is designed to tip the balance more in favour of PPOs, so that in cases where lump-sum damages exceed, say, £1 million and/or the award will be paid out over more than 10 years and/or the individual is of a risk-averse nature, the court should press for the award to be made in the form of a PPO. To be clear, the court should not compel; that would be completely inappropriate. If a person is determined to have a lump sum, a lump sum they must have. However, the court should certainly encourage PPOs. None of this appears to run counter to the wishes of the House of Commons as expressed by the Justice Committee in its report on the discount rate, nor indeed the thinking of the Government as expressed in their response to that report.
So how to achieve this desired result? Giving the Minister the power to make regulations in this area might interfere with judicial independence, so it appears that the only avenue remaining is the use of the Civil Procedure Rules of court, and that may perhaps be a clumsy way to proceed. If my noble friend cannot accept my amendment, and I fear he may be unwilling to do so, I hope he will be able to make a clear and unequivocal statement that the Government favour the increased use of PPOs in the sorts of cases that I have described so that, with the views expressed in your Lordships’ House today and previously in Committee and, no doubt, in due course in the other place, courts can be in no doubt about the will of Parliament in this important matter.
It may be worth while undertaking a review at some future date of whether the use of PPOs is increasing. That might be along the lines of Amendment 89 in the name of the noble Lord, Lord Beecham, to which I have no doubt he will speak fruitfully in a minute or two. In the meantime, though, I beg to move.
Lord Hope of Craighead (CB)
My Lords, I should like to say a word in support of Amendment 50, which is in my name and builds on an amendment tabled in Committee by the noble Lord, Lord Faulks, to which I put my name but to which I was unable to speak because at the very moment he rose to speak I was taken out of the Chamber for a business meeting, so I never got to say what I should like to say now.
I have proposed for the noble and learned Lord’s consideration an expanded version of his amendment, and I should like to explain the background to it a little more so that the point is firmly before the House. On page 7, line 32, subsection (2) of proposed new Section A1 provides that proposed new subsection (1), which talks about the duty of the court to take into account the rate of return prescribed by order by the Lord Chancellor,
“does not however prevent the court taking a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question”.
At first sight, that is quite a reasonable provision which the courts might feel able to use from time to time, but, as case law has developed, the door has effectively been shut on any use of the provision in these terms in cases where it is most likely to be wanted, which is those of injury of maximum severity.
In Warriner v Warriner 2002, the Court of Appeal, drawing on points made in Wells v Wells, stressed that on policy grounds there was a need for negotiations to be conducted with reasonable certainty as to the result and to eliminate unnecessary costs and the leading of extensive evidence. Building on the principle stated in Wells, which I of course support, it refused to interfere with the rate of return prescribed. That point was repeated in subsequent cases and more recently in the Court of Session in Edinburgh, where the same principles apply. The Lord President, Lord Carloway, made it clear in the case of Tortolano v Ogilvie Construction Ltd in 2013—Court of Session Inner House Cases, page 10—that there must be something special or exceptional about the case and that the fact that the injuries were catastrophic, which puts the level very high indeed, was not a special or exceptional case factor that would justify departing from the specified rate.
My point is that the Bill repeats almost exactly the wording of the Damages Act 1996, on which the case law has been built. There is one tiny difference. The formula in the 1996 Act was “does not, however, prevent”. In the Bill, we find the slightly different words “shall not, however, prevent”. But the crucial wording, in particular the word “appropriate”, is still there. If the wording of the Bill remains as it is, my concern is that it is effectively a dead letter because the courts, following established case law in the Courts of Appeal both north and south of the border, will feel that there is no case for interfering at all, even in the most extreme cases, where, as I have suggested, the need for even more precision and care in the rate of return is most compelling.
There is reason to be a little more generous at this stage. As the noble and learned Lord is well aware, the basis on which the rate of return is to be struck is to be taken at a slightly different level from that on which Wells v Wells was based. In Wells, the House of Lords used a rate of return that was inflation-proof—adopting a relevant government bond which had that rate of return—to avoid any risk of losing touch with inflation. Now, instead of a very, very low level of risk, there is to be an assumption that more risk will be acceptable than a very low level of risk, although it is less risk than would ordinarily be accepted by a prudent and properly advised individual investor. So there is a change towards a slightly greater element of risk, although not that high. The point is that any change in the level of risk being contemplated raises the possibility that in these extreme cases, the level may fail to achieve what is needed to provide the injured party with what is necessary to compensate them fully for the loss and injury sustained.
Simply to repeat the same formula is unsatisfactory. I was grateful to the noble and learned Lord for agreeing to a meeting the other day at which I was able to explain the point. I think the meeting was left on the basis that an attempt would be made to find a form of words that would not undermine what the Government seek to do but would, at the same time, allow the courts to look afresh at the idea of departing from the rate—although one would of course not want them to do so as a matter of course or have any unnecessary delay or expense in going through these complicated cases just to achieve a different rate. It would have to be a case that really justified such attention.
Some points can be drawn from Wells that may be relevant to my point. First, I was looking at the award in the form of a capital sum—we are talking about that rather than what the noble Lord, Lord Hodgson, was talking about a moment ago—in which the income will not be reinvested. The ordinary investor would reinvest the income to keep the capital sum as inflation-proof as possible, but in our case the income would be used to meet the needs of the injured party. At the same time, the injured party would be drawing on the capital sum, because it is a diminishing fund, the idea being that at the end of the claimant’s lifetime, or when the injuries have finally resolved themselves, there will be nothing left. So we have the extraordinary situation of a sum of money where the income cannot be used to protect against inflation and, at the same time, the sum is reducing. As Lord Lloyd of Berwick pointed out in Wells, if you are having to draw on the capital to meet these costs because the income is not good enough, in a diminishing market, that runs the real risk that the market may not recover sufficiently to bring the award up to the level needed to sustain the injured party for the rest of the period during which that party needs to be sustained. There is a difficult area here: in some cases, particularly if you alter the level of risk, you run into the possibility of the injured party not being fully compensated.
I seek by the amendment to suggest for the noble and learned Lord’s consideration a slightly different formula of words in that critical proposed new subsection that would enable the court to escape from the straitjacket of existing case law in cases that justify a fresh approach. On that basis, I have expanded a little on the formula of the noble Lord, Lord Faulks, to draw attention to the need for this sum to be sufficiently large to meet the needs of the claimant for the rest of the period. It is in that context that I ask the noble and learned Lord to consider my amendment in deciding what best to do to avoid simply repeating a dead letter.
Baroness Bowles of Berkhamsted (LD)
My Lords, I shall speak to my Amendment 73. It is an attempt not to change anything in the Bill, just to avoid some very unfortunate, superfluous wording. At the foot of page 9, it would delete the words,
“who has different financial aims”.
The effect of that deletion is to leave intact the wording cited just now—without what I would say are the offending last words—by the noble and learned Lord, Lord Hope. It leaves intact the reference to an,
“assumption that relevant damages are invested using an approach that involves … less risk than would ordinarily be accepted by a prudent and properly advised individual investor”.
At that point I would put the full stop, as it is clear and sufficient to achieve the intended purpose. Adding on that this prudent and properly advised individual investor “has different financial aims” at best adds nothing, and at worst contradicts the earlier provisions about the basis for the rate of return, which appear in new paragraph 3(2).
Lord Faulks
My Lords, I could not hope to better that very compelling speech and I will not try to add any confusion to the analysis. I agree with what my noble friend Lord Hodgson said about the desirability of periodical payments, but all is not gloomy on that front. I regularly act for the NHS in settlements involving periodical payments even now, when it is probably less attractive for periodical payments than it has ever been, having regard to the change in discount rate. Nevertheless, the desirability for periodical payments is a point that the House is generally agreed upon and I entirely accept what my noble friend has said.
However, it has to be said—my noble and learned friend the Minister will confirm it—that the courts have power to order periodical payments by virtue of Section 100 of the Courts Act 2003, which built on the original Act—the Damages Act 1996. The fact that they do not is usually because both sides are advised at a reasonably high level, having regard to the size of the claim and the complexity of injuries, so on the whole the courts will stand back and not seek to impose on or insist against somebody’s periodical payments. None the less, it is something that all advisers will be very much bearing in mind, and I do not disagree with the suggestion that the rules of the court may well be useful to ensure that as far as possible these are considered by the courts, the parties’ advisers and the parties themselves.
I turn to the amendment tabled by the noble and learned Lord, Lord Hope, which, as he kindly said, built on something that I put down in Committee. He puts it much better in his amendment than I did. Of course, the variation in rate is something that was explored, as I said in Committee, by Jonathan Sumption QC, as he then was, in a case in Guernsey, when he decided that it would be appropriate in certain cases to have a different discount rate. As the noble and learned Lord, Lord Hope, said, the amendment makes the scope of the power clearer. There is much in what he says.
I look forward to what will apparently be a fruitful analysis by the noble Lord, Lord Beecham, when he comes to address his amendments. The review that he suggests in Clause 89 troubles me a little because, although all noble Lords are concerned to encourage periodical payments, I am not quite sure how that will work. There are all sorts of reasons why people may or may not have periodical payments. Certainly by changing the discount rate in an upward direction from, say, 0.75% to 1% or 2%, it is much more likely that they would go for periodical payments. However, there are a plethora of reasons why they will or will not seek periodical payments. It is quite a difficult thing for that review to provide the sort of clarity that I am sure the amendment is seeking to achieve. I look forward with interest to the explanation behind it.
Lord Beecham
My Lords, I shall attempt to provide some sort of explanation. The amendment seeks a review of what is actually happening in the light of the changing circumstances; it does not prescribe a particular solution. It offers precisely the opportunity for the professions to contribute to ensuring that the arrangements for periodical payments suit the client, particularly those who have suffered significant injuries and may be looking for lifetime support. It is very much an open request, and the expertise of the noble Lord—and others, of course—is very welcome in dealing with it.
Amendment 73A in my name also seeks a different review on the assumptions on which the discount rate itself is based and how investors have dealt with that over time. As will be seen, the review should, I hope, indicate whether the assumptions on which the discount rate is based need to be changed, and set out any recommendations.
This is entering new territory, and it is reasonable to have a report within a reasonable time—three years is probably long enough—to allow a proper examination of the impact of the new arrangements. For that matter, there is a question of course about how often there should be such a review. It would be difficult to prescribe, because interest rates and returns on investments change. We have been living in a fairly good period in terms of returns, but that may not last. So periodic reviews should be very much part of the agenda.
On the amendment proposed by the noble Lord, Lord Hodgson, I strongly support the position that he takes and hope that the Minister will feel sympathetic to it and to the other amendments in this group.
Lord Keen of Elie
I am obliged to noble Lords. In speaking to Amendment 49, I shall also address Amendments 50, 73, 73A and 89. Clearly, we welcome the support on all sides of the House for the appropriate use of periodical payment orders as a means of ensuring that the anticipated future needs of an injured person are met. Of course, periodical payment orders avoid many of the uncertainties inherent in taking damages for future loss as a lump sum.
My noble friend’s Amendment 49 would require new rules of court to be made to highlight features of PPOs that may make them more appropriate than a lump-sum payment for a person with a long-term injury who is risk-averse, who would otherwise receive a large award for damages for future pecuniary loss. In responding to the very similar amendment tabled by my noble friend in Committee, the Government underlined their support for the use of PPOs. However, they also recognised that claimants and defendants must be able to make choices, and that the best choice for any individual is dependent on the circumstances of their particular case. My noble friend Lord Faulks pointed out that under Section 100 of the 2003 Act it is open to the court to insist on a PPO being utilised. As far as I am aware, the court has never actually exercised that power, but it does exist in statutory form.
It is vital that claimants who have suffered long-term serious injuries are well informed as to the implications of their choice between a lump-sum payment and a PPO, irrespective of whether their particular case reaches such a stage that the court has to consider whether to order a PPO. The Government remain fully committed to ensuring that appropriate advice is available to claimants in all cases. We are working to encourage the use and understanding of PPOs. In particular, we will over the coming months provide, or at least endorse, guidance that ensures claimants fully understand the choice between a lump sum and a PPO, and investigate whether current advice received by claimants on the respective benefits of lump sums and PPOs is effective.
Over and above that, we have listened carefully to the points raised in Committee and in further engagement with noble Lords. I am obliged to many of them for their engagement in the period running up to this stage of the Bill. The Lord Chancellor has now written to the Master of the Rolls on this matter, and I am pleased to say that he has recently agreed in principle to the Civil Justice Council, with its specialist expertise, exploring the issue with a view to suggesting the most practical, beneficial steps to increase the use of PPOs within the current system. The Government are grateful to the Master of the Rolls for this.
Taken together, we believe that these steps will ensure that focused and practical action will be taken to identify effective reforms that will encourage the use of PPOs whenever they are suitable. These measures can be tailored to address specific identified problems. Rules of court may be part of the solution, but they will relate to the practice and procedure of the courts. That is the appropriate function of rules of court and their related practice directions, not providing guidance as to when one form of taking an award of damages might be better than another, which might be better in guidance itself. In light of that explanation, I hope that my noble friend would consider it appropriate to withdraw his amendment.
I turn now to Amendment 50 in the name of the noble and learned Lord, Lord Hope, which, as he says, would require the court to consider certain factors in deciding in an individual case whether it would be appropriate to take into account a different discount rate to that prescribed by the Lord Chancellor. As he pointed out, the wording in the present Bill reflects almost exactly the wording that appeared in the original provisions in the Damages Act 1996. The application of those earlier provisions is, of course, coloured by the decision of the Court of Appeal in Warriner, and the more recent decision in the Inner House in Tortolano. In light of that, I wish to give further consideration to the matter that the noble and learned Lord has raised to come to a view as to whether something might be done to tailor the wording to address the almost complete guillotine that is, in effect, in place in the two Appeal Court decisions.
Lord Hodgson of Astley Abbotts
My Lords, I said that my amendment was designed to tilt the balance in favour of PPOs, and I am grateful to the Minister for his comments. It is good to know that guidance will be rewritten to draw attention to the PPO advantages, and to hear the news that the Lord Chancellor has written to the Master of the Rolls on using the Civil Justice Council to make improvements in that regard. Before I withdraw my amendment, can my noble and learned friend say how long he thinks it will be before the Civil Justice Council produces some results from that discussion and consultation?
Lord Keen of Elie
I cannot at this stage answer that question. However, I will consider the point and write to my noble friend, and place a copy of the letter in the Library.
Lord Hodgson of Astley Abbotts
I am grateful to my noble and learned friend and, on that note, I beg leave to withdraw the amendment.
Civil Liability Bill [HL]
Tuesday 12th June 2018
(6 years, 6 months ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 90-R-I(Rev) Revised marshalled list for Report (PDF, 139KB) - (11 Jun 2018)
Lord Sharkey
Lord Sharkey (LD)
My Lords, all the amendments in this group are aimed at significantly bringing forward the date of the first review of the discount rate. They are all in my name and those of my noble friend Lord Marks and the noble Earl, Lord Kinnoull, and I am very grateful for their support. I am also extremely grateful to the noble and learned Lord, Lord Keen of Elie, and to his officials for the considerable time they gave to the discussion of this matter between Committee and Report, and for their help in suggesting drafting for some of the amendments in this group.
As the Bill stands, the timetable for the first review would be as follows. The Lord Chancellor can decide when the provisions in Part 2 commence and there is no minimum or maximum period laid down. At his sole discretion, he can take as long as he likes to commence the provisions that enable a review of the discount rate. Once he has decided to commence the provisions, he then has up to 90 days to trigger the start of the first review. The review must conclude within 180 days, during which the expert panel has up to 90 days to respond to the Lord Chancellor.
All this means that the entire process will take up to 270 days plus the time elapsed before the Lord Chancellor commences the provisions in the Bill itself. As the noble and learned Lord, Lord Keen, said in his letter of 30 April, assuming the Bill receives Royal Assent this year and that the provisions are brought into force within two months, the statutory timetable means that the first review would be completed before the end of 2019. This will take far too long, as I think all those who contributed to the debate in Committee recognised.
The amendments in this group replace the existing process for conducting rate reviews with a separate and much faster process for conducting the first review. They leave untouched the process for subsequent reviews. Amendments 51, 55, 58 and 59 shorten the length of time after commencement that the Lord Chancellor has to trigger the first review from 90 days to 25 days. Since other amendments in this group will later remove the expert panel from the first review, there is clearly no need for the three-month maximum delay.
Amendments 64 to 66, 72, 74, 78 and 87 set up the new process for the first review. The essence of this new process is contained in Amendment 65. The other amendments are enabling or consequential, with the exception of Amendment 90, tabled by the noble Earl, Lord Kinnoull, to which I have added my name and which I will discuss later. Amendment 65 requires that the review is held and the rate determined within 140 days from the Lord Chancellor’s triggering of the first review. It also requires that the Lord Chancellor must, within 20 days of the start of the 140-day period, consult the Government Actuary and the Treasury. The requirement to consult an expert panel is removed entirely from the first review. The only consultees are the Government Actuary and the Treasury. The amendment specifies that the Government Actuary must respond to the consultation within 80 days of the Lord Chancellor requesting the consultation, while Amendment 65 sets out that:
“The exercise of the power … to determine … the rate … is subject to paragraph 3”,
exactly as at present and exactly as for subsequent determinations.
In summary, the changes brought about by the amendments to the process of the first review are as follows. They will reduce the time between commencement and triggering from 90 days to 25 days; they make it plain that the Lord Chancellor must request consultation no later than 20 days after triggering a review, a period unspecified in the Bill as it stands; they will remove the expert panel from the first review and the only consultees will be the Government Actuary and HMT; they will require the Government Actuary to respond to a request for consultation within 80 days after the request has been made; and the entire review must be concluded within 140 days of the Lord Chancellor’s triggering the review.
In all, these measures will reduce the time to arrive at the first determination from commencement by 105 days. This will represent a very significant saving, especially to the NHS, where it may be as much as £300 million a month. Amendment 65 and the other amendments in my name do not address the absolute discretion the Bill gives the Lord Chancellor to decide when the provisions governing rate reviews should commence, but this is addressed in Amendment 90 in the name of the noble Earl, Lord Kinnoull. There is no good reason to allow the Lord Chancellor unfettered discretion and I support Amendment 90, which removes it.
In my view, the time between Royal Assent and commencement should be either zero or some small number. When we discussed these matters in Committee, the Minister opened his response to our proposals to bring forward the first review by saying:
“I believe we are as one in our desire to see the provisions brought into force as rapidly and sensibly as possible”.—[Official Report, 15/5/18; col. 633.]
He went on to commit to reflect further on the matter. It is quite clear that he and his officials have done exactly that. Many of the amendments in this group, particularly Amendment 65, are largely the fruit of that reflection and of our discussions. I am grateful for that and I commend these amendments to the House. I beg to move.
The Earl of Kinnoull (CB)
My Lords, it is very hard to follow such a clear speech and say anything. I congratulate the noble Lord, Lord Sharkey, on such a clear presentation. I will only observe mathematically that the latest NHS Resolution annual report states very clearly that the change from 2.5% to minus 0.75% would cost the NHS an additional £1.2 billion per year. Making the change from minus 0.75% to 1%, which appears to be what the industry in general expects, works back mathematically to suggest that speed is worth around £2 million per day to the NHS. So the amendments have great merit in that they would have a direct positive effect on the front-line availability of NHS funds. Accordingly, I commend them.
Lord Hunt of Wirral (Con)
My Lords, I declare my interests as set out in the register and congratulate the noble Lord, Lord Sharkey, and the noble Earl, Lord Kinnoull, on Amendment 65, in particular, and the consequential amendments. More than anything else, the simplification of the process for the first review of the discount rate will allow the Lord Chancellor to proceed with the speed that everyone in this House has urged. I very much hope that my noble friend the Minister will confirm that the Government are prepared to accept Amendment 65 and the consequential amendments. I look forward to her acceptance.
Baroness Vere of Norbiton (Con)
My Lords, the amendments relate to the speed with which the first review of the rate can be conducted. Initially, I will focus on Amendment 65 and the related consequential Amendments 64, 66, 72, 74, 78 and 87.
The amendments would accelerate the conclusion of the first review in four ways: first, by replacing the need for the Lord Chancellor to consult the expert panel with a requirement to consult the Government Actuary, thereby simplifying the preparation for the first review. Secondly, by reducing the maximum period within which a review must be completed from 180 days to 140 days. Thirdly, by requiring the Lord Chancellor to consult the Government Actuary within the first 20 days of the review starting. Fourthly, by reducing the time for the Government Actuary to carry out his or her review following the Lord Chancellor’s request, from the 90 days currently afforded to the expert panel in the Bill to 80 days. The remaining changes made by the amendments, including the obligation on the Lord Chancellor to publish information about the Government Actuary’s advice, are consequential to these four changes.
The Government have made clear on several occasions that they are committed to starting and completing the first review as quickly as practical after Royal Assent. The amendments will assist the achievement of that objective because they will remove much of the uncertainty that would exist as to the readiness and availability of the as-yet-unknown members of the panel to commence the review promptly. This means that the open-ended period for the request to the panel can be confined to a specified period.
In addition, the carrying out of a review by the Government Actuary rather than a panel is administratively and substantively a simpler proposition. The overall period for the review and the period for the Government Actuary’s response can therefore both be shortened. The proposal that the Lord Chancellor will make the determination on the rate within 140 days of the start of the review, and that the Government Actuary will respond within 80 days of the Lord Chancellor’s request, recognises these changes in the proposals. The amendments do not affect the timing of the commencement of the review.
However, the removal of the panel from the first review reverses a policy decision that the Government took when replying to the Justice Select Committee’s recommendation to involve the panel in the first review. The reversal of this decision is not something that the Government would do lightly—but, having listened to strong arguments from noble Lords across the House that the first review needs to be completed more quickly than would be possible if the panel had to be constituted, the Government accept that the proposed approach is a sensible and pragmatic step. We have spoken with the noble Lord, Lord Sharkey, and are grateful to him for agreeing some changes from the terms of his initial proposal in Committee. On this basis, the Government are content to accept Amendment 65 and the related consequential amendments.
Turning to the other amendments in this group, the effect of Amendment 51 and the related Amendments 52, 55, 58 and 59 would be to require the first review to be started within 25 days of commencement, rather than the maximum 90 days as provided for in the Bill at present. Amendment 90 would be even more restrictive on the time allowed, as it would require the timetable for the first review to begin on the date of Royal Assent. As I have explained, we share noble Lords’ desire to ensure that a review is carried out as quickly as is reasonably practical. However, reducing the period within which the Lord Chancellor must begin the first review—which is a maximum period that may well be bettered in practice—runs the risk of creating unnecessary problems around compliance with time limits for those involved in translating this legislation into action. This is particularly the case given the Government’s acceptance of the reduced time limits in Amendment 65.
Even though the review will no longer involve the expert panel, there is still a need for extensive pre-review research and analysis to be completed to enable the Government Actuary to provide input to the review on a fully informed basis. This will include developing the data requirements to inform a call for evidence on investment advice and behaviour, funds available to investors and their risk characteristics, and allowances for tax and investment management costs; preparing and publishing the relevant call for evidence documents; and collating and analysing the responses. While we will ensure that the gathering of evidence proceeds as quickly as possible, that work will require time and it is important that it is done properly. At present we estimate that it will be completed around the end of November, but there is a possibility that the Bill may achieve Royal Assent earlier than expected.
The Government are, however, sympathetic to exploring ways to reduce the 90-day period within which the first review must begin, without making the period so short as to cause problems for the rest of the timetable. In light of this we would be happy to discuss the detail of these amendments further with noble Lords before Third Reading if they would be willing to do so. I hope that this commitment will reassure noble Lords that the Government are prepared to examine how the 90-day period following commencement might be reduced and, on that basis, I urge them not to press their amendments.
Lord Sharkey
I am very grateful to the Minister for her response, particularly to Amendment 65 and the consequential and preparatory amendments. I am also grateful for her comments about Amendment 51 and the allied amendments. I think it is generally agreed, as she said, that 90 days is too long. Perhaps 25 days is not quite right; perhaps we need a Goldilocks solution. I would be very happy, as I am sure others would, to join in a conversation between now and Third Reading to discuss exactly what size of bowl Goldilocks would like.
I notice, though, that the Minister did not address Amendment 90. I acknowledge the comment that it would be difficult to reduce it to zero, but I heard nothing else. I did not hear a suggestion that it could be some number that is not zero but is still quite small—and certainly less than the number that is currently in place. Would the Minister be happy to discuss that number as well between now and Third Reading?
Baroness Vere of Norbiton
Yes, I reassure the noble Lord that we would be very happy to do that.
Lord Sharkey
I thank the Minister very much. That is very helpful—and having said that, I beg leave to withdraw the amendment.
(3A) The expert panel under paragraph 5 must advise the Lord Chancellor to undertake a review of the rate of return when it considers that the nature of return on investment has changed sufficiently significantly to justify such a review.”
Lord Hodgson of Astley Abbotts (Con)
My Lords, with this group of amendments we come to the procedure for timing the future reviews of the rate. They are in large measure parallel to some amendments I tabled in Committee but during that debate a number of important points were made by noble Lords, which I have reflected in changes in the drafting.
Our policy objective should be to establish a system that has three guiding principles. First, there should be a change in the rate only when the underlying investment climate—that is, the generally prevailing rate of return—has changed sufficiently significantly. We do not want frequent jerks on the tiller. Secondly, the timing of the change should be as unpredictable and quick as possible to minimise the chance of any people gaming the system. Thirdly and finally, we need to avoid the consequences of political inertia. The decisions to change the rate will always be controversial. As we heard from the noble Earl, Lord Kinnoull, the costs of these changes, one way or the other, can be very great indeed. Therefore, there will always be pressure on the Lord Chancellor to postpone any changes until the very end of any fixed-term period.
The way the Bill is currently drafted in large measure fails this test. First, having time-based reviews—for the reasons I have just explained, these are essentially time-based—fails to link to the fundamental reason for undertaking such a review; that is, the changing of the underlying rate of return on investments. Secondly, a system that requires the establishment of a new expert panel on each occasion—a decision that will undoubtedly leak—inevitably increases the chances of the system being gamed. Thirdly and finally, a system which places on the MoJ and the Lord Chancellor the whole responsibility of deciding both whether a review should take place and then whether the result of any review should be implemented is likely to lead to a preponderance of reviews taking place at the end of any fixed-term period.
The amendments I have tabled are designed to address the system and remedy these weaknesses. First, the decision on whether or not to implement a change remains with the Lord Chancellor because, as noble Lords have pointed out, this is at root a political decision. Secondly, the Lord Chancellor is relieved of the duty of monitoring changes in the available rates of return. This is undertaken by the expert panel, which will now become a permanent body. The expert panel, the proceedings of which will be confidential, will decide when to recommend to the Lord Chancellor that the rate should be changed and, if so, by how much. In this connection, to avoid frequent small changes, I have inserted “significantly” after “sufficiently” in the penultimate line of Amendment 53. All the above can be undertaken confidentially, away from the public glare, inevitably leading to a reduction in the amount of gaming. Indeed, if the Lord Chancellor chose not to accept the expert panel’s advice—which he or she would be perfectly entitled to do—no one need ever know it had taken place.
Finally, the other change from my Committee amendment is to remove the expert panel’s requirement to report to the Lord Chancellor at the end of every 12 months in which a review has not taken place, explaining why no review has taken place. My original intention was to improve transparency and clarity but it is clear from the remarks of noble Lords in Committee that it was a procedure that confused rather than enlightened and therefore I have struck it out. In the meantime, I beg to move.
The Deputy Speaker (Viscount Ullswater) (Con)
I must advise your Lordships that if this amendment is agreed to, I cannot call Amendment 54 because of pre-emption.
Lord Marks of Henley-on-Thames (LD)
My Lords, we support the thrust of the amendments tabled by the noble Lord, Lord Hodgson, and his introduction of Amendment 53. My noble friend Lord Sharkey and I, together with the noble Earl, Lord Kinnoull, and the noble Lord, Lord Faulks, have tabled a number of amendments to the proposals for later reviews of the discount rate; that is, all reviews after the first, which we discussed in the previous group. These amendments on the later reviews are considered in this and the following group—the last group—and I shall speak to both groups of amendments now.
Broadly, we support the following propositions. First, we do not regard it as sensible to have a fixed three-year period, or even a fixed five-year period, between reviews of the discount rate. Interest rates and rates of return change unpredictably and at very different speeds over time. Years may go by, as they have recently, with very little change then a period of rapid change may follow. Fixed periods between reviews do not respond to that pattern of change and slavish adherence to fixed periods would lead both to reviews required by statute taking place unnecessarily during periods of stability and, more seriously, to there being periods—possibly long periods—following rapid changes in rates when the discount rate failed to represent an accurate assessment of predicted long-term returns.
Lord Judge (CB)
My Lords, I have tabled Amendment 69 relating to the conduct of the review that we have been discussing, in particular in relation to Schedule A1. I wish to add one definite article and three words to this part of the Bill. That definite article and those three words are already part of the Bill in two places, and this afternoon the Minister indicated that there would be a third occasion when the words “the Lord Chief Justice” would appear.
This is a very dry debate, and therefore I remind the House that we are dealing with catastrophic cases, with injuries that are life-changing not only for the unfortunate man, woman or child who has suffered them but—let us not overlook it—his or her family: the wife, husband, parents or child. We are reflecting on family disaster.
Judges have to observe, day by day, year by year, the practical realities of the impact of the discount rate on claimants, defendants and, in particular, settlement proposals. I remind your Lordships that, in the case of children and those who need a guardian for the purposes of the conduct of litigation, a settlement can be acceptable only if it is presented to a judge, usually a High Court judge, to see whether he or she approves it and its satisfied by its reasonableness. In other words, there is a fund of experience constantly being refreshed by the litigation process. If the practical impact, the glitches and the nuances are not fully appreciated, the Lord Chancellor will be deprived of information that is vital to any decision relating to the review. The only way to make it fair and balanced is for there to be judicial input to it as a consultee, and therefore I invite the Minister to agree, as he did this morning in relation to Amendment 12, that the Lord Chief Justice should be made a consultee to this part of the Bill.
Lord Hope of Craighead (CB)
My Lords, I added my name to Amendment 69 and I support everything that my noble and learned friend has said. There is just one point that I would like to add. I draw attention to subsection (4) of the new Section A1, which is printed at page 7, lines 37 to the foot of the page. It refers to the content of the original order that the Lord Chancellor will have made, which is the background to the review process. The order not only talks about the rate but has to contemplate the possibility of descriptions of pecuniary loss, the length of the period during which pecuniary loss is expected to occur and the time when the pecuniary loss is expected to occur.
So one is not simply talking about the calculation of a rate of return in the abstract. It would be open to the reviewer to examine whether there should be some fresh approach to the matters that are contemplated in that subsection. It underlines the important point that my noble and learned friend has been making about the need for judicial input against the background of experience which everybody in the courts has drawn out of cases involving these very serious injuries. I support the amendment for that reason.
Lord Faulks (Con)
With some hesitation, I offer some slight doubt about the two contributions from the noble and learned Lords relating to the role of the Lord Chief Justice. I entirely accept the significance and appropriateness of the role of the Lord Chief Justice in the first part of the Bill, as the Minister accepted. I am more troubled about the suggestion in relation to the role which the Lord Chief Justice might play in the rate of return on investment. In essence, this is a quasi-mathematical function. The noble and learned Lord, Lord Judge, is quite right that judges regularly see and approve complex cases, and will be aware of the adequacy or otherwise of damages. However, with great respect, that is not quite the issue that the panel will be deciding.
I see a further problem and would be grateful for the Minister’s comments on it. The Lord Chancellor makes the rate determination—it has been accepted that this is essentially a political determination—must,
“give reasons for the rate determination”,
and,
“publish such information about the response of the expert panel established for the review as the Lord Chancellor thinks appropriate”.
If he or she has to give reasons in response to a judicial review—the Minister has said that the decision must be amenable to such review—presumably those reasons might include the advice that he or she has been given by the Lord Chief Justice. I am a little concerned that this puts the judiciary in an unfortunately political position, when it has been agreed that the role of the Lord Chancellor is pre-eminently a political one, albeit advised by the panel. So although I entirely accept the experience and wisdom of the judiciary, I wonder whether this is entirely the right role in this context.
Lord Hope of Craighead
Does the noble Lord agree that subsection (4), towards the foot of page 7, is not dealing with matters of mathematics? The matter of description of categories and so on is involved. It goes a little further than the noble Lord was contemplating in his brief remarks.
Lord Faulks
I entirely accept that it does, but ultimately the question of what the rate is is determined by experts, taking into account the factors which are, I agree, set out in the Bill. I shall listen with interest to what the Minister says, but it still seems to me that that is perhaps dangerously close to the judges getting involved in an area which might render them subject to criticism.
The Earl of Kinnoull
I will speak extremely briefly in support of the noble Lord, Lord Hodgson of Astley Abbotts. It seems to me that the Lord Chancellor would, very properly, have two questions in life that he would want to ask of an expert. The first is: “Do we need a review?” The second is: “Please will you conduct the review?” However, unless there is a standing panel, who on earth can he ask the first question of? I assume that he will not have anyone within the Ministry of Justice to whom he can turn and say: “Are we in circumstances where we need a review?” That is, in itself, a powerful argument for having a standing function that would allow him some access to expertise in this difficult and esoteric area. So, if the Minister is not minded to be amenable to the amendments proposed by the noble Lord, Lord Hodgson, how will that question be answered?
Lord Beecham (Lab)
My Lords, at this late hour I propose only to express agreement with much of what has been said from all round the Chamber in these debates. I am not as concerned as the noble Lord is about the role of the Lord Chief Justice. It does not seem at all inappropriate for the Lord Chief Justice to be consulted, which is all that the amendment suggests, in the course of making these very difficult decisions. The noble Lord need not worry very much about the consequences of that.
I am happy to support all the amendments that have been discussed and I congratulate noble and learned Lords on the progress that has been made. I assume that the Minister will be inclined to accept, and I certainly hope that that will be the case.
Lord Keen of Elie
I am obliged to noble Lords for their contributions. In speaking to Amendment 53, in the name of my noble friend Lord Hodgson, I shall speak also to Amendments 56, 60, 63, 69, 75 to 77, 79 to 86 and 88. I shall not, however, be speaking to the amendments in the next group, although I appreciate that the noble Lord, Lord Marks, referred to them. On that point and the submissions made by him, the period for review is not fixed either at three years or five years. It is not the case that review would not be available in years one to four if it was five years. The Bill is clear that the three-year period following the last review is the outlier—it is the maximum period—and it is there to ensure that we do not face the situation that we have had in the past where, for one reason or another, no review takes place over many years whether or not a panel or anyone else believes that such a review should have taken place. I wish to make that clear.
The reason we have grouped the amendments in the way we have is because they are generally concerned with the creation of a standing panel or make provision for the panel rather than the Lord Chancellor to determine when the rate should be reviewed and how it should be set. Amendment 53 would replace the system proposed in the Bill for reviewing the discount rate with one without time limits under which the need for the rate to be reviewed would be determined by the expert panel; and it provides that the panel will make its decision by reference to whether the nature of returns on investment has sufficiently changed for a review to be needed. I recognise that Amendments 56 and 60 are consequential drafting amendments on Amendment 53 to remove references to the three-year maximum period that we find in the Bill.
Amendment 77, again in the name of my noble friend Lord Hodgson, would make the obligation on the Lord Chancellor to establish the panel a one-off obligation rather than an obligation on the occasion of each review. Again, that is clearly consequential—as is Amendment 81—because if there is a standing panel there would be no need to deal with the simultaneous review as the panel would not cease to exist at any point.
Amendment 63, in the names of the noble Lords, Lord Marks and Lord Sharkey, would require the Lord Chancellor to have regard to the views of the panel in deciding when to commence any subsequent review of the rate. The expectation underlying the proposal is that the panel will be established again on a permanent basis. I will come back to the observations of the noble Earl, Lord Kinnoull, about that in a moment.
Amendments 75 and 82 would require the panel to be responsible for advising the Lord Chancellor, broadly on an annual basis, whether the rate should be reviewed and also for advising him or her in respect of the second and subsequent reviews of the rate. Again, Amendments 76, 79 and 83 through to 86 are consequential on these changes.
On the point made by the noble Earl, Lord Kinnoull, about who the Lord Chancellor would consult in deciding whether or not there should be a review if there was no standing panel, the answer is that he may consult who he wishes in that context—for example, it is open to him to consult with the Government Actuary and Her Majesty’s Treasury as to whether or not economic conditions are such as to prompt him to consider a review. There is no limit as regards the inquiries he may make in order to inform his decision—I emphasise his decision—as to whether or not a review will be required.
The panel’s expertise will be in technical matters and its introduction will inject expertise and help to ensure that the rate is reviewed properly with full expert consideration of the issues. However, deciding whether the current rate is no longer appropriate engages issues of judgment as to the level at which the rate should be set and we do not consider that the panel would be well placed to make that decision. It is a question not only of monitoring investment returns, but of making a broader judgment as to the social impacts of, for example, a change in the rate.
The Government therefore consider, as did the Justice Select Committee, that the Lord Chancellor should be responsible for this decision. To ask the panel to make, in effect, a substitute judgment as to what the rate should be would be contrary to its nature as an expert panel in providing merely technical advice. Again, we do not consider that the panel should be in that decision-making position. The Lord Chancellor, of course, has to make a properly informed decision in reaching a conclusion on the outcome of a review.
We have listened to concerns expressed by noble Lords and others in Committee that a long-stop fixed review period might result in all parties to litigation somehow engaging in what is termed gaming the system in expectation of a change to the rate. Obviously, we share a desire to ensure that as far as possible that sort of conduct does not take place. On one view, a standing panel might mitigate some of the potential gaming at the end of a fixed period, but we fear it would increase the frequency of gaming around the intervals at which the panel would meet. Claimants and defendants can also watch changes in rates of return, and it will not take long for them to anticipate when there might be a degree of change in investment returns that might trigger the panel’s interest in a review. We consider that whichever route we take there is always the risk of gaming. It is something we want to minimise, but we are not persuaded that a standing panel would be the means by which to minimise the gaming of the system, as it has been termed.
Delivering regular and broadly predictable timings for reviews was the principal concern of those we consulted when they replied to the consultation in March 2017. We know from responses to the consultation and pre-legislative scrutiny that the majority of claimants and defendants want and benefit from certainty and predictability. We consider that the approach proposed in these amendments would make the system less certain and perhaps less predictable. We consider that the present approach will deliver a process that will see the rate reviewed at least every three years following the first review. As the noble Lord, Lord Marks, conceded, it is not a fixed term. This will ensure that there is not the possibility that the rate will again be left without formal review for a period of about 16 years, but, of course, the Lord Chancellor will be able to review the rate at any time in the period if he or she consider that the rate is no longer set at the right level.
The reality is that there will always be litigants anticipating what may happen because of changes in the market and seeking to take advantage of them, but we must seek to mitigate and minimise that risk. I emphasise again that the fixed period within which a review must be begun is a maximum period.
I accept that in theory it would be possible to combine a standing panel with the Lord Chancellor deciding when the rate is to be reviewed, but such a panel would probably be inactive for considerable periods and it would increase the level of cost and bureaucracy required. That is something that we do not consider desirable. While the precise estimate for these will depend on how often the panel would consider whether there should be a review, a permanent appointment would require some form of continuous funding and administration.
Amendment 88, which is also in the name of my noble friend Lord Hodgson, would remove the provisions in paragraph 8 of the new Schedule A1 that cover the possibility of the Lord Chancellor deciding on the occasion of the review to set no rate or no rate for a particular class of case. They make clear, for example, that a reference to a review of the rate includes reference to a review of a situation where no rate has been prescribed. Even if the Lord Chancellor decided not to set a rate, paragraph 8 ensures that the review mechanisms in the Bill will still apply and that “no rate” will be reviewed at the next appropriate juncture in the same way as if it had been a rate. The provisions of paragraph 8 do not, contrary to some of the fears expressed in Committee, provide a means for the Lord Chancellor simply to dismantle the machinery for the required reviews of the discount rate.
It may be helpful in understanding paragraph 8 to consider the present law. The new section A1(1) reproduces provisions in the Damages Act 1996 that indicate that the court must take into account such rate of return, if any, as may from time to time be prescribed by an order made by the Lord Chancellor. The wording implies that the Lord Chancellor might decide to set no rate under the present law, and the provisions in paragraphs 8(2) to (4) are intended to clarify how this power would operate.
I concede that the possibility of no rate being set for some or all classes of case may well seem an unlikely eventuality. However, just as is envisaged in the present law, circumstances might arise in which a category of rather unusual cases occur that call out for individual assessment of an appropriate discount rate. Preserving a “no rate” provision would enable the parties in the cases affected to plan their litigation with the certainty that the discount rate would have to be settled as part of the case. That would be a potential benefit for claimants and defendants in unusual cases. Removing these provisions would be unhelpful to future users of the Bill.
Amendment 80 in the names of the noble Lords, Lord Marks and Lord Sharkey, aims to indicate that the four appointed panel members are expected to approach the work of the panel as experts with the objective of advising the Lord Chancellor in a way that is fair to the interests of both claimants and defendants. This is the spirit in which the appointed panel members are intended to approach their work. That is one of the reasons why they are required to take account of the duties imposed on the Lord Chancellor in determining the rate. The amendment is expressed in terms that appear to be aspirational in nature rather than obligatory, leaving us a little uncertain as to what the effect is intended to be.
The Government have already made clear in the response to the Justice Committee our intention to recruit panel members who will act as independent experts and that appointed panel members will be required to disclose potential conflicts of interest. The provisions in the Bill and the assurances already given will lead to advice from the panel that will be fair to the interests of claimants and defendants. We do not consider that any further express provisions are needed in order to ensure that result.
Amendment 69 in the name of the noble and learned Lord, Lord Judge, raises the question of the Lord Chancellor being expressly required to consult the Lord Chief Justice during the review process. I note the point made by my noble friend Lord Faulks with regard to the potential implications for the Lord Chief Justice. There are some grounds for that because under other legislation—such as, for example, the 2007 Act with respect to the regulation of the legal profession—there is a provision where a party applies for regulatory status, but the Lord Chancellor will consult with the Lord Chief Justice on such an application. Indeed, that occurred recently; the Lord Chief Justice gave his opinion and that is now subject to scrutiny in the context of an ongoing application for judicial review. It is a rather unfortunate situation that the views of the Lord Chief Justice, which he is obliged under the statute to express, come under the scrutiny of his own Administrative Court. So there are potential difficulties here.
Nevertheless, I recognise the force of the point that is made under reference to Amendment 69. On the one hand, I can say that the Lord Chancellor is of course free to take evidence on the question of how he is going to fix the rate, and that could include evidence from the Lord Chief Justice, but that is hardly a complete answer to the suggestion that he ought to be consulted. In light of what has been said on this matter, having regard to the difficulty that was identified by my noble friend Lord Faulks, I would like to take that proposal away and consider it further in anticipation of Third Reading. I will give it further thought and will be happy to speak to noble Lords on that point in due course. In the meantime, I invite my noble friend at this stage to withdraw the amendment.
Lord Hodgson of Astley Abbotts
My Lords, I am very grateful to my noble and learned friend for his very full response. I am sure he will not be surprised when I say I am slightly disappointed at the way in which he has rejected quite a lot of the arguments that have been put forward from all quarters of the House. He rightly points out that the three-year period is a maximum, but I will have a sporting wager with him that when we come back here 20 years from now the reviews will be bunched around the end of the fixed period, whenever it is, because that is the way the political process will work.
As the noble Lord, Lord Marks, pointed out, the idea of the expert panel is that you build a body of knowledge and institutional memory about how these things will work more effectively, which will get lost if you have to constitute a panel every time.
As for advice, as the noble Earl said, Her Majesty’s Treasury has an interest in this case, as when you say, “We are going to change the discount rate”, it has to go back and redo its sums. This will be an interesting question that it has to face on each occasion. There remains confusion in the Government’s mind between instituting a review and instituting a change, and the two tend to get conflated.
There was a slightly strange suggestion that somehow there will be gaming around the meetings of the panel. That seems to me unlikely. I could not conceive why the panel would be announcing its meeting or why that would cause gaming in any way. No system is free of gaming, but this seems unlikely to lead to a greater degree of playing the system.
My noble and learned friend used a final rather strange phrase. He said that there was a social impact to the decision. I was not clear what social impact meant. This seems to me a clinical decision about the rates of return, which the Lord Chancellor must make. The social impact does not seem to me part of this discussion. Perhaps I have misunderstood what he said, so I will read Hansard carefully. In the meantime, I beg leave to withdraw my amendment.
Lord Faulks
Lord Faulks
My Lords, this amendment is in identical terms to that which I advanced in Committee. This time I have the support of the noble Earl, Lord Kinnoull. In view of the fact that there are no changes in the nature of the amendment, I think I can be brief in outlining its purpose.
The purpose is to ensure that the reviews are regular—indeed, that is the purpose of the Bill—which is particularly important in the light of the fact that Lord Chancellors so rarely exercised the power in the previous 20 years or so. The question is: how regular? I respectfully submit that the three-year period is too short, and a five-year period would be much better.
I say this based not least on personal experience at the moment and having had conversations with people on, as it were, both sides of the fence. When you are expecting a change one way or another, as is the position now—because the market suggests, as the noble Earl pointed out, that there probably will be a change, let us say from minus 0.7% to plus 1%—one side or another will see it to their advantage either to bring forward a claim or delay it to take advantage of the putative date of the decision.
This process is perfectly legitimate and part of the hurly-burly of litigation—there are lots of uncertainties in litigation—but this one is of particular significance where large sums of money are concerned. I am not disparaging anyone involved in the litigation process. But if the change happens every five years, there will be less of this gaming than if it happens every three years, just as everyone says about the last year of a four-year term of a President—nothing much happens. A lot of positioning will be taking place before the change.
This is a view expressed widely in the profession. I therefore ask my noble and learned friend carefully to consider accepting the amendment, or at least coming back at Third Reading with something that reflects those considerations. I beg to move.
The Earl of Kinnoull
My Lords, I support the noble Lord, Lord Faulks, in his amendments. I should explain why I did not support them in Committee. In Committee, I listened to two eloquent speeches—one from the noble Lord and one from the Minister. They went carefully through the arguments about gaming and not gaming. I thought it was very interesting. I have a lot of knowledge in this area, but I did not actually know. I then spoke to a large number of practitioners on the insurance side to try to form my own view on whether three or five years was right for gaming. I am afraid I strongly formed the view that five years was right and therefore strongly believe that the noble Lord, Lord Faulks, is on to something that would greatly benefit all concerned. That is why I support the amendment.
More importantly, I have tabled Amendments 68, 70 and 71, which are to do with the timing of the second review. Broadly, they try to bring the timing in from what I thought was 180 days to what I thought was120 days. Those thoughts were prior to the arrival from the Minister’s office of the draft terms of reference of the expert panel, which I have in my hand. It is very interesting because the expert panel is established at the very moment that the review trigger is pulled—or, I suppose, immediately after. In fact, in a section entitled “Preparation”, before the review is triggered there is a call for evidence, which asks for all sorts of evidence all round.
That raises two issues for me. The first is that it extends the period of uncertainty. There is a 180-day review period and the call for evidence period, which I assume is at least 60 days—probably 90 days—to increase the level of uncertainty. During this uncertain period, the people who suffer are not the banks of lawyers on either side of the argument; the fee clock is still running. The people who suffer are the individuals who have the catastrophic injuries. So I worry about that.
The second thing I worry about is that if I were an expert, I would not want someone else to draft my call for evidence. I probably do not need the call for evidence because I am an expert. The idea that the poor old Ministry of Justice will be able to ask for all this expert evidence is wrong. The Ministry of Justice is not full of this sort of specialist in the esoteric areas around the setting of a discount rate. I do not believe that is a wise thing to do, so will the Minister look again at the draft terms of reference? Maybe, when we have our coffee to discuss timings, we could have a short session on the terms of reference so that we can try to align this. The basic point behind Amendments 68, 70 and 71 is a desire to allow enough time for a panel of experts very well versed in discount rates to arrive at the correct answer, without extending that time unreasonably. The uncertainty is bad for the victims of the catastrophic injuries.
Lord Beecham
My Lords, I am inclined to agree with the noble Earl about Amendments 68 and 71, but I am afraid I remain unconvinced about the five-year period as opposed to the three-year period, and find myself in the rather strange position of agreeing with the Minister. It is not as though all claimants will be five years off a review. Some will be and others will not necessarily be. There will be different timescales for individual claims, and I do not think five years is necessary to protect the integrity of the system. Some people will try to game, whatever the period. Five years is not necessarily more likely to protect against that than otherwise. Rather unusually—I am sure the noble and learned Lord will stick to the three-year period in the Bill—I will have to agree with him.
I should like to say at the end of this very long day that the House has done its usual very good job of scrutinising difficult legislation. It is a little late to try to recall everything that we have discussed and agreed, but a good job has been done today and I hope the Bill will be improved. The Minister has offered to consider a number of matters before Third Reading—and, in any case, the Bill will go somewhere else in another week’s time and come back to us eventually for further consideration. There may be changes that we have to consider at that stage.
On behalf of these Benches—or what is left of us—I thank the Minister for his running of the Bill. He has been more than willing to talk to colleagues, even when some of them, like me, are rather slow on the uptake in this rather technical area. It is not one where, in practice, I had very much to do with cases at this level, as a personal injury lawyer—thank heavens. Around the House, we have heard some very important contributions from Members from all sides, and there is every prospect of further changes being made at Third Reading or in another place on the basis of the level of debate, discussion and argument that we have had. That is a signal tribute to the work of the House.
Lord Keen of Elie
I am obliged to noble Lords for their contributions, not only to this grouping but to the debate as a whole that has taken place this afternoon and evening. In speaking to Amendment 54, I shall speak also to Amendments 57, 61, 62, 67, 68, 70 and 71. I do so because, although they were not formally moved in this grouping, the noble Lord, Lord Marks, made it clear that he was addressing the amendments in this group when he spoke earlier. I appreciate his determination not to repeat himself.
As I explained in Committee, the choice between three and five years is not one of principle. The three-year period adopted in the Bill represents a compromise approach based on the responses received to the March 2017 consultation, which included a wide range of views, ranging from automatic reviews at short intervals up to a 10-year fixed maximum. We have listened carefully to the arguments this evening and in Committee from noble Lords about the potential for the gaming of the system, depending on whether there is a three-year or five-year maximum between periods.
I note the observations of the noble Lord, Lord Beecham, who brought himself to agree with the Government on this matter. Tempted as I am to move away from the Government’s position in light of that, I maintain that, overall, it would be appropriate for us to look to three years. But there is no clear-cut case, and I am perfectly content to speak again to noble Lords before Third Reading if they wish to make further representations to the Government with regard to the period. So I do not close the door on that, but our position is that three years would be appropriate, and we would have to be persuaded by something that might be termed “new evidence” before we would consider moving away from that position. However, as I say, the door is open.
Amendment 67 largely replicates the provisions already in the Bill for the conduct of a review, but applies them only to the second and subsequent reviews, in light of Amendments 65 and 66. But Amendment 67 in isolation makes a relatively small number of changes to the procedure for the conduct of the second and subsequent reviews. First, it adopts the language of advice rather than response to describe the panel’s reply to the Lord Chancellor. Secondly, it makes clear that it is not just the question of whether the rate is to be changed but what the new rate is to be that is subject to the provisions for determining the review in paragraph 3 of the new Schedule A1—and that, in reaching these decisions, the Lord Chancellor should have regard to the advice from the panel. Finally, that amendment would introduce a requirement that the Lord Chancellor will consult the panel within 10 days of the start of the 180-day period for the completion of the review. This is new, but noble Lords’ proposals for the first review contain a similar provision, albeit with a 25-day period, and we are conscious of that.
Lord Faulks
My Lords, I am grateful to the Minister for his response to my amendment, to the other amendments in this group and to all noble Lords who have spoken on this group.
I am sorry that I have not been able to persuade the noble Lord, Lord Beecham, of the wisdom of this amendment—nor, it appears, the Minister, or his predecessor who answered this in Committee. I echo what the noble Lord, Lord Beecham, said about the quality of the scrutiny that the Bill has received around the House. However, I am a little disappointed at the level of the response to this amendment. I have not yet heard any reasons why it should be three years rather than five years; I have heard that it is preferred, but not why. The submission that I have made consistently in debates on the Bill is that gaming is going on—I do not think that anybody doubts that at the moment. I accept the point made by the Minister that five years is the outer limit and that it can come earlier than that. The fact is that when, quite rightly, a “must” obligation is inserted in the Bill and there must be a review every three years, it means that in the year leading up to the review people will inevitably be guessing and manoeuvring to do that. That will happen less often if the period is five years. It is a simple but powerful point and, since we are on the whole determined to try to encourage the settlement of cases and as much certainty as possible, this seems to be desirable.
My noble and learned friend has very helpfully said that his door is open, as indeed it has been throughout the passage of the Bill, and I pay tribute to him for his engagement generally. I suggested in Committee that I would try to bring forward some evidence to convince the Government, but I am not sure what more evidence I can give. Inevitably it is hearsay evidence, although we now also have the evidence of the noble Earl, Lord Kinnoull, but I will not give up. Given that my noble and learned friend has left that door open, I will continue to try to assemble better arguments or more evidence to support this amendment. In the meantime, I beg leave to withdraw.
Lord Sharkey
“Conducting the first review1A_(1) This paragraph applies when the Lord Chancellor is required by paragraph 1(2) to conduct a review of the rate of return.(2) The Lord Chancellor must review the rate of return and determine whether it should be—(a) changed to a different rate, or(b) kept unchanged.(3) The Lord Chancellor must conduct that review and make that determination within the 140 day review period.(4) In conducting the review, the Lord Chancellor must consult—(a) the Government Actuary, and(b) the Treasury.(5) The consultation of the Government Actuary must start within the period of 20 days beginning with the day on which the 140 day review period starts.(6) The Government Actuary must respond to the consultation within the period of 80 days beginning with the day on which the Government Actuary’s response to the consultation is requested.(7) The exercise of the power of the Lord Chancellor under this paragraph to determine whether the rate of return should be changed or kept unchanged is subject to paragraph 3.(8) When deciding what response to give to the Lord Chancellor under this paragraph, the Government Actuary and the Treasury must take into account the duties imposed on the Lord Chancellor by paragraph 3.(9) During any period when the office of Government Actuary is vacant, a reference in this paragraph to the Government Actuary is to be read as a reference to the Deputy Government Actuary.(10) In this paragraph “140 day review period” means the period of 140 days beginning with the day which the Lord Chancellor decides (under paragraph 1) should be the day on which the review is to start.”
“Conducting later reviews2 (1) This paragraph applies whenever the Lord Chancellor is required by paragraph 1(3)”
Lord Sharkey
Lord Sharkey
(i) the response of the expert panel established for the review, or(ii) in the case of a review required by paragraph 1(2), the response of the Government Actuary or the Deputy Government Actuary (as the case may be).”
Lord Sharkey
Lord Sharkey
Civil Liability Bill [HL]
Wednesday 27th June 2018
(6 years, 5 months ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 110-I Marshalled list for Third Reading (PDF, 56KB) - (26 Jun 2018)
Lord Hope of Craighead
Lord Hope of Craighead (CB)
My Lords, my amendment relates to the personal injury discount rate, which is the subject of Part 2 of the Bill. Clause 10(1) provides for new Section A1 of the Damages Act 1996. Two of its provisions are important to what I am about to say. One directs the court to apply a rate of return, as may, from time to time, be prescribed by an order made by the Lord Chancellor. The other, which I am concerned about, is new Section A1(2), which states:
“Subsection (1) does not however prevent the court taking a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question”.
The Minister will recall that I raised this issue on Report when I moved what was then Amendment 50 on the Marshalled List. That amendment sought to tailor the wording of subsection (2) to address a problem that had been the subject—the result, I should say—of decisions in the Court of Appeal in the cases Warriner v Warriner and Warren v Northern General Hospital Trust, following the House of Lords case in Wells v Wells in 1999.
The problem that has arisen as a result of those cases in the Court of Appeal, which was expounded with some care by Lord President Carloway in his judgment in Tortolano v Ogilvie Construction Ltd in 2013, is that there is a very tight straitjacket on any use of subsection (2) in the Damages Act 1996, which is the predecessor of the provision in this Bill in cases where people seek a different rate of return from that prescribed due to the circumstances of the particular case.
Each of these three cases, the two from the Court of Appeal and the one from the Court of Sessions in Scotland, involved injuries of maximum severity—perhaps a prime example of cases where litigants would wish to have a more generous rate of return. However, in each of these cases, it was said that that could not be done on the ground that there had to be an exceptional case-specific factor before this could be achieved.
I was concerned that the provision in the Bill simply reproduces the language of the 1996 Act without any attempt to suggest that the approach the courts have mandated should be any different in this case. I was seeking a relaxation to allow a case where, if the court felt that the award was less than adequate after applying the prescribed discount rate, it could be altered to allow a better rate of return in recognition of the compensation needed to meet the loss incurred or to be incurred during the rest of the claimant’s lifetime.
The noble and learned Lord may recall that in our discussion on Report, reported in Hansard on 12 June, he said that he wished to give further consideration to the matter I had raised so that he could come to a view on whether something might be done to tailor the wording of the provision to address what he described as “the almost complete guillotine” that is in place as a result of the two Court of Appeal decisions. As he put it, there was a balancing act to be achieved and he undertook to look at that.
It is fairly plain from the fact that there is no government amendment on this issue at Third Reading that he and his team have not been able to come up with a form of wording that would address my point without undermining the policy that underpins the scheme which this part of the Bill seeks to lay down. I am grateful to him and his team for meeting me to go over this point last week so that I could understand the position he has adopted, which I fully appreciate. It is a very difficult issue on which to find a form of words that would achieve what I sought to achieve. In the course of that meeting, I suggested that in view of that position it might be better to delete this subsection from the Bill altogether, which is what my amendment would do.
To elaborate a little more on the reasoning behind the amendment, the phrase which the noble and learned Lord used—“almost complete guillotine”—describes the situation very well, although in rather brutal language. I do not criticise that, because the Court of Appeal in its decision was building on what this House said in Wells v Wells in 1999. In that case, we said that the aim of the solution that we adopted in finding an appropriate discount rate was to create as much certainty as possible. Lord Steyn said that only in exceptional circumstances should a party be entitled to reopen the debate. The idea was to close down the expensive and time-consuming business of trying to present a different rate of return from that laid down by the court, the House or the Lord Chancellor.
The problem is that what such exceptional circumstances might be nobody has been able to discover in almost 20 years of the provision’s existence. Any idea that they could be founded on the nature or gravity of the injuries seems to have been completely cut off by the Court of Appeal. My point is that it is very difficult to see what value, if any, can be achieved by retaining this provision if there is to be no change to its wording. It has been a dead letter for some time and it seems rather a pity to reproduce a dead letter in fresh legislation. Indeed, retaining it risks raising false hopes of achieving something that it cannot achieve—indeed, according to the Government’s policy, something it ought not to be able to achieve—which is altering the discount rate in these cases. My suggestion, which I made at our meeting last week, was that it might be better to face the fact now and to delete the provision. Having made that suggestion, I thought it right to table the amendment for discussion so that the Minister could at least report to the House on the view he now takes, having had time to think about my suggestion.
It is right to draw attention to the fact that the Association of Personal Injury Lawyers has circulated a briefing among some of your Lordships in which it indicates that it opposes the amendment. As I understand its letter, that is for two reasons. One is that a court should retain the ability to apply a different discount rate, particularly in cases of injury of maximum severity. That is an example of wishful thinking in view of the decisions I referred to. It is clear that any attempt to do that in that kind of case will not succeed, which is why I am so concerned about the repetition of this amendment in the Bill.
The other reason is rather more fundamental. If I might read what the association says, it puts it this way:
“The ability for a judge to apply a different discount rate is an appropriate safeguard against any abrupt changes in the financial market. While the proposed legislation provides for regular reviews of the discount rate, a scheduled review could be too late if there is a sudden change in the market. The discount rate could be too high, and it could be years until the next review when the rate could be corrected. In the meantime, injured people will be undercompensated, and will be in fear of what happens when their money runs out”.
As I understand the system that Part 2 of the Bill seeks to lay down, it is intended to have the process reviews carried out at regular intervals, with a view to having certainty between each review that the courts would be obliged to apply, subject to the provision I am concerned about. With respect, the Government have to consider very carefully whether the point the association raises is one they would be willing to accept—in other words, that it should be open ground for parties to seek to attack the prescribed discount rate between reviews because of changes in the market. We would get back to the kind of uncertain situation that we were so concerned about in Wells; we did our best in the reasoning in that case to address our seeking certainty and to have the matter addressed in only exceptional circumstances.
For what it might be worth, the wording of subsection (2) does not permit an across-the-board change to the discount rate because it talks about a different rate being taken if a party can show that it is,
“appropriate in the case in question”,
which suggests that one is taking a particular case out of the generality that deserves special treatment, rather than something across the board, which is what I think the Association of Personal Injury Lawyers is addressing.
I have said enough to indicate that there are reasons for concern as to why this provision is still in the Bill, and to ask whether it should still be there and possibly whether, as the Bill proceeds through the other House, further thought might be given to its wording or its presence in the clause. I beg to move.
Lord Mackay of Clashfern (Con)
My Lords, it is fairly plain that this phrase was used by me more than once around this time. One area in which it was used was fixed sentences in criminal cases, because there was a feeling that laying a particular sentence or assigning a particular rate tended to deprive judges of their inherent discretion.
In the two judgments referred to, the Court of Appeal indicated that it felt it was given no discretion. It was enough to get me through the difficulties that I had at that time. Therefore, whether it should remain is a question I find rather difficult. I am not keen to remove anything that gives the presiding judge in a particular case some degree of discretion. If the courts have held that such sentences do not give that, it is rather difficult. I cannot think of a better phrase; needless to say, it occupied my attention quite a lot at the time and was hotly debated. Obviously, my noble and learned friend the Minister has given the phrase consideration and I would be interested to hear what he has to say.
Lord Cromwell (CB)
My Lords, I invite the Minister to join me in wishing the noble and learned Lord, Lord Hope of Craighead, a very happy birthday today. That pleasurable duty discharged, I have to say that I disagree with his amendment. I found very helpful his explanation of the constraints that surround it; none the less, the purpose of the clause, as the noble and learned Lord, Lord Mackay, alluded to, is surely as a safety valve for unforeseen circumstances. I accept, and said in an earlier debate, that courts have seldom, if ever, been able to exercise such a power, but we would be well advised at least to keep that option available, should any court be brave enough to do so at some point. For that reason, I feel that we should not support this amendment.
Lord Faulks (Con)
My Lords, either there is a realistic power to vary the rate—I can see that there are some arguments in favour of that, which found favour with Mr Sumption, as he then was, when sitting in Guernsey—or it does not have any real meaning, as is the case following the decisions of the Court of Appeal. Although flexibility is desirable, if it is meaningless and if we as a legislative body decide that we are not going to overrule any decisions of the Court of Appeal, the noble and learned Lord, Lord Hope, is absolutely right about being accurate in the way that we legislate.
Lord Beecham (Lab)
My Lords, I hesitate to take either side of this argument, given the wisdom and experience of both noble and learned Lords, who have given conflicting views. I am therefore perfectly content, for once, to allow the Minister to indicate the Government’s attitude. After all, this Bill is not ending here; it is going to another place and there will be time for people with greater acumen than mine to look into the arguments advanced by the noble and learned Lord. It will be interesting to see what the Minister makes of them, but, of course, it is not the end of the day and perhaps this elevated discussion can take place with a more useful result than we are likely to see today.
The Advocate-General for Scotland (Lord Keen of Elie) (Con)
My Lords, I am most obliged to the noble Lord, Lord Beecham, for his positive contribution to the debate, to all noble Lords and noble and learned Lords for their observations on this amendment, and to the noble and learned Lord for moving it.
From the very outset—I go back to the Law Commission’s 1994 report on structured settlements—it was intended that a provision of this kind to depart from a prescribed rate should be very much the exception rather than the rule. Clearly, it recognised that it would be both expensive and time-consuming if the prescribed discount rate could regularly be the subject of challenge on the basis that there might be another more appropriate rate for any number of reasons. That goes some considerable way to explaining the position of the Court of Appeal in the case of Warriner v Warriner.
As the noble and learned Lord, Lord Hope, observed, I referred to a guillotine, but I qualified it with the words “almost complete”—this is a deficient guillotine; it is not a complete guillotine. I said that because, for example, the decision of the Inner House of the Court of Session, the appeal court in Scotland, in Tortolano v Ogilvie Construction, indicated that there may be cases in which the power to depart from the prescribed rate can be applied—but I accept that they will be wholly exceptional. In Tortolano, the court suggested that there might, for example, be a need to take account of a claimant who had to pay tax in a foreign jurisdiction, and that impacted upon the valuation of the award.
These are wholly exceptional circumstances, but the provision in Section 1(2) of the Damages Act 1996, which would be preserved by the words in subsection (2) of the proposed new Section A1, would allow for those wholly exceptional circumstances where the judiciary would be entitled to exercise an inherent discretion in order to achieve justice between the parties. It is in these circumstances that I would resist the amendment; I recognise that there may be room for taking this further, although I have been unable to identify it so far, to ensure that we can perhaps more clearly identify circumstances in which the exception would be applicable.
As the noble Lord, Lord Beecham, indicated, the Bill will be considered in the other place, and I and my officials would be content to explore further with the noble and learned Lord, Lord Hope, if he wishes to do so, whether the provision might be improved in some way. However, I have difficulty with that because I am concerned that if we intrude too much into this quite exceptional discretion, there is a risk of encouraging unnecessary and expensive litigation over the appropriate rate in individual cases.
On that basis, and recognising the point that the noble and learned Lord makes, I invite him to withdraw the amendment.
Lord Hope of Craighead
My Lords, I am very grateful to all those who have taken part in this short debate. I am grateful in particular to the noble Lord, Lord Beecham, for his suggestion that this might be considered a little further when the Bill moves to the other place. It is a very difficult issue and, as the noble and learned Lord, Lord Mackay of Clashfern, has indicated, it is very hard to find another form of words which can address it.
I am concerned about putting into the Bill something which raises false hopes. The circular from the Association of Personal Injury Lawyers indicates that it was trying to find something in the wording which is not really what the Minister was talking about. We are not dealing with cases of exceptional injury within the domestic system, which is what the association was talking about. I take it from the Minister’s reply that he would not encourage people to have a go at changing the discount rate between reviews, which would be contrary to the idea of laying down certain rules for application while the reviews subsist.
It is a very tight issue as to whether there is a point in this provision at all. But having heard what has been said, and with particular thanks to the Minister for his reply today and for the way in which he has listened to me on two occasions, I beg leave to withdraw the amendment.
Lord Faulks
Lord Faulks
My Lords, I return to a group of amendments concerned with the regularity of the review of the discount rate. I raised this matter at Second Reading, in Committee and on Report, so I will not weary the House by going over the arguments again. Suffice it to say that I entirely agree with what the Bill does in providing for the obligation to have regular reviews at a certain juncture, although the Lord Chancellor has the right to have an earlier review if necessary. My argument, which I am glad to say the noble Earl, Lord Kinnoull, supports, as I think others in the House do, is that it is important that the reviews be regular and there would be an obligation to hold them, but that they do not have to take place too frequently. Why is that? Because those involved in litigation, on both sides, will inevitably seek effectively to guess—however well informed that guess might be—what the discount rate will be after it has been determined.
If there is to be a change every three years, the period leading up to the moment of change is likely not to result in settlements or to result in adjournments—in other words, in perfectly legitimate gaming of the system. This will happen inevitably whenever a review is about to take place, but it will happen less often if it is five years than if it is three years. This will, I think, help to produce more settlements. There are always uncertainties in litigation, but this is a particular uncertainty in large cases, where the discount rate can have such an effect on the quantum of damages. My submission is that five years, for the reasons I have already advanced, remains a better provision than three years. I accept that any provision is arbitrary, but I hope that the Government will listen to me today, will take into account all the evidence they have obtained and decide that, after all, five years might be a better period than three years. I beg to move.
Lord Beecham
My Lords, I am slightly puzzled at the effect of amendment as moved by the noble Lord, because the Bill prescribes that the rate of return must be started within a period; not every three years, or every five years, but within that period. So potentially, it seems to me—perhaps the noble and learned Lord will either correct me or confirm that I am right—that you could have a review at less than five years, depending on the circumstances. If, for example, there were a crash, as in 2008, which affected rates of return and so on very significantly, you would not have to wait up to five years to deal with it; you could have that review within the period. In effect, any time within that five years could mean a three-year review, a shorter review or something with a maximum of five years. If that is the case, is that acceptable to the Government?
Lord Keen of Elie
My Lords, I am obliged to my noble friend Lord Faulks and to other noble Lords who raised this matter in Committee and on Report. On the point raised by the noble Lord, Lord Beecham, it is indeed the case that we are talking about a maximum period for review, and therefore it can be at any time within that period. What we are concerned to avoid is the situation that arose in the past where many years passed before a review was carried out.
The choice between the two periods, three years and five years, is essentially a pragmatic one, I suggest. The arguments for the two options appear to me to be quite evenly balanced. A number of noble Lords have made the point that there would be less likelihood of a gaming of the system if that period were extended to five years. It was a point made in particular by the noble Lord, Lord Marks, on Report, when he indicated that he would prefer a five-year period over a three-year period.
Following discussions with several of your Lordships after Report, we have given further consideration to the question of the length of the review cycle and we accept that a five-year maximum period could help to reduce the effect of the litigation practice of trying to game the system, as distinct from a three-year period. In light of the arguments that have been made, the Government propose to accept these amendments.
Lord Faulks
I am extremely grateful to my noble and learned friend for accepting the amendment and for listening generally to the arguments that have been advanced in your Lordships’ House in this connection and, indeed, in other connections.
Lord Faulks
Lord Sharkey
Lord Sharkey
My Lords, a key focus of our discussions of Part 2 has been to reduce the time taken to reach the conclusion of the first review of the PIDR. In Committee, the Minister encouraged more discussion about how to do that, and on Report the Government accepted amendments that brought forward very substantially the first determination. We were very grateful for that and for their very constructive involvement.
There were, however, two remaining issues to do with the timing of the first review. The first was on the 90-day period from commencement that the Bill gives the Lord Chancellor before he must trigger the first review. The second was on the absolute discretion given to the Lord Chancellor to decide when commencement should take place.
Lord Monks (Lab)
My Lords, perhaps I might mark this Third Reading by drawing attention to what I regard as the significance of the Bill. It is not just a technical Bill about the many legal procedures and complications which we have debated. It is a Bill which, particularly in its relationship to the small claims limit, will have a profound impact on around 350,000 people a year, who we estimate will be left without the free legal cover that they now experience. That is as a result of the rise in the small claims limit. The Minister is looking a bit askance at me as I speak on this amendment, but it seems to me important that we mark the fact that this is a Bill of real significance to a lot of vulnerable people in this country.
Those of us who have been concerned with this issue have been hamstrung by the fact that we have not managed to secure the small claims limit to be within scope of the Bill. We did, in the end, find a way to debate it on Report and there was a vote on it, which I accept that we lost, but we had little time to brief Members of this House or to campaign more widely. I give notice that we will return to the small claims limit issues in any way that we can. I draw the Government’s attention to the fact that one of their justifications for the rises has been to use RPI movements, but the national statistician is now on record as saying that the RPI is a very bad statistic. The CPI is certainly the way to go and it would produce a small claims limit, in the way that Lord Jackson recommended, of £1,500 rather than £2,000. That would make an appreciable difference.
Will the Government think a little further about this issue? Will they reflect on it again, even at this late stage as the Bill goes to the other place? I know that appeals to a Government’s better nature do not usually get very far, but I hope that an exception will be made in this case, and that the right thing will be done after all the debates we have had. The Bill would be improved if the associated measure on the small claims limit was adopted in the way that we have been proposing.
Lord Keen of Elie
My Lords, I begin by thanking the noble Lord, Lord Sharkey, not only for his contribution to this part of the Bill but for his engagement since Report in addressing these matters. I extend those thanks to other noble Lords, including the noble Earl, Lord Kinnoull, who has also engaged extensively on these matters.
Just to be clear, the Government are fully committed to beginning the first review as soon as possible after Royal Assent and to completing it as soon as is practicable. I hope that I can extend that comfort to the noble Lord, Lord Sharkey. That is why we have no objection in principle to the amendment. The only remaining question for the Government was the practical one of whether the 90-day period will be sufficient to ensure that all necessary preparatory work can be finished before the 140-day period for the completion of the first review. The Government have begun this work and are making good progress and, although there are public expenditure rules that may affect the timing of its completion, the Government now consider that the 90-day period is sufficient.
In view of this and having regard to the strength of opinion expressed across the House that the first review should proceed quickly, I am pleased to indicate that the Government intend to accept this amendment as well. Perhaps I can refer back to the observations of the noble Lord, Lord Monks, when I move that the Bill do now pass. For the present purposes, we accept the amendment.
Lord Sharkey
I simply express my gratitude to the Minister and his team for accepting the amendment and their co-operation throughout the passage of the Bill.
Lord Keen of Elie
My Lords, in moving this Motion I thank noble Lords across the House for their careful scrutiny of the Bill throughout its passage. Noble Lords have made not only detailed but informed contributions to the debate, and that has resulted in improvements to the Bill before it passes to the other place tomorrow for further consideration.
There have been extensive amendments to the whiplash provisions and appropriate amendments to Part 2 with regard to the discount rate. We consider that the Bill is in a better place as a consequence of your Lordships’ contributions.
I have been asked by my noble and learned friend Lord Mackay of Clashfern to put on record a clarification that I provided in my letter to Peers following Report. This relates to a request by the noble Baroness, Lady Bowles, for confirmation that the words “different financial aims” in what was then paragraph 3(3) of the new Schedule A1 to the Damages Act 1996,
“do not provide an override of the conditions laid down in the earlier new paragraph 3(2)”.—[Official Report, 12/6/18; col. 1649.]
As I indicated in my letter, I can confirm that the words in question form part of the definition of the approach to investment that the recipient of relevant damages is to be assumed to take for the purpose of securing the objectives set out in paragraph 3(2) and that the words “different financial aims” cannot therefore override those objectives. It is perhaps appropriate that I put that on record.
Finally, the Government share with the House the view that insurers should be accountable for meeting their commitments to pass on savings from the reforms. Therefore, we have also committed to developing an effective means for reporting on the savings made by the insurance sector being passed on to consumers, making sure that insurers are held to account. We will bring forward an amendment to this effect as soon as possible in the House of Commons. It is quite a complex issue, having regard to, among other things, commercial sensitivity and competition issues.
The noble Lord, Lord Monks, referred to the proposed changes to the small claims limits. We consider that these are appropriate in the circumstances. Of course we are open to debate on these matters, and if the noble Lord wishes to engage with me further on them, I am content to meet with him for that purpose. He is fully aware of the Government’s position on these issues. They form part and parcel of the overall package that we consider has to be delivered to address the issues referred to in the Bill.
Again, I thank all noble Lords for their contributions to the Bill.
Lord Hodgson of Astley Abbotts
Before my noble and learned friend sits down, could he possibly say a word about periodical payment orders, an issue which has occupied a number of us quite a lot? He said at the previous stage that he would confirm that the Government placed emphasis on the importance of PPOs as part of the array that is available to the courts when damages are decided.
Lord Keen of Elie
My Lords, I am obliged to my noble friend for that reminder. Clearly, it is our intention that this matter should be taken forward. As I indicated before, we are engaging with the judiciary on this matter, and we have engaged already with the Master of the Rolls to see what further developments can be put in place on the provision of PPOs. We share the view that the noble Lord has expressed that the appropriate use of PPOs should be encouraged, and we are grateful to the Master of the Rolls for his agreement in principle to the Civil Justice Council reviewing the law and practice regarding PPOs to see whether they can be improved. The timetable for that has not yet been agreed, but we hope it can begin towards the end of this year or early next year, with a view to completion in the summer of 2019. I hope that that reassures my noble friend.
I thank noble Lords again for their contributions to the Bill. I am content to carry on further discussions relating to the Bill during its time in the House of Commons if noble Lords so wish. Thank you.
Lord Hunt of Wirral (Con)
My Lords, I congratulate my noble and learned friend on his expert handling of this Bill, together with his ministerial team, my noble friend Lady Vere, and their officials.
Part 1 has indeed proved to be more contentious than many of us expected, but I hope that all noble Lords have now recognised the true and serious nature of the problem that the Government need to tackle and also accept that the radical solution of a tariff is thoroughly justified. The social evil that we have discussed on many occasions, which this part is intended to address, will not completely evaporate as a result of these measures. There are too many vested interests at work for the compensation culture to vanish overnight. No doubt they will continue to set citizen against citizen and are already crafting new ways around any controls that we seek to impose. None the less, I feel that this Bill will certainly slow down the process and, I hope, end this great country being known as the whiplash capital of the world.
On Part 2, I am delighted at the consensus across the House that time is very much of the essence, as we lawyers would say. The overwhelming view of this House has been that change to the discount rate cannot come soon enough. I congratulate my noble and learned friend the Minister and noble Lords on all sides of this House who have all worked so hard to eliminate the scope for delays in reaching a first review.
Lord Marks of Henley-on-Thames
My Lords, on behalf of these Benches, I add my thanks to the noble and learned Lord the Minister and to the noble Baroness, Lady Vere, for their help, courtesy and consideration throughout the passage of this Bill. We have all approached the Bill with common purposes; on some of the issues, we have suggested different ways of achieving those purposes. With co-operation from Members across the House, in the Conservative Party and on the Labour and Cross Benches, we have produced a set of amendments that have now improved the Bill significantly as it goes to the Commons. If I may say so, it has been a model of co-operation. We are very grateful to the noble and learned Lord for the many meetings that he has held at which he has explained the Government’s thinking and listened to us, and for the letters that he sent us explaining their thinking and, sometimes, changes in thinking. Thank you.
The Earl of Kinnoull (CB)
I was not intending to speak, but I associate myself entirely with the remarks and thanks made and given by the noble Lord, Lord Marks. I was going to add only what fun it has been working with the Bill team, who have worked immensely hard. They have done a particularly good job on this Bill, which should be recorded.
Lord Beecham
My Lords, I am not sure I have enjoyed much fun as we have gone through this Bill but, as it leaves the House, I thank the Minister and his colleague on the Front Bench, and the Bill team for their readiness to discuss its provisions and respond to some, at least, of the concerns and suggestions that have been made from all sides of the Chamber. I also express my admiration for those who have brought their professional expertise and knowledge to our debates and discussions. It has been quite an awesome experience to listen to some of those who have spent a lifetime dealing with these matters.
Nevertheless, from these packed Benches, we believe that the Bill is fundamentally flawed and hope that, when it returns to us, it will have been improved. In particular, we would like to see the definition of “whiplash” made by medical experts and the damages determined by the judiciary based on Judicial College guidelines, rather than by a tariff specified for whiplash injuries. If there is to be a tariff, the college should be involved in determining the levels.
The Law Society suggests that the Government should clarify what would constitute a failure to take reasonable steps to mitigate the effect of an injury, which is part of the Bill’s proposition. It is also concerned about the provision in Clause 3 that means the capacity of the Lord Chancellor to allow discretion to increase the award in exceptional circumstances is by way of regulation, again, rather than being left to the judiciary to determine what constitute such circumstances.
Underlying the Bill and the proposals to raise the small claims limit for whiplash injuries to £5,000, and for other personal injuries to £2,000, is the effect of creating obstacles to justice likely to deter legitimate claimants from pursuing and receiving compensation. Where they do, they are likely to add to the growing difficulties experienced by the courts in dealing with unrepresented litigants. To most Members of this House, the sums involved are very modest; to many potential claimants, they are not. For our part, we will in future seek to oppose the intended increase of the small claims limit to all RTA cases to under £5,000 and for all other personal injury claims to £2,000, when the relevant regulations are laid.
We look forward to a review of the impact of this legislation on the much-vaunted claims of the insurance industry significantly to reduce insurance premiums—the noble and learned Lord has referred to that aspiration, as I would describe it—and, more positively, to a significant growth in the number of periodical payments orders in the most serious cases of injury, which are the subject of Part 2 of the Bill, which deals with the discount rate. That is the most positive part of the Bill, and it certainly has our support.
It has been an interesting experience to participate in these debates, and I hope that the Bill will return to us in due course, in an improved form. I await that moment with barely contained impatience.
Civil Liability Bill [Lords]
Tuesday 4th September 2018
(6 years, 3 months ago)
Commons ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 110-I Marshalled list for Third Reading (PDF, 56KB) - (26 Jun 2018)
Mr Deputy Speaker (Sir Lindsay Hoyle)
The Speaker has certified the Civil Liability Bill [Lords] under Standing Order No. 83J as relating exclusively to England and Wales on matters within devolved legislative competence. I remind the House that this does not affect proceedings in the debate on Second Reading, or indeed in Committee or on Report. After the Report stage, the Speaker will consider the Bill again for certification and, if required, the Legislative Grand Committee will be asked to consent to certified provisions.
The Lord Chancellor and Secretary of State for Justice (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
The Bill will make important changes to our personal injury compensation system, which it aims to make fairer, more certain and more sustainable for claimants, defendants, the taxpayer and motorists. It builds on our wider reforms to cut the cost of civil justice claims and strengthen the regulation of claims management companies. The first part of the Bill will deliver a key manifesto pledge to support hard-working families by bringing down the cost of living through a crackdown on exaggerated and fraudulent whiplash claims, which lead to higher insurance costs. The second part will create a fairer and more transparent method for setting the personal injury discount rate. The Bill will provide a compensation system that meets the rightful needs of claimants while saving the public money, in respect of both consumers and taxpayers.
Data from the Department for Work and Pensions shows that around 650,000 personal injury claims relating to road traffic accidents were made in 2017-18. That is almost 200,000 more than were made in 2005-06—a rise of 40%. Of those claims, we estimate that around 85% were for whiplash-related injuries. That is higher than in any other European jurisdiction. At the same time, figures from the Department for Transport show that, in the decade to 2016-17, the number of reported road traffic accidents went down, from around 190,000 to around 135,000—a fall of 30%.
Theresa Villiers (Chipping Barnet) (Con)
Does the Secretary of State share my anxiety about the high cost of insurance for young people, many of whom need a car to get to work and to get around? Will the legislation help to tackle that problem?
Mr Gauke
Yes, I do share my right hon. Friend’s concerns. For many people, a car is not a luxury but is essential. The cost of insurance, particularly for young people, can be considerable. Indeed, as I will set out, that cost is likely to increase very significantly if we do not take action, which is one reason we have taken the measures that we have.
Gareth Thomas (Harrow West) (Lab/Co-op)
Will the Secretary of State tell the House why there is nothing in the Bill that will allow insurance companies to be held to account for whether or not they pass on the savings that the Bill purports to deliver for consumers?
Mr Gauke
I am glad that the hon. Gentleman asked me that question, because not only have we had public assurances from insurance companies that represent 85% of the policies, but we will table amendments to the Bill to ensure that we can hold those companies robustly to account, particularly given their public commitments. If those are his concerns, I think he will find as the Bill progresses that they are met.
Jo Stevens (Cardiff Central) (Lab)
Will the Secretary of State elaborate on his last remark? What incentives or restrictions will there be for insurance companies to make sure that they pass on any savings? Historically, they have not done so.
Mr Gauke
I would challenge that. When the Competition and Markets Authority looked at the insurance industry, it found that it is a competitive industry. The factor that is most likely to ensure that benefits are passed on to consumers is competition, and the evidence suggests that there is competition in this area, but we will ensure that insurance companies provide robust information so that they can be properly held to account. As I say, the Government will bring forward amendments in this area, as we have committed to do.
Sir Edward Davey
It is key that these savings are passed on to motorists. In the other place, my noble Friend Lord Sharkey tabled an amendment suggesting that one way of doing that was to give some regulatory power to the Financial Conduct Authority to hold insurance companies to account. Will the Secretary of State tell the House now whether, in bringing forward this amendment, real teeth will be used to ensure that insurance companies cannot get away with keeping this cash themselves?
Mr Gauke
If the right hon. Gentleman will forgive me, we will be coming forward very shortly with those amendments. He will not have to wait long to see the details of the amendments. He will see that we are striking the right balance in ensuring that insurance companies can be properly held to account and that we are not placing unnecessary and expensive burdens that ultimately get paid by policyholders. He will see that we are taking this issue forward.
Chris Philp
I thank the Secretary of State for giving way. On this point about cost savings being passed on, does he take further comfort from the following two things? First, with no fewer than 94 car insurance companies operating in the UK, it is an intensely competitive market; and, secondly, in the two years after the reforms in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 were introduced, car insurance premiums dropped by £50, suggesting that, in that case, the savings were passed on.
Mr Gauke
My hon. Friend is right to raise both points. I come back to the fact that the CMA looked at this area and concluded that this is a competitive one. The history suggests that these benefits are passed on, but we are strengthening the Bill and will bring forward amendments very shortly that will enable us all to hold those insurance companies to account.
Many claims involving road traffic accidents will, of course, be genuine. It is absolutely right that they are compensated appropriately. Our reforms are focused on ensuring that genuine claimants have access to justice, receive a proportionate amount of compensation and that the system works for all who use it honestly. However, with major improvements in motoring safety in recent years, including the increased use of integrated seat and head restraints, it would be remiss of the Government not to ask what is going wrong. The reality is that some of these claims are not genuine. In 2017, the insurance industry identified almost 70,000 motor insurance claims that it considered to be fraudulent. As the learned Lord Hope of Craighead noted in the other place, it is necessary to do something to try to minimise the abuse that has given rise to such a large and disproportionate number of claims. The knock-on effect of all these claims is increased insurance premiums, particularly for young people and the elderly. As Members across the House will know, for many people, owning a car is not a luxury, but a necessity. That is especially true of those in rural communities, but it does affect all our constituents. That is why we have pledged in our manifesto to tackle these costs. Taken together, the whiplash measures proposed by the Government could result in savings of around £1.1 billion a year.
Around 85% of the UK motor and liability insurance market have publicly committed to pass on those savings to consumers. The Government intend to hold insurance companies to account by bringing forward an amendment, as I have said, to introduce an effective means for reporting on both the savings made and how they are passed on.
The purpose of our reforms is to compensate the genuinely injured and to improve the system for all by reducing the number and cost of whiplash claims and deterring fraudulent and unmeritorious claims. The measures in the Bill will do that by introducing a ban on settling whiplash claims without medical evidence. That will discourage fraud and incentivise insurers to investigate claims and provide reassurance to claimants that they are being compensated for the true extent of their injuries.
Chris Philp
I thank the Secretary of State for giving way so generously. Could he confirm to the House that these medical examinations prior to an offer will have to be face to face?
Mr Gauke
They will be face-to-face medical examinations, which I believe will provide the degree of robustness in the system that we need.
The Bill will also provide for a new fixed tariff of compensation for pain, suffering and loss of amenity for whiplash claims. The high number of whiplash claims and compensation levels that we are seeing justifies that tariff being set by the Lord Chancellor. We want fair and proportionate compensation. Its cost should not be unfair to the motorists. We will provide some important flexibilities on how the tariff operates to make sure that it remains fair and adaptable where necessary to exceptional circumstances, inflation and changes in the claims market.
Gareth Thomas
Does not the Minister accept that one of the further flaws in the Bill is that the genuine victim of a road traffic accident faces receiving less compensation than someone who has a similar accident but not in a road traffic scenario, who receives compensation set not by the Lord Chancellor, but under the judicial guidelines that exist at the moment?
Mr Gauke
This must be put in the context of a package of measures we are taking that seek to address the significant problem that exists, which I have sought to sketch out and which other hon. Members have highlighted: the very considerable cost that motorists face in insurance premiums as a consequence of whiplash claims, a number of which are clearly not genuine. Given that the number of road traffic accidents is falling yet the number of claims is going up, it is right that we take action.
Vicky Ford (Chelmsford) (Con)
Four years ago, my family and I had a large car crash. Ever since then, I have been pestered, almost continually, by unwanted phone calls from people trying to encourage me to fraudulently claim for whiplash. Will this Bill stop that?
Mr Gauke
In combination with the other measures that we are taking, I think that we are really able to address the problem that my hon. Friend has so eloquently highlighted and that she has personal experience of. What she has highlighted is that we do have a problem and that we do need to take action, and that is exactly what this Bill does.
Debbie Abrahams
I am very grateful to the Secretary of State. I have real concerns about the reduction again in access to justice. The group Access to Justice has highlighted that, each year, people injured in road traffic accidents will be denied access to legal advice if they want to go to court to claim for their injuries. How can he guarantee that that will not happen?
Mr Gauke
We have a system of small claims—by and large, these are very straightforward claims. We want to ensure that support is there so that people are able to bring the claims in person. As I have said, these are simple claims and it is right that we also take action to address some of the concerns that we have. I shall set out more detail in my remarks, but I believe that we have the balance right in terms of the increase to £5,000.
The Bill provides that the tariff will be set in regulations to be debated via the affirmative procedure by Parliament following Royal Assent. We are committed to tabling an amendment in Committee that will require the Lord Chancellor to consult with the Lord Chief Justice before making those regulations. The judiciary will have discretion to increase the compensation payable in exceptional circumstances and, after listening to the views in the other place, we have amended the Bill to ensure that overall compensation levels in the tariff are reviewed at least every three years. We listened carefully to the comments made by the Delegated Powers and Regulatory Reform Committee in the Lords. We accepted its recommendation and tabled an amendment to include a full definition of whiplash injury in the Bill in order to remove any ambiguity about what that constitutes in law.
The Government’s reform programme also includes measures—not included in the scope of this Bill—to increase the small claims track limit for road traffic accident personal injury claims to £5,000, and for all other personal injury claims to £2,000. As these claims are generally not complicated, they are suitable to be managed in the simpler, lower cost small claims track. This route is designed to be accessible to litigants in person without the need for a lawyer, although claimants may still seek legal representation if they wish. To support this, the Government are working with a wide stakeholder group including the insurance industry, claimant solicitor representative groups and consumer groups in order to design and deliver a simple-to-use online service to enable the vast majority of those claiming for low-value road traffic accidents who may well choose not to be represented by legal advisers to receive help and guidance to manage their cases through to conclusion.
The service will be designed for those with no legal advice or training, and will be as simple to use as possible to ensure that the claimant journey is as smooth as it can be. Raising the small claims limit for these RTA cases to £5,000 will work to control their costs, acting as an incentive for insurers to challenge, rather than settle, those cases that they believe to be without merit. This is vital to changing the unhealthy culture that sees whiplash claims as a way to make easy cash. The reality is that, as insurers are forced to offset the cost of the abuse by raising premiums, fraudsters are simply taking money out of the pockets of honest motorists.
Jo Stevens
If the Secretary of State is so confident about those increases in the small claims limit, why are they not on the face of the Bill?
Ruth Cadbury (Brentford and Isleworth) (Lab)
Will the Secretary of State give way?
Mr Gauke
I want to make some progress.
I am aware that there has been concern on both sides of the House about the inclusion of vulnerable road users—for example, cyclists, pedestrians and motorcyclists —in the proposed small claims track rise. I am grateful to Members for signalling in their arguments how such road users may be disproportionately affected by this measure.
Robert Neill (Bromley and Chislehurst) (Con)
I am very grateful to hear the Secretary of State say that, because this issue was flagged up by the Select Committee on Justice in our report. If he is going to say that it is his intention to exclude those vulnerable road users from the Bill, that would be a most welcome recognition by the Government of the evidence on the matter.
Mr Gauke
I think that on this occasion I might be able to satisfy my hon. Friend, which I cannot always say to him as the Chair of the Justice Committee. After listening carefully to the arguments made—including by my hon. Friend—I can now say that we intend to remove these vulnerable road users from the small claims limit changes. They are, of course, already excluded from the Bill.
I wish to say a few words about the timing of the whiplash reforms. Both the Justice Committee and the insurance sector have raised concerns about how quickly the reform programme can be implemented, including the necessity to build and test the online claims platform that I mentioned. We have listened to those concerned and resolved to push back implementation by a year to April 2020. This will enable careful user testing of the IT system to ensure that the system works well for all types of users on full implementation.
The personal injury discount rate is intended to reflect the return that it is reasonable to expect a claimant to receive on investing a lump sum award of damages for future financial loss. We must keep in mind that behind every claim there are real people with life-changing injuries, who need to make fundamental changes to the way in which they live their lives and who depend on their compensation awards. That is why we continue to support the aim that seriously injured people should receive full compensation to meet their expected needs, including care costs. The problem, however, is that on the evidence we have obtained, our discount rate of minus 0.75%—one of the lowest in the world—is leading to awards in personal injury claims averaging at 120% to 125% of the damages awarded, even after allowances are made for management costs and tax.
Such overcompensation is contributing to escalating costs in the NHS, which spent £2.2 billion on clinical negligence claims alone in 2017-18—a figure that is expected to rise to £3.2 billion in 2020-21. This is almost double the amount spent in 2016-17 and seven times the amount spent in 2006-07. This overcompensation is not sustainable. Money is being diverted that could instead have been spent on frontline public services such as our hospitals, schools and armed forces. As well as adding to the financial pressure on the NHS, the current framework for setting the discount rate is also creating pressure that is driving up insurance premiums, particularly for motorists.
The reforms that we propose to the discount rate will also save consumers money, as the insurance industry has committed to passing on these savings. The changes that we propose to make in the Bill to how the discount rate is set will make it fairer and more realistic for everyone. We intend to reflect the reality that claimants are more likely to invest their compensation in slightly higher risk diversified portfolios, than in very low risk investments under the current test.
John Howell (Henley) (Con)
The Secretary of State is moving very quickly to the nub of this Bill; this is about preventing overcompensation, not increasing undercompensation. Does he agree?
Mr Gauke
Very much so. It remains our objective to ensure that people are properly compensated—that they get the right level of compensation. The current process systematically overcompensates, and it is right that we address that because that compensation could be spent on frontline services. I am sure that that is what we would all want to do.
Dr David Drew (Stroud) (Lab/Co-op)
The Secretary of State is being very generous in giving way. Does he accept that we will have to watch the impact of this Bill on personal injury lawyers, as it is already difficult to get lawyers to stay in that field? Will he monitor the situation to ensure that all those involved in serious accidents get proper legal representation?
Mr Gauke
I think that it would be fair to say that personal injury lawyers have demonstrated adaptability in recent years and that the sector has proved to be resilient. Of course, the purpose of our compensation regime and insurance system is to ensure that those who should be compensated are compensated, and that is what we seek to do. As I said in response to the intervention of my hon. Friend the Member for Henley (John Howell), it is also right that we do not over- compensate.
The Bill contains provisions requiring the Lord Chancellor to review the rate promptly after Royal Assent and then at least once every five years, again providing greater certainty and clarity. Following amendments accepted by the Government in the other place, the first review will continue the current arrangements under which the Lord Chancellor consults the Government Actuary and Her Majesty’s Treasury before setting the rate. This will enable the benefits of the new system to be realised as soon as possible. All further reviews by the Lord Chancellor must be undertaken in consultation with an independent expert panel, chaired by the Government Actuary.
I stress that the Bill will not change the important role played by periodical payment orders, which account for a significant proportion of the compensation paid for future loss in cases involving the most serious and life-changing injuries. PPOs protect claimants against the risk inherent in relying on the investment of lump sums to produce a stream of income to meet their needs as they arise. PPOs are and will remain available in the vast majority of the highest-value NHS clinical negligence claims against hospitals, including those involving brain damage during childbirth, and in the large majority of long-term serious injury cases where the defendant is insured by a UK-regulated insurer.
Robert Neill
The Lord Chancellor is being very helpful. I welcome what he says about periodical payment orders, because they are a significant transfer on to the insurance company away from the person who is awarded, in terms of both investment and the longevity risk. Will he make it clear—as the noble Lord Keen indicated in the other House—that when he sets the discount rate, having taken the advice of the panel as part of the Government action, he does so as Lord Chancellor in his own right, and not on behalf of the Government? That point was raised by a number of noble lords in the other House when it was said that this decision is taken not for Treasury or governmental reasons, but on the basis of that advice, by the Lord Chancellor in his capacity as Lord Chancellor, almost quasi-judicially.
Mr Gauke
Yes, it is a decision taken by the Lord Chancellor. I was in the Treasury at the time when the most recent change to the discount rate was made by one of my predecessors, and I can certainly assure my hon. Friend that it was very much a decision taken by the Lord Chancellor. [Laughter.] Perhaps I should leave it there.
Mr Jonathan Djanogly (Huntingdon) (Con)
One of the key elements of stopping whiplash claims and so forth was the banning of referral fees. There are more and more reports coming in that, perhaps for the resilience reasons that my right hon. Friend discussed, we are increasingly seeing ways of getting round the ban on referral fees. This is of great concern to many. These people are of course breaking the law. Has he considered this situation?
Mr Gauke
Of course we continue to look at this area. It is worth pointing out not just what we are doing in this Bill but the measures and action taken in the context of the Financial Guidance and Claims Act 2018, and it is right that we continue to do so. As I say, the Government are determined to find out whether the use of PPOs can be increased. We are very pleased that the Civil Justice Council, which is chaired by the Master of the Rolls, has agreed in principle to consider this issue.
The Civil Liability Bill is an important piece of our wider work to reform the civil justice system, including through the Financial Guidance and Claims Act, which strengthens the regulatory regime for claims management companies and bans cold calling. These reforms are needed to put personal injury payments on a fair, more certain and sustainable footing for the future. In turn, they will save the NHS and consumers money.
Ellie Reeves (Lewisham West and Penge) (Lab)
The Secretary of State says that the Financial Guidance and Claims Act bans cold calling. In fact, it does not create an outright ban on cold calling. Why not have an outright ban on cold calling before proceeding with proposals to increase the small claims limit, which would deny so many access to justice?
Mr Gauke
To be clear, we have taken robust action to deal with this issue. I would defend the Financial Guidance and Claims Act, which was a substantial step forward in ensuring that we do not see the abuses that we, in all parts of the House, are concerned about.
Legislating to ensure that genuine whiplash claims are backed up by medical evidence and that claimants receive proportionate compensation will reduce the number and cost of whiplash claims. This will allow insurers to pass on savings to consumers. As I have said, three quarters of the UK motor and liability insurance market has already publicly committed to doing so. In changing the system by which the discount rate is set, we want to continue to ensure fairness so that those who suffer serious long-term personal injury get full and fair compensation within a more informed and transparent system in which the rate is set by the Lord Chancellor at regular intervals with the benefit of independent expert advice. The prospect of the reforms we are proposing both to whiplash claims and to the discount rate has, according to the recent AA British insurance premium index, already triggered a fall in premiums in the expectation that claim costs will fall. I commend the Bill to the House.
Richard Burgon (Leeds East) (Lab)
Today we are discussing yet another attack from this Government on our justice system: yet another attack on the vulnerable that, perhaps not coincidentally, will enrich the Conservatives’ friends in the insurance industry. The Civil Liability Bill is presented by the Government in its press spin as being about cutting back on fraudulent whiplash claims—and, of course, who could disagree with doing that? But given this Government’s record in justice, I am sure that Ministers will understand why we do not take their assertions at face value, and why we fear that these reforms may in fact be a smokescreen—because under the Conservatives our civil justice system has been undermined all too often, with basic rights rolled back, creating a two-tier justice system.
Take, for example, the Conservatives’ unlawful employment tribunal fees, which made it harder for workers to take on unscrupulous bosses. Eventually, the Supreme Court ruled them unlawful, but only thanks to the dogged campaigning of trade unions and others. Or take the Conservatives’ cuts to legal aid, which make it harder for people to take on dodgy landlords, or to challenge a flawed benefits decision that leaves people out of pocket and relying on food banks. We fear that this set of justice reforms will also undermine people’s basic rights.
This Bill attracted widespread opposition in the House of Lords, with the Government only narrowly defeating amendments that would have substantially altered the Bill for the better. But to do so the Government had to ignore pre-eminent legal experts.
Huw Merriman (Bexhill and Battle) (Con)
I recognise that the Opposition’s job is to oppose, but would the hon. Gentleman not concede that in the past decade the number of claims in this area has gone up by 40%, whereas cars have become safer and accidents have decreased by 31%? Surely, therefore, does it not make sense that this exploitation comes to an end to benefit his constituents, as policyholders, as well as mine?
Richard Burgon
I do not quite understand what the hon. Gentleman is talking about when he says that this “exploitation” has to end. In fact, the trend is that whiplash claims are going down. We have heard the Secretary of State himself say, “Of course, many claims are genuine.” Even the way that that is said implies that somehow people are on the make. Most claims are genuine. [Interruption.] I do not see what is so amusing about that. There is not a compensation culture in this county, whatever the Government’s friends in the insurance industry might be telling them.
When I mentioned pre-eminent legal experts, I was including former Lord Chief Justices who expressed their concerns about the Bill’s impact on access to justice and on the independence of the judiciary. So Labour Members are clear that this Bill, in its current form, cannot be supported. Unless it is very substantially amended in Committee, we will vote against it on Third Reading. We hope that the Government will take seriously the amendments that we are tabling this week, which build on the points raised by many colleagues in the Lords.
Before I talk about our opposition to many of the measures included in the Bill, I want to draw Members’ attention to the associated statutory instruments. This Bill, as we have heard, is a part of a wider package of reforms—a package that will make it harder for workers to get compensation for workplace injuries, and harder for genuinely injured road users to get compensation. Through statutory instrument, the Government are seeking to increase—
Mike Amesbury (Weaver Vale) (Lab)
Hundreds of thousands of workers could be denied access to justice for genuine comprehensive claims. The Union of Shop, Distributive and Allied Workers estimates that up to 350,000 workers could be denied access because of these measures.
Richard Burgon
My hon. Friend makes a very important point. USDAW and other organisations are right to say that hundreds of thousands of people could be negatively impacted.
Through statutory instrument, the Government seek to increase the small claims limit from £1,000 to £2,000 in all cases and from £1,000 to £5,000 in road traffic accident cases. We are very concerned about what that means in practice. A significant number of claims henceforth will be dealt with through the small claims track procedure, where even in a successful claim, no legal costs are usually awarded.
Without legal fees being covered, tens of thousands of working people will simply be priced out of obtaining legal assistance. Many will drop their cases altogether. Others will fight on but do so representing themselves, not only making their pursuit of justice more difficult, but placing serious pressures on the courts. Others will pay their own legal fees out of their compensation, which in effect means a cut in their compensation levels. Of course, other workers will conclude that when their route to justice through a court or tribunal is removed, they have no alternative but to resort to industrial action to achieve redress.
Chris Philp
Is it not a well-established principle both in this country and overseas, in jurisdictions such as France, that for very straightforward, simple matters—these very minor injuries are generally straightforward and simple—having a fast-track process without the involvement of expensive lawyers is a reasonable and legitimate approach?
Richard Burgon
We need to ask ourselves what “minor injuries” and “small amounts of money” mean. What is being referred to as a “minor injury” may last up to two years. I do not think that that is a minor injury. What is being referred to as “small amounts of money” is actually, in practice, a lot of money for working people who are struggling to make ends meet.
There was a 90% drop-off in employment tribunal claims when employment tribunal fees were introduced. We fear something similar in personal injury cases, with genuine victims priced out of justice and deterred from pursuing a claim for an injury that was not their fault.
Catherine West (Hornsey and Wood Green) (Lab)
Does my hon. Friend agree that for cyclists who have accidents, their bicycle may be their means of getting to work, and therefore that is not minor, petty or small? We should take that into account when looking at what we call “minor injuries”.
Richard Burgon
I certainly agree with that point, which I will come to later. People also need to consider the psychological effects of some of these injuries.
I must make some progress. I want to talk about the type of people who will be affected by these reforms, and I will now give some real-life examples.
Mr Richard Bacon (South Norfolk) (Con)
Will the hon. Gentleman give way before he does that?
Richard Burgon
I will not give way when I want to talk about real-life examples. We need to hear from the people who will be affected by these reforms. Once I have given them a voice, I will give the hon. Gentleman his chance to speak. These people include a warehouse operative who suffered a head injury when a heavy metal bolt fell from a roller shutter door and struck him on the head, and a caretaker in a council who was pushing rubbish bags down a chute when he was injured by a needle that had pierced through one of the bags. He suffered a physical and, indeed, psychological injury; just imagine all that worry as he was waiting for the tests. Those are real cases that have been sent to my office and that would be penalised by the new system. We cannot have those voices being drowned out by the rhetoric that calls people fraudsters and says they are on the make when they are anything but.
Richard Burgon
The evidence does not bear that out. Proven fraudulent whiplash claims amount to 0.25%. To hear some Conservative MPs, we would think that the majority of whiplash claims were fraudulent, when only 0.25% have been shown to be. It is not justice if the honest vast majority are penalised because of a tiny dishonest minority. That is no way to reform things or make the law.
Richard Burgon
I have to make some progress, I am afraid.
The Government have said that they will drop vulnerable road users from their reforms. They should indeed do so, but they should also concede that the inclusion of people injured at work is equally unjustified.
It is not only we who oppose these measures. The Justice Committee concluded that
“increasing the small claims limit for personal injury creates significant access to justice concerns.”
Gareth Thomas
Is not one real problem with the increase in the small claims limit the fact that a vast imbalance of resources is imposed between the insurance company on the one hand and the individual making a claim on the other? The individual making a claim will not have their legal costs paid for and will not be able to have an expert lawyer on their side as a result in most cases, while the insurance industry will be able to have expert, skilled lawyers on their side, fighting their corner.
Richard Burgon
My hon. Friend makes an important point. This goes completely against the principle of equality of arms.
We agree with the Justice Committee and the recommendation of the Jackson review that there should be an increase in the small claims limit only in line with inflation. That would mean a rise to £1,500, not the £2,000 currently proposed. If the Government were to propose a £1,500 limit today or to accept Labour’s amendment that we will propose in Committee, that would help to build a much broader consensus around this currently divisive legislation.
Ruth George (High Peak) (Lab)
Does my hon. Friend agree that in employment cases, it is not just about an inequality of arms, but the fact that a worker has to take on both their employer and their insurance company? It is very difficult for a vulnerable worker who has been injured to look their employer in the eye one on one and take them on. That is why they need legal support.
Richard Burgon
That is a very important point indeed. All too often, the human experiences of the individuals who have been injured or discriminated against at work are forgotten. I thank my hon. Friend for bringing that perspective to bear.
Vicky Ford
I agree that people who are injured should receive fair compensation, but when 47p of every pound paid out is going to lawyers, does the hon. Gentleman not agree that unless we reform this, we risk finding that young drivers and vulnerable people cannot get affordable insurance?
Richard Burgon
Right across the justice sector, the real targets of the Conservatives’ reforms have not been lawyers, but ordinary people. That is the reality.
I will move on to the measures that the Government have included in the Bill. We are very concerned by the tariff system, which would fix the amount of compensation in so-called minor whiplash claims. I will come on to the fraudulent claims later and the measures—or lack of measures—to tackle that in the Bill. However, the reality is that even if the Government’s case about the scale of that problem were correct—I note that the Commons Library says clearly that it is “not universally accepted”—the way the Government are seeking to resolve this would still be wrong. The Government’s main proposal to tackle fraud is to penalise genuine whiplash victims. The proposed new levels of compensation under the tariff system are significantly lower than current average compensation payments. Surely that is unfair.
For example, compensation for an injury lasting up to six months would fall to a fixed £470, down from a current average of £l,750. For an injury lasting 10 to 12 months, compensation would be £1,250, down from a current average of £3,100. For an injury lasting 16 to 18 months, it is £2,790, down from £3,950. Those are considerable drops in compensation for injured people. This will make a real difference to working people and their families in the worst possible way. It is a crude and cruel policy that penalises genuine victims. Who really stands to gain? It will be insurers who will be excused from paying full compensation, even where negligence has occurred.
There was widespread discontent among legal experts in the Lords regarding this tariff approach. Lord Woolf, former Lord Chief Justice of England and Wales, said:
“it results in injustice and it is known to result in injustice. Indeed, no one can deny that it results in injustice.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1620.]
Lord Judge, another former Lord Chief Justice of England and Wales, said:
“We cannot have dishonesty informing the way in which those who have suffered genuine injuries are dealt with. That is simply not justice.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1600.]
In a very powerful intervention, Baroness Berridge said:
“I have met many a claimant for whom the difference in damages now proposed by the introduction of the tariff…is a significant matter for many peoples incomes up and down this country. I cannot have it portrayed that this might not make a great deal of difference to many ordinary people in the country…in this Bill, the intended consequence…will be to affect that group of people.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1611.]
Baroness Berridge is of course a Conservative party peer.
One key point in our opposition is the slashing of compensation for genuine claimants. Another is that it will be the Lord Chancellor setting tariff levels, which risk becoming a political football or, rather, being reduced ever further by the powerful insurance industry lobby. Tariffs are a rather blunt instrument; people should simply get the correct compensation for the specific injuries they have suffered. As former Lord Chief Justice Lord Woolf says, establishing the correct level of damages is
“a highly complex process of a judicial nature”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1593.]—,
and damages might vary from case to case, making the fixed tariff inappropriate. We will therefore propose amendments to delete the power for the Lord Chancellor to set the tariff.
If the Government are set on going ahead with tariffs, the judiciary should be involved in setting them. The Judicial College currently issues guidelines with levels of damages for different injuries. Lord Woolf stated:
“they have been hugely important in the resolution of personal injury claims.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1594-95.]
I hope that those across this House who profess to defend the independence of the judiciary would agree that tariffs should be determined by the Judicial College and not by political actors, of whatever political persuasion. We will be pursuing amendments to that effect.
That is not an end to the powers that the Lord Chancellor is accumulating. This Bill even allows him to define whiplash. Surely, it would be more appropriate for the definition to be set by medical experts rather than politicians, especially when an incorrect definition could mean people with injuries much more serious than whiplash having them classified as such.
The Government’s justification for genuine claimants suffering substantial reductions in damages is reducing the incidence of fraudulent claims. The Government give the impression that it is an uncontested point that fraud is at the levels that the insurers claim, but that is contested. That is not to say that there are not fraudulent cases—of course a small minority of cases are fraudulent—but we need to properly understand the problem if we are going to have genuine solutions.
Debbie Abrahams
The Law Society considers that fraudulent claims should be addressed by targeting the fraudsters and that the vast majority of honest claimants should not have to put up with the changes proposed in the Bill.
Richard Burgon
That is absolutely right; it is a powerful moral argument. It is immoral to make the honest vast majority pay—literally—for the fraudulent activities of a tiny minority. The Justice Committee explained:
“we are troubled by the absence of reliable data on fraudulent claims and we find surprising the wide definition of suspected fraud”.
Looking at premiums, the insurance industry’s own estimates show that the amount paid out on whiplash claims fell by 17% between 2007 and 2016. What happened to premiums in this time, while the amount paid out on whiplash claims fell by 17%? They actually rose by 71%.
There is therefore little in this Bill, aside from penalising genuine victims, to deter fraud or to prevent the nature of any fraud from changing to circumvent the new measures.
Compulsory medical reports are a good idea, but there is little to limit insurance companies settling too quickly on low claims that they may view with suspicion but pay out on anyway because it is cheaper to settle than to contest them. There is little on controlling unscrupulous claims management companies. Beyond warm words from the insurance companies themselves, there is also no mechanism yet to guarantee that lower insurance premiums will result. The Secretary of State said that something is on its way in relation to that, but we will reserve judgment until we see what concrete measures the Government actually propose.
We will therefore propose amendments that toughen up these measures but do not penalise genuine victims. One amendment would reduce the period for which the tariff applies to one year, not two. It is much less likely that fraudulent cases will be those lasting for the longest time. Two years of suffering is surely too long to be deemed a minor injury. Given that there is no evidence that workers such as ambulance drivers or HGV drivers who suffer whiplash during their employment are behind any fraud whatever, will the Minister find a way to exclude those workers from this legislation?
Finally, where someone has suffered an injury that will leave them with many years, or a lifetime, of disability, they need to be certain that the lump sum compensation award they get has been properly worked out so that it does not run out. The discount rate is key to this calculation. Victims should always get 100% of the compensation they are entitled to. Getting that right means that someone whose mobility is restricted after a serious accident will have enough money over their lifetime to fund the extra costs that reduced mobility will entail. Getting it wrong would leave seriously injured people getting less compensation than they are entitled to, with potentially hugely damaging consequences for their quality of life. That is why we will closely scrutinise the Government’s proposals to change how the discount rate is set, so it is determined not by the powerful insurance lobby but in the interests of society as a whole. That is why we will table amendments to strengthen the safeguards in the Bill and ensure that all victims get 100% of the compensation they are entitled to.
To conclude, the Government have an opportunity—an opportunity to do the right thing and to show that this is not just another attack on access to justice. They can do that by backing amendments to remove the barriers to justice that are all too prevalent in the Bill. If they fail to do so, we are clear that we will vote against the Bill.
Several hon. Members rose—
Mr Deputy Speaker (Sir Lindsay Hoyle)
Order. We have up to 22 Members standing. I just want to try to help everybody, so if we use up to eight minutes each, we will make sure everybody gets a fair go.
Theresa Villiers (Chipping Barnet) (Con)
In my, I hope, relatively short remarks I would like to concentrate on clause 10 in part 2 of the Bill, which concerns the proposed changes to how we set the personal injury discount rate.
I would just say one thing on whiplash claims. I hope this latest attempt at reform is robust enough to withstand the ingenuity of the more predatory elements of the claims management industry, which, I am afraid, have done much to drive up the costs of insurance for many people.
Turning to clause 10, I would like to thank my constituent Robert Rams for his briefing on this issue, as well as the insurance company Ageas and others for their helpful insights into the matters we are debating.
The case for law reform in this area is strong. The need for change has been acknowledged by not just Ministers but the Justice Committee, the NHS and a number of others. Of course we all agree that people must be properly compensated where liability for personal injury is established. That is especially important for those with life-changing injuries that leave them unable to earn a living and in permanent need of care and support.
However, the discount rate system was supposed to ensure that those who are awarded a lump sum do not end up being over-compensated because of the investment return they will receive on the capital they have been awarded. Unfortunately, it seems clear that the current discount rate is no longer delivering that outcome and that there is now over-compensation. The 100% principle, which has been raised in the debate, is not being adhered to at the moment—it is 100%-plus.
The overarching purpose of this reform must be to provide a way to set the rules that is fairer for both parties. I therefore welcome the proposal to modernise the calculation of the discount rate to ensure it reflects the reality of how claimants actually invest the money they have been awarded. The assumption underlying the existing rate of -0.75% is that claimants are likely to invest solely in index-linked Government securities, which have a minimal return. That leads to a rate that is artificially low, and damages awarded are therefore disproportionately high. Sensible, professional advice would instead see a lump sum invested in a low-risk portfolio of gilts and equities, which is what evidence suggests claimants are doing. That gives a significantly better return than index-linked gilts, so the -0.75% rate does not reflect reality.
The Bill will amend the assumption about future investment so that it is brought into line with what is more likely to be actually happening in practice. I think that is a fairer outcome, which is why I support clause 10. I have two main reasons for doing so, the first of which is that the cost of over-compensating claimants has to be met by insurance customers, thereby driving up the cost of premiums. I have already had the chance to set out my concerns on the real impact that has on young people, particularly those living in rural or suburban areas, where often public transport is not a viable means to get to work. The Financial Conduct Authority estimated that the switch from 2.5% to -0.75% was likely to cost insurers about £2 billion a year, inevitably feeding back into bigger bills for consumers.
Emma Little Pengelly (Belfast South) (DUP)
Is the right hon. Lady surprised to learn that, due to the ongoing political situation in Northern Ireland, the tariff reduction still stands at 2.5%; that those in Northern Ireland who suffer significant injuries continue to get less compensation than when the adjustment was made, which will also be the case in GB under this Bill? Does she agree that that needs urgently to be addressed?
Theresa Villiers
I am grateful to the hon. Lady for raising that point. I was not aware of it, but it is another example of how the political stalemate in Northern Ireland means that changes that need to be made are not taking place. It will be important, ultimately, for this House to consider whether we need to legislate to ensure that civil servants in Northern Ireland can take more of these decisions. I know that everyone is reluctant to move to direct rule, but we may need to take intermediate steps to ensure that these practical matters are dealt with, alongside, obviously, the issues recently raised in the planning system.
A second important reason why I think it is important to proceed with the measures in clause 10 is, as the Secretary of State has pointed out, the impact of the current situation on the NHS. A system that over-compensates claimants in clinical negligence cases inevitably swallows up resources that would otherwise be spent on frontline care. Last year, the NHS spent £1.7 billion on clinical negligence cases, representing 1.5% of spending on frontline health services. The annual cost has almost doubled since 2010-11, with an average 13.5% increase every year. In 2017-18, an additional £400 million had to be provided to the NHS as a result of the change in the discount rate to -0.75% in March 2017. I understand that if the revised discount rate set under the new procedures is between 1% and 0%, that would save the NHS between £250 million and £550 million a year.
A further reason why the changes set out in clause 10 make sense is that they would bring us into line with prevailing international practice. According to the Association of British Insurers, our -0.75% rate is the lowest of similar common law jurisdictions. Apparently, no other jurisdiction has a single rate of less than 1%, and the majority set rates in excess of 2.5%. As things stand, we are an international outlier, and the proposed legislation would remedy that.
I am conscious of the dismay felt in March 2017 when the change to -0.75% was made, seemingly out of the blue, with a sudden impact on the insurance sector and, of course, ultimately on consumers buying insurance policies. I hope that the regular reviews provided for by the Bill will help prevent such a shock from occurring again. I also welcome the creation of an independent expert panel to be consulted on the factors to consider in setting the discount rate in the future, to bring a wider range of expertise and experience to the process. We need a more transparent and predictable approach to setting that important discount rate, and I welcome the steps made to that end in the Bill.
In closing, I emphasise that it is vital for the insurance sector to pass on to its customers a new reduction in costs that arises as a result of changes to the discount rate or, indeed, the rest of the Bill. I note that companies representing a significant share of the market have provided a written commitment to the Lord Chancellor to do that, but of course it will be very important for the Secretary of State to hold them to that promise, so that the benefit of this Bill and the changes I hope it will bring into effect can be felt as soon as possible by our constituents via reduced costs in their insurance premiums, helping with household bills and providing important benefits.
Jo Stevens (Cardiff Central) (Lab)
May I refer the House to my entry in the Register of Members’ Financial Interests? I should put on the record that my partner is a solicitor and chief executive of a personal injury law firm.
Before being elected, I spent 27 years advising and representing injury victims in the civil courts. I acted for victims both in cases worth just a few hundred pounds and in cases worth all the way up to more than £1 million. Those victims had been injured—some of them killed—through no fault of their own. They were predominantly low paid. Most, although not all, were trade union members, and probably about two thirds—possibly more—of those I represented would have been very adversely affected by the proposal to increase the small claims limit. The Bill concerns an issue about which I care very deeply—the principle of access to justice—and my almost three decades of relevant professional experience have informed my views.
May I say from the outset that fraudulent claims must be eradicated? I am sure everybody here would support that. However, the Association of British Insurers’ own figures state that proven fraudulent claims amount to just 0.25% of all motor claims. This Bill, therefore, is a huge, defective sledgehammer trying to crack a very, very small nut.
The ABI states in the briefing it sent me and, no doubt, all Members that the Bill represents a step towards fixing the
“broken system of personal injury compensation in England and Wales.”
That is not just a very bold assertion—it is absolute rubbish. There is nothing “broken” about the system of personal injury compensation for victims of negligence. There is plenty that is broken, however, about access to justice, and the ABI and its powerful lobby operation has, I am afraid, been one of the main drivers behind that.
So desperate is the ABI to peddle the myth of compensation culture and the “broken” system in advance of this debate that yesterday it even resorted to providing and paying for content for Guido Fawkes to promote on Twitter. This Bill, I am afraid, reads like one that has been written by the insurance industry for the insurance industry—an industry that cannot be trusted. Why are the Government pandering to it yet again and refusing to front up and put the increase in the small claims limit on the face of the Bill? I say to the Secretary of State that avoiding proper scrutiny is not an attractive look. Members know that our duty as legislators is not just to look at the consequences of the legislation we make, but to properly consider and take into account the unintended consequences.
That is why thorough impact assessments are so important. I have had a look at the Government’s impact assessment on reforming the whiplash/soft tissue injury claim process under the Bill. Paragraph 2.4 refers to the “optimal” level of claims
“for society as a whole.”
That is an interesting assertion. What is the optimal level? There is nothing in the assessment, the Bill or the explanatory notes to enlighten us. Perhaps the Minister can tell us what it is.
In paragraph 2.10, and peppered throughout the assessment, there is reference to “minor claims” and “low value claims”, and in paragraph 4.8 to “trivial claims”, but none of those terms is defined. Can the Minister define what he considers to be low value, minor or trivial?
If we take workplace accidents in the public sector as an example, Unison tells me that nearly half of its members earn about £17,000 a year, so the proposed increased small claims limit of £2,000 for workplace cases represents almost two months’ wages, and the £5,000 limit for road traffic accident cases represents nearly four months’ wages. Does the Minister really believe that a caretaker or a care assistant in his constituency will think that £2,000 is a minor, low or trivial sum? Under the proposals, most injury victims will lose independent legal representation and will either have to represent themselves or lose part of their damages in costs, most likely to resurgent claims management companies. That will impact on especially vulnerable groups.
Paragraph 4.7 of the impact assessment starts with the statement:
“The current Small Claims Track limit for personal injury claims of £1,000 has remained unchanged since 1991.”
That is disingenuous at best. The Government know that the civil procedure rules were changed in 1999 when special damages were removed from the calculation of what fell within a small claims limit. That was effectively an increase of 20%, so it is simply wrong to say that the limit has not changed since 1991. Does it concern the Minister that in the impact assessment the competitiveness of the motor insurance market is based on an Office of Fair Trading report from 2011 which, aside from being seven years old, was published before the changes to LASPO, since when ABI figures show that insurers have saved £11 billion?
The Government go on to state in the impact assessment that they consider
“that 85% of insurer savings could be passed through to consumers”.
Will the Minister share with the House what
“careful consideration of the evidence”
led to this assumption, as well as the “sensitivity analysis” that has been conducted for pass-through rates of 50% and 70%? Paragraph 5.77 states that
“The increase in the Small Claims Track threshold from £1,000 to £2,000 for all personal injury claims that are not RTAs could lead to a reduction in the number of claims proceeding to court.”
I am tempted to use the phrase involving Sherlock defecating at this point, but I suspect that that would be unparliamentary language, Mr Deputy Speaker, so I will go back to quoting the impact assessment:
“It has not been possible to estimate the impact of the reform because the proportion of claimants who currently have legal representation is unknown.”
Given that the words “assumes”, “assumed” and “assumption” are used nearly 50 times in the impact assessment, how can we take it seriously? The Minister knows the dim view the Supreme Court took of the Government’s introduction of employment tribunal fees and the legacy of that unlawful policy, which is still being unravelled by his Department—a bit of a hospital pass left by one of his predecessors. With that in mind, does he consider that allowing injured people to bring personal injury cases with a general damages value of £2,000 or less without any restriction has no broader social benefit? And can he really say that the proposals in the Bill will not impede access to the courts for injured people with a personal injury case with a general damages value of £2,000 or less?
The Bill will be welcomed by claims management companies. We, I think, are united in this House against their pernicious influence and irritating methods, but in the impact assessment it actually states:
“There may be the potential for a rise in CMC’s seeking to enter the market to support claimants without legal representation”.
There is no “there may be” about it: it will happen. Of course they will move in. They will offer poor legal advice on the cheap, maximising their profits on the back of others’ misery, as they have always done. If the Government really cared about the consumer, they would be listening to public opinion and introducing an outright ban on cold calling for personal injury claims by CMCs.
I hope the Minister will reflect on the concerns I have expressed. There will be more, I am sure, in today’s debate and in the other place, because the Bill really needs substantial amendment to protect the principle of access to justice. Those concerns are widely shared by the Justice Committee, the Law Society and solicitors across England and Wales. Access to justice has already suffered enough under this Government and under the previous Liberal Democrat and Conservative coalition Government. The Bill is a gift to an already obscenely greedy insurance industry that needs to be reined in.
Mr Richard Bacon (South Norfolk) (Con)
It is a pleasure to take part in this debate and to follow the hon. Member for Cardiff Central (Jo Stevens). She mentioned that she has a history of involvement in this area. I would like to state at the outset that it is important to recognise that there are many personal injury lawyers who do a good job. Over the years, I have had quite a lot to do with personal injury lawyers in my capacity as a constituency MP, as well as in relation to a fatality involving my own family. I am happy to state that there are very, very good people out there doing the work of personal injury lawyers. As in perhaps every professional domain there are good, there are bad and there are the indifferent—and there are snakes. I do not think we should let this debate pass without recording that there are some very good people out there doing important work in the area of personal injury litigation.
It is also important to recognise—we have not heard anything from the Opposition on this—that there has been a significant rise in the compensation culture. I do not think that personal injury litigation lawyers—at least, not all of them—are tools of Satan. I have met one or two who have come close to that description, but listening to the Opposition one might get the idea that all insurance companies are tools of Satan. In fact, they are nothing of the kind. They are an enormously important and worldwide British success story. They manage huge amounts of funds through premium income, which pay many people’s pensions, including the pensions of many people represented by Opposition Members as well as by the rest of this House. A bit of balance on the nature of the problems facing insurance companies and the measures they have taken to tackle them would have been in order. I am afraid we heard nothing along those lines.
I strongly support the Bill. If I have one criticism it is that it is very overdue. I had a meeting with the head of fraud at Aviva—known to old fashioned people as Norwich Union—which is a big employer in East Anglia and of my constituents. In 2006, it set up the Insurance Fraud Bureau because it was so concerned about the scale of what are called induced car crashes—“crash for cash” was the popular phrase. On 16 January 2007, I held a debate in Westminster Hall on this very subject. In preparation for this debate, I glanced at it to see what I had said and to remind myself of some of the facts. Norwich Union’s 2005 report “Shedding Light on Hidden Crime” pointed out that the scale of fraud was growing at a very high rate—I won’t say it was exponential in case there are any mathematicians here to correct me—and that the proceeds from induced car accidents were routinely being used to fund other forms of organised crime, including drugs, people trafficking, benefits and credit card fraud, and money laundering.
The report estimated that between 1999 and the publication of the report in 2005 there had been 22,605 staged or induced car accidents. It broke them down city by city. At the top was Blackburn, with 1,710 staged accidents between 1999 and 2005. That was perhaps the reason that Jack Straw, who many of us remember fondly in this House and who was the MP for Blackburn, took a great interest in induced car crashes and fraudulent claims for whiplash injury. It took six or seven years to generate 22,605 induced accidents. Eleven years ago, the Insurance Fraud Bureau estimated that the rate of growth would mean a further 20,000 induced car crashes in the next 18 months. We heard the Secretary of State say that there are now 70,000 fraudulent claims for whiplash every year, so it has grown much, much more since this phenomenon became more publicly discussed 10 or 12 years ago. Just as it was then, it continues to be a direct threat to public safety.
Mr Bacon
I will not, because I know there is a time limit and other Members wish to speak. I hope the hon. Lady will forgive me.
The Bill is very welcome. We need to be clear that the insurance companies have done a great deal and want to do more to try to tackle this problem. They said at the time that one of their main concerns was the rise in the cost of premiums for honest motorists. That continues to be a major concern. The fundamental problem, which I do not think I really heard the Opposition address but which the Government certainly did, is that road traffic accidents as a whole have been going down but personal injury claims have been going up. There is obviously something fundamentally wrong, and I am glad that the Bill is beginning to address it.
I shall comment in passing, in the Minister’s hearing, on two other issues that the Secretary of State referred to and which I strongly welcome. One is excluding vulnerable road users, such as cyclists—a welcome move. By the way, on what the hon. Member for Cardiff Central said, I should say that I support stronger moves against claims management companies. I had a phone call from one last week, talking about my accident on 26 January last year, of which of course I had no knowledge whatever. I am up for telling them where to go and for an argument with them at times—as many of us would be, probably—but my concern is that they prey on the vulnerable and deceive people who are not necessarily as robust as most of us in this House would be in such circumstances.
The second issue is about the proposal for a longer period of implementation for the IT system, which was a very welcome announcement from the Secretary of State. I sat on the Public Accounts Committee for 16 years and heard more stories about failed IT systems than about any other subject. The biggest red flag in relation to the putative or prospective failure of an IT system was the compression of the testing timetable. I am glad that the Government have recognised that.
Let us be clear: reform is needed. The Bill makes a proper link between whiplash claims and medical evidence, and that is long overdue. It provides a fixed tariff, which is fair and reasonable in the circumstances, given what has happened in recent years. There will be the possibility of an uplift and there will be flexibility. The tariff is perhaps unfortunate, but I think it necessary. Given what the Secretary of State said as a Treasury Minister about the independence of the Lord Chancellor, I do not have any fears on that score, as Opposition Members appear to.
I hope the Bill will go some way towards addressing my biggest concern: young people in rural areas who need a car to get to work. I represent a very large rural constituency of more than 300 square miles. Twenty or 30 years ago, car insurance premiums were higher for younger people, but they were not a “thing”—they were not so high that it became almost impossible for young people to get on the road. They were not more expensive than the car itself. That is no longer the case. The cost is hugely prohibitive and a direct result of the rise in the compensation culture, which has led to the penalising of honest motorists and which this Government are prepared to do something about. I strongly support the Bill.
Mr Stephen Hepburn (Jarrow) (Lab)
The Government talk about reform of the justice system, but I am afraid that on the Opposition Benches we just turn around and say, “Here we go again!” Once again, the Tories are putting more barriers between workers—ordinary people—and access to the justice system. At the same time, they are helping their friends in the finance industry.
The employment tribunals farce has already been mentioned; thankfully, following work by the trade union movement, it was overturned by the courts. Then we had cuts to legal aid—another disgrace. Last year, it was found that there had been a 99.5% reduction in the number of people receiving legal aid for benefits cases. The Tories are pricing hundreds of thousands of people out of the legal system.
This Bill is known as the “whiplash Bill”, but it should really be called the “bogeyman Bill”—it is just a smokescreen to create a bogeyman so that public support can be gathered to increase the profits of the insurance industry. We are told that it will save the insurance industry millions and that that money would be passed on to customers. The same was said in 2013, when a fixed fee regime was brought in for more minor accidents. Costs to the insurance industry were slashed and damages to claimants were reduced as solicitors charged a success fee as part of their damages. The claimants got less and the insurers paid less.
Despite that reduction in costs to the insurance industry and the fact that the number of claims has reduced since 2013, premiums have continued to rise. How is that? Will the Minister explain? The number of motor industry claims has gone down by 17% since 2017 and is now at the lowest level since 2010—that is from the Government’s own figures, which show the biggest annual fall on record. Claims are down, damages are down, but premiums are up. Why? The profits of insurance companies such as Direct Line went up by almost 50% to £600 million last year; Allianz’s jumped 26% to £121 million. This is not a poor industry that needs the Government’s help. Profits are up, yet premiums are up. Why? Let the Minister explain.
When the insurance industry promised to reduce premiums by £35 a case earlier this year, it took less than a week for it to backtrack because of the discount rate that has been mentioned. The point is that the industry has promised to reduce premiums in the past, but has never, ever delivered. These reforms will do exactly the same: reduce the number of claims and access to justice. The insurance companies will be the winners again.
We are told that the reforms will reduce the number of fraudulent claims, which everybody would welcome, but it is important for us to understand a few facts. Insurance companies make their money by taking as much as they can in premiums and paying out as little as they can in damages. It is important for them to convince people that they are getting a bad deal because of fraudulent claims. They say it openly—“We are forced to put up premiums. It’s someone else’s fault and we are sorry but you’re going to have to pay for it.” That is the bogeyman syndrome.
The insurance industry would like us to think that we are in the grip of a compensation culture—that people are getting thousands of pounds for trivial accidents. The poor insurers have no choice but to put up premiums, they want you to think. That is not true and the Government have not brought forward a shred of evidence to prove it. It is a fantasy propagated by the insurance industry to promote profits. To succeed in any claim, people have to convince a judge that what they are saying is correct. The suggestion that any insurer would pay out a claim that it knows to be fraudulent or trivial is ridiculous—they are champing at the bit to expose and publicise fraudulent claims, to add fuel to the fire of the insurance industry’s myth of a compensation culture.
The reason behind it all is to make more money, and the Government are helping. Mark my words, further down the road there will be another bogeyman—a new excuse to raise premiums. Watch carefully: whose fault will it be next? This is all part of the Government’s policy of holding back the advancement of ordinary working people while helping the finance industry in the City. Whether it is the constant interference with people’s benefits—implying that they are skivers and need to be sanctioned—stealing the pensions of the WASPI women, or reducing access to the justice system, it is all the same: attack, attack, attack on the rights and livelihoods of ordinary people, while boosting the profits of the wealthy and the privileged.
Alberto Costa (South Leicestershire) (Con)
At the outset, I refer Members to the Register of Members’ Financial Interests. I am a practising solicitor in England and I am still on the roll of Scots solicitors.
I do not practise in the field of personal injury, but I have in the past—in both Scotland and England. I represented “pursuers”, as claimants are known in Scotland, and claimants in England. I also represented defendants in England—Her Majesty’s Government, most notably.
This debate has excited a lot of passions. We heard the shadow Front Bencher make some deeply unwelcome comments about alleged friendships between Government Members and members of the insurance industry. We also hear outside the Simpsons-esque portrayal of ambulance-chasing lawyers—a poor reflection of the vast bulk of solicitors, barristers and other persons, regulated and authorised under the Legal Services Act 2007, who act in this area. We heard the hon. Member for Cardiff Central (Jo Stevens) outline her own valuable experience in this field.
What is this debate all about? I will concentrate on soft tissue injury—known as whiplash. Whiplash elicits much passion among people and is often undervalued as an injury, and I do not just mean that in the financial sense, in terms of quantum; I mean that it is joked about by members of the public—until, of course, it happens to them and they suffer an accident through no fault of their own, but through the delict, the tort, the negligence of another individual who has breached a duty of care towards them. It is right, moreover, in our mature and well-developed society that when one breaches a duty of care towards another, either through wilful intent or negligence, our system recognises it primarily by way of financial benefit, and that is the primary purpose of a mature and competitive insurance industry.
Back in February 2017, when I was a member of the Justice Select Committee, I questioned both the then president of the Association of Personal Injury Lawyers and the director of insurance policy for the Association of British Insurers. I put various questions to both, but in particular to the latter. I asked him whether he linked the number of whiplash claims with the high cost of insurance premiums, and he confirmed that that was the case, but I also asked him to confirm whether the use of the word “epidemic” was right, given that year on year we had seen a decrease in the number of whiplash claims. His response was that the insurance industry did use that word but that so too did others—namely, colleagues in the Association of Personal Injury Lawyers.
I then asked the director of insurance policy, given that he had accepted a link between the number of whiplash claims and the high level of car insurance premiums, and given the decline in the number of such claims, by what percentage car insurance premiums had declined—what concomitant decline in premiums had been witnessed—and there he stumbled. It was then that he revealed that he did not have an answer for the Committee but that he would write to it subsequently, which he did. When he did, he confirmed that the number of soft tissue injury claims had decreased by 5.8% in 2015-16, but there had been no corresponding decrease in car insurance premiums—in fact, there had been an increase in that year and the following year. The excuse he gave to the Committee was that, as the market cycle started to harden and insurers started to experience inflationary cost pressures from a number of sources, so premiums started to rise again.
I fully sympathise with Conservative colleagues who want us to do the honourable thing in society by allowing vulnerable people and in particular young people to be able to afford car insurance premiums, and it is right that the Government take every reasonable measure that could lead to a reduction in car insurance premiums, but we need to hold the insurance industry to the assurances it has been giving to the Government.
Alberto Costa
I am afraid that because of time constraints I will not.
I welcome comments the Secretary of State made in answer to Opposition Members. He said several times that the insurance industry would be properly held to account. The Government will bring forward amendments to hold the industry to account for its assurances. On that basis, I feel able to support the Government on Second Reading—on the basis that, as the Bill progresses, those assurances by the insurance industry will be translated into words that we can approve in this place.
The Secretary of State rightly used the word “fraud” at the outset. This is where I differ slightly from the hon. Member for Cardiff Central when she talked about the ABI’s own figure that 0.3%, I think, of claims were fraudulent. It is my view that the insurance industry, as well as the enforcement agencies, including the police, has been reluctant to tackle fraud because of the cost and that therefore we are not seeing the real numbers for fraud.
There is unquestionably fraud, and wherever possible I have encouraged the insurance industry to tackle it more effectively, but we also need to acknowledge that there is a problem with claims management companies. I am talking not about regulated persons, like the hon. Lady, me and other hon. Members, but about cowboys—people who are not authorised persons under the Legal Services Act 2007 and who often act outside this jurisdiction. I have received numerous calls from individuals whom I suspect are based outside any of the UK’s legal jurisdictions—they use sophisticated telephony systems. I wrote to Ofcom, British Telecom, my own mobile service provider and the Information Commissioner’s Office to find out where the numbers originated, and I was told that they were spoof numbers. The problem is there is an industry of unregulated and unauthorised non-lawyers preying on vulnerable people and abusing the system. We have to recognise and tackle that.
Mindful of the time, I will make one final comment that I invite the Minister to consider. The changes that the Government propose that will benefit the British insurance sector will affect the Scottish and English legal systems differently. Let us consider someone with a car insurance policy. The Minister could be travelling from his wonderful constituency of Penrith to his family home in Perthshire, and the oddity is that if he has an accident in the middle lands, as he termed them once, he might get a certain amount of money for a soft tissue injury from a particular insurer, and yet just a couple of kilometres along the road, under the Scottish legal system, the same insurance company might have to pay out considerably more. I ask him to bear in mind the imbalance that that might create in the insurance industry.
Ellie Reeves (Lewisham West and Penge) (Lab)
It is a pleasure to speak in this debate and to follow the hon. Member for South Leicestershire (Alberto Costa).
Since 2010, under this Government and the coalition before, changes made by the Ministry of Justice have left us with a legal system in a state of utter disrepair. Colleagues across the House, trade unions, lawyers and legal experts have all expressed deep concern about the implications of the Bill and the Government’s policy agenda, put forward under the auspices of cracking down on fraudulent claims. Of course, fraudulent claims are wrong and should be clamped down on, but the Bill is not the appropriate way to do so and its implementation would see a wholly disproportionate impact on access to justice.
Even the statistics being used in the Government’s bid to warrant such widespread changes are highly contested. Recent freedom of information requests showed that the number of whiplash-related injury claims recorded by the compensation recovery unit fell by 18% between 2017 and 2018. Insurance industry data has shown that, in 2016, 0.17% of all motor claims were proven to be fraudulent—a fall from the 0.25% recorded in 2015. We are simply not in the midst of a fraudulent claims epidemic, as Ministers would have us believe. What are indisputable, though, are the consequences of the full implementation of the Government’s legislative agenda and the vast impact it would have on access to justice for many across the country.
On the face of it, the Bill appears innocuous enough, yet it is a shell Bill whose true effect is felt only when combined with the raft of other proposals the Government are bringing forward—namely, the changes to the small claims limit. My concerns with this Bill are threefold: the measures detailed in part 1; the lack of a mechanism to pass on predicted insurance savings to customers; and the overwhelming impact this package of measures with have on access to justice for injured people.
The Bill paves the way for the long-standing and established Judicial Studies Board guidelines to be replaced with a rigid tariff system that would undermine judicial discretion and leave injured claimants much worse off. The draft tariff system presented by the Ministry has shown the reduction in payments for pain, suffering and loss of amenity for road traffic accident-related soft tissue injuries to be overwhelming. Injured claimants could receive up to 87% less than the 2015 average paid out under the existing guidelines.
Moreover, as a result of the proposed changes in the small claims limit—which is closely associated with the Bill—injured people would struggle to achieve access to justice. The raising of the small claims track from £1,000 to £5,000 for road traffic-related personal injury claims, and to £2,000 for all other types of personal injury claim, will cause thousands of injured people to fall out of the scope for free legal advice and representation, and potentially to be denied justice.
Stephanie Peacock (Barnsley East) (Lab)
Should not the Government make clear what these changes represent—a capitulation to the interests of the insurance industry at the expense of working people?
Ellie Reeves
My hon. Friend is absolutely right. The proposals constitute an attack on working people who, through no fault of their own, are injured in the workplace.
If the Government are intent on fraud reduction, why are those who are genuinely injured faced with receiving a fraction of what they would currently receive? Most injured people would happily give the money back if it meant that they were no longer injured.
Under the proposed tariffs, people will be given more compensation if their flight was delayed for three hours than they would receive after an injury lasting for three months. The idea of a £235 maximum payment for a three-month injury is not only laughable, but a clear assault on any reasonable definition of access to justice. The move to a tariff system helps no one but insurance companies, while customer premiums continue to rise. There are no measures in the Bill that would make it incumbent on insurance companies to pass on savings that are currently calculated to be £1.3 billion. I know that the Minister has suggested that the Government will table an amendment—as promised in correspondence with the Chair of the Justice Committee, the hon. Member for Bromley and Chislehurst (Robert Neill)—but it is disappointing that that afterthought has not been included in the Bill thus far.
The Government say that they are listening to those who have concerns about their policy agenda. It is true that, following the Justice Committee’s report on the small claims limit, they have postponed their changes until 2020, but the purpose of that delay is by no means a rethink of policy or agenda. These changes are still coming, and their effect will still be felt whether the package of measures is presented this year, next year, or the year after that. The Bill, which is being rushed through on the quick, will leave us with a textbook example of a change in the law with ramifications that we will not truly understand until much further down the line. By that point it will be too late: the damage will have been done, and access to justice will have been eviscerated for many.
We must not forget that Conservative Governments do not have the best track record on justice matters. The Conservatives were repeatedly warned before proceeding with their legal aid reforms in 2012, but the effects of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 have gone further and deeper than was ever intended, with the number of civil legal aid matters initiated falling by 84% between 2010 and 2017. The changes in employment tribunal fees that were introduced under another Tory Lord Chancellor—which have since been found to be unlawful—caused a 68% fall in the number of single cases received per quarter by employment tribunals between October 2013 and June 2017. That was yet another ideologically driven Tory attack on access to justice.
Andy Slaughter (Hammersmith) (Lab)
We have just been debating in Westminster Hall the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and the legal aid cuts. A sustained attack on access to justice has been going on since 2010: the Government have not learnt since then. Is the Bill not just another sustained attack on victims, restricting people from getting a fair trial in the courts—as my hon. Friend says—in the interests of no one except the insurance companies, which are major donors to the Conservative party?
Ellie Reeves
My hon. Friend is absolutely right. Had it not been for this debate, I would have attended that important Westminster Hall debate on LASPO and cuts in legal aid.
It is predicted that the Bill, and secondary legislation changes in, for instance, the small claims limit, will deter about 350,000 people from pursuing claims for injuries that were not their fault. Such a vast reduction in the number of cases is not something in which to take pride, but these measures will fail the genuinely injured. A recent survey by Unison showed that 63% of its members would not proceed, or be confident to proceed, with a claim without legal representation, but as a result of the Government’s package of measures, that is precisely what injured people will be faced with.
We cannot find ourselves, a year or two down the line, in a rabbit warren of even more legal advice vacuums, with stories aplenty of access to justice denied as a result of the enactment of the Bill and the forthcoming changes in the small claims limit. We must not be left with an ill-thought-out package of measures and regulations that will leave genuinely injured people with a severely limited ability to access justice.
Craig Tracey (North Warwickshire) (Con)
Let me begin by declaring an interest, in my role as chair of the all-party parliamentary group for insurance and financial services. Before my election in 2015, I also spent more than 20 years working as an insurance broker, so I have had a lot of experience of dealing, in the front line, with claims such as those that we are discussing this evening.
I think it important for Members to understand the scale of the problem that we face, and I want to talk about that before dealing with the specifics of the Bill. Reforming this industry does not just mean tackling the cold calls that I am sure colleagues on both sides of the House have had to endure from people informing them that they have had an accident when, in many cases, they have not; it also means addressing the out-of-hand compensation culture that has been allowed to evolve in the United Kingdom. When so much money is at stake for the multi-million-pound personal claims industry, the reality of whether someone has sustained a genuine injury is often merely an obstacle to be overcome, rather than a barrier to the making of a claim.
Over the last decade, the number of personal injury claims resulting from road traffic accidents has risen by 40%, although vehicles have become safer, and there has been a long-term decline in the number of road accidents of nearly a third. The Department for Transport’s 2016 annual road casualties report showed a 3% reduction in the 2015 figure, and the 2016 figure was the lowest on record. Let me put that in context. According to data from the Compensation Recovery Unit, during 2017-18 the number of personal injury claims rose to 650,000 from 460,000 in 2005-06, about 85% of them being whiplash-related. In the last year alone, the insurance industry was able to identify 69,000 motor insurance claims that it considered to be fraudulent, and undoubtedly many more went undetected.
Craig Tracey
I am sorry, but given the time constraint and the fact that many other Members want to speak, I will crack on.
During my latter years as a broker, I saw the attitude change. Exaggerated claims were often seen as a “victimless crime”, and as being okay, because the insurance industry would pick up the tab. Although the amounts of compensation paid for soft-tissue claims are relatively small, the associated claims-handling costs—including the costs of investigation, processing, lawyers’ fees and medical reports—are disproportionately large. For example, a claim for about £1,000 may ultimately cost the insurer two or three times that amount. It is clear that fraudulent claims have a direct impact on the cost of every one of our constituents’ motor insurance premiums. Given an average of about 60,000 vehicles per constituency, there is a considerable cost. According to the Association of British Insurers, for every pound paid out in compensation, nearly another 50p is then paid to the claimant’s lawyer in costs.
The Bill gives us an excellent opportunity to fix the current broken system, a system that is not working for millions of motorists throughout the country. It will bring about long-overdue reforms of personal injury compensation. It will provide a fairer system for claimants, insurance customers and taxpayers by creating a more proportionate compensation system in the case of both whiplash-style claims and claims to which the personal injury discount rate is applied, while ensuring that claimants still receive 100% compensation. Part 1 sets a new fixed tariff for pain, suffering and loss of amenity, and sets a higher financial threshold for lawyers’ recovery of their legal fees from insurers. The new system will also make it much easier and faster to make a claim, with a new online portal ensuring that small claims can be processed efficiently.
It is important to note that larger claims following serious injuries, and any payments for medical bills or loss of earnings, will be unaffected. The savings will result from the cutting out of a very expensive middleman, which must be a win-win for our constituents. The findings of a recent survey back that up, showing that nine people out of 10 think that in this area legal costs are too high, and 71% would be happy to use an online portal to make their claims rather than requiring legal representation.
Supporting this Bill will help provide a fairer environment that will inevitably lower motor insurance premiums for millions of motorists. The Government consider that the reforms would lead to savings of about £1.1 billion and rightly expect that to be passed on to motorists, which would result in an average saving per motor insurance premium of about £35. Many insurers have already committed to pass on cost benefits to their customers in a letter to the Lord Chancellor, which was signed by firms representing 86% of the ABI’s UK motor and liability insurance business members. That letter provides the clear intention of the industry and, significantly, the benefits that this Bill represents to every motorist in the UK.
I had hoped to speak a little more about the discount rate, but time is against me. I am, however, very supportive of the reforms and it is striking that the Government have had to set aside £6 billion extra for the NHS alone just to cover potential claims over the coming years. Every day that these reforms are not put into effect customer premiums will remain higher than should be the case, which will have a particular impact on old and young drivers who usually already have to pay the highest premiums.
Finally, although this is not directly attached to the Bill, I welcome the wider proposals which suggest an increase to the small claims track limit to £5,000. The current level has not been increased since 1991 and has been changed to £10,000 for virtually all other types of claim.
It is clear that compensation culture has got way out of hand and penalises everyone who insures a car. When I first started in insurance, whiplash or soft tissue injury claims were virtually non-existent, but over time they have grown to become a significant manifestation, which, as we have heard, cost motorists anywhere between £40 and £90 extra on their policy.
Critically, this is an industry where in many instances the claimant is not the main beneficiary. The measures put forward in the Bill will not, as is suggested by its opponents, affect the ability of people to seek fair compensation for their injuries or suppress access to justice, but will, more reasonably, cut the incentives for a claimant industry to disproportionately profit from our constituents’ misfortune.
I have had dicussions with a range of insurers and they are committed not only to passing on the savings directly to consumers, but also to provide a renewed focus on rehabilitation from the injuries, which from my experience of dealing with genuinely injured customers was exactly what they wanted. These reforms are long overdue and will deliver benefits to millions of motorists, while delivering on the Government’s manifesto commitment to
“reduce insurance costs for ordinary motorists by cracking down on exaggerated and fraudulent whiplash claims”.
That is why I am backing the Bill’s progress today.
Several hon. Members rose—
Madam Deputy Speaker (Dame Rosie Winterton)
Order. A large number of Members still wish to contribute, so after the next speaker I will introduce a seven-minute time limit.
Daniel Zeichner (Cambridge) (Lab)
This Bill claims to hand power back to consumers and the Government say that it is a mechanism to lower insurance premiums, but I agree with a number of the contributions from my side of the Chamber stating that that is far from proven. The Association of Personal Injury Lawyers points out that in 2017 the motor insurance industry made profits of more than £250 million—the biggest profits since 1994, so this is hardly an industry in crisis. Even the ABI’s own data show that in 2017 the cost to motor insurers of settled bodily injury claims was 9% below the level recorded in 2016 and 2015. So it is no surprise that these reforms will be welcomed by the industry, as it will see its profits rise, particularly through increasing the small claims limit through secondary legislation, which risks denying many potential claimants being able to seek justice. The industry will carry on collecting the premiums and will have an extra windfall from not having to pay fair compensation to those injured through no fault of their own.
Madam Deputy Speaker, you will be pleased to hear that my comments will be brief, because my main point tonight was going to be about vulnerable road users, and I welcome the comments from the Secretary of State in his introduction that the Government have seen sense on this and cyclists in my great city of Cambridge will not have to worry as they have had to. But I just say to the Government that I have been receiving representations on this from people in Cambridge for the past 18 months, so why on earth could this not have been made clearer much earlier when it is apparent that there is consensus across the House that this was not the aim of the exercise? I therefore welcome that Government’s suggestion, although we will obviously want to see the detail and I wish it had been done sooner.
Although my main concern was for cyclists, I cannot help noticing the briefing from the shopworkers’ trade union USDAW warning that doubling the threshold for cases taken in the small claims court to £2,000 will deny legal representation to thousands of workers, and I absolutely believe that that would have a damaging effect on workplace health and safety.
Like many colleagues, I enjoyed my summer holidays, but I also took some serious reading matter with me. I remember Polly Toynbee chastising Members potentially for not reading their copy of the “The Secret Barrister” and perhaps concentrating on the bonkbusters instead. I did read “The Secret Barrister”, however, and found it both shocking and moving, but most of all I found in it a burning desire to make our justice system work properly for everyone. My fear is that too much of the Bill risks moving the justice system and proper representation yet further away from most of our citizens, and I hope that the Government will listen seriously to the concerns being raised in this House and the other House.
Chris Philp (Croydon South) (Con)
My interest in this area stems from a very minor accident that my wife and I had a few years ago, I think, on the M5. We had a minor collision, and for a year after that I was phoned on my mobile on almost a weekly basis by a claims management company trying to get me to submit a fraudulent personal injury claim. No matter how often I told them that I, my wife and my children had no neck injury, they insisted on trying to incite me to manufacture or claim that I had such an injury with the purpose of making a fraudulent claim. I was told, “You can get £3,000 for just saying your neck hurts.” Even as recently as the past two weeks, my wife and I have both separately had automated phone calls—robo-phone calls—from claims management companies asking us to phone back if we think we have ever been involved in an accident.
That experience prompted me to look further into this subject, and colleagues have cited some of the figures. The hon. Member for Jarrow (Mr Hepburn) asked where the evidence is that there is a problem with widespread fraudulent claims. I have my own anecdotal experience of being personally incited to commit fraud, which obviously I did not do, but the figures are compelling. Over the past decade, the number of road traffic accidents has fallen by 31%, so how can it be that personal injury claims have increased by 50%? The answer is of course that these claims management companies are farming claims and inciting people to commit fraud, as they did with me.
Chris Philp
I will give way in a moment. The hon. Member for Jarrow also said that judges have decided that injuries—[Interruption.] I am grateful for the heckling from my own side. The hon. Member for Jarrow said that judges had made these compensation awards, but of course that is not true: under qualified one-way costs shifting, insurance companies have a massive financial incentive to settle even claims without merit before they go to court, because even if they win they pay the costs and the costs are often much bigger than the value of the claim. So insurance companies simply settle the claim without a medical examination and without it ever going to court. Therefore, all these compensation claims have not been adjudicated by a judge, although the hon. Gentleman erroneously suggested that they had; they are simply settled immediately because that is the cheapest way of doing it. There is no judicial intervention in almost any of these cases.
Ruth George
My intervention is a question to you, asking how you think the claims management company got hold of your details to be able to phone you and your wife about your accident. Do you agree that your details must have been passed on by insurance companies, who then complain about these very claims management companies, because that is the only place they could have got your personal details and the accident information from? That is what we should be cutting down on.
Madam Deputy Speaker (Dame Rosie Winterton)
Order. May I just reiterate that the word “you” should be used to address the Chair? My personal details have not been passed on to anybody.
Chris Philp
Thank you, Madam Deputy Speaker. The hon. Member for High Peak (Ruth George) might well be correct in her assumption about where the details came from.
A ban on referral fees was introduced a few years ago, but some insurance companies have sought to circumvent it by using what they euphemistically term “alternative business structures”. This is where an insurance company effectively owns an equity stake in a claims management company or a claimant law firm and extracts value in that way. I know that the Minister is very attentive to these matters, and I suggest to him that we should look at widening that ban on referral fees to include a ban on so-called alternative business structures. We should ban insurance companies from having an equity stake or any other financial interest in claims management companies or in claimant law firms, to make our existing ban on referral fees a little bit more robust. I say that to make the point that not everyone on the Government Benches is batting for the insurance companies.
In terms of public opinion, 58% of the public believe that personal injury lawyers and claims management companies are responsible for creating a compensation culture, and two thirds of the public believe that a compensation culture exists. My hon. Friend the Member for North Warwickshire (Craig Tracey) has described the cost to individual motorists. The cost is being borne by our constituents, many of whom struggle to make ends meet. When 47% of the value of claims is consumed by costs and legal fees, the system is clearly not functioning properly.
I very much welcome the measures in the Bill, particularly the ban on pre-medical examination offers. I was delighted by the Secretary of State’s confirmation that the examinations will be face-to-face examinations. That is an extremely important clarification. As far as I can tell, the only sanction in the Bill against companies making pre-med offers will be a fine levied by the Financial Conduct Authority. I say to the Minister that I hope that those fines will be substantial. The tariff schedule is simple and clear. It is set at about the same level as that of awards made under the current judicial system, so it is not being substantially discounted, but it is simple, transparent and requires less intervention by the judiciary and the justice system, thereby reducing costs. Many European countries, including France, have a similar tariff system. I welcome this simplification and the associated reduction in costs.
The reforms to the personal injury discount rate are long overdue, and I welcome them. If Members are concerned about them, I would just say that periodic payment orders are available to pretty much every claimant if they feel that they would be better served in that way. They would guarantee that every penny due was paid over. I suggest that periodic payment orders are a better mechanism for avoiding the risk of someone being paid a large amount of money on day one and perhaps being given bad financial advice or spending the money on something other than their own care. I suggest that the Government consider making periodic payment orders the default option and that a lump sum award should be made only if a judge decides that there is a good reason not to set up a periodic payment order. I think that PPOs provide better protection for the claimant.
There are one or two important measures that are not in the Bill but are associated with it. I strongly support the increase in the small claims track limit to £5,000 for road traffic accident personal injury claims. The limit for most compensation claims is £10,000, so we might ask why the limit here is only £5,000 when in almost every other sphere it is £10,000. The Government have already made a significant concession by setting the limit at £5,000, rather than at £10,000, as it is for everything else.
I understand that there might be imminent legislation from the Department for Digital, Culture, Media and Sport to introduce a general ban on cold calling in this area. If that is true, it is long overdue and will be very welcome. Claims management companies should not be making these calls at all, and they should be completely prohibited. I have already commented on alternative business structures. I have had personal experience of this; the public are being incited to commit fraud on an industrial scale. There is no reason why the level of claims in the United Kingdom should be so much higher than in other European countries. These are welcome measures, and the sooner they hit the statute book, the better.
Gareth Thomas (Harrow West) (Lab/Co-op)
If the speech by the hon. Member for Croydon South (Chris Philp) was a bid to get on to the Bill Committee, it was an excellent one, but I fear that I cannot agree with any of the substantive points that he made. As I see it, the Bill will simply increase the profits of insurance companies while reducing the compensation available for those injured in road traffic accidents. Hidden behind the Bill is an attack on all injured people through an increase in the small claims limit. I fear that, as my hon. Friend the Member for Jarrow (Mr Hepburn) implied, it is a classic Conservative Bill that uses the pretence that a serious problem exists even though there is little independent evidence that it does. In practice, it will achieve a reduction in the rights of ordinary working people.
In this case, the alleged serious problem is with whiplash claims, yet the evidence that a substantive problem actually exists is, to be generous, questionable. It is true that there has been a storm of stories suggesting that we have a whiplash injury crisis, but the number of whiplash claims registered with the Government’s own compensation recovery unit has fallen consistently in the past six years. Indeed, it has fallen by 41% since 2010-11. Even when whiplash statistics are combined with the number of injuries registered by insurers with the compensation recovery unit as neck and back injuries, there has been a significant fall of 11% since 2011-12. The claim of an epidemic of fraudulent claims is a popular canard that has been repeated many times by Conservative Members today, yet the Government’s own report from Lord Young after 13 years of a Labour Government concluded that a compensation culture was a perception, not a reality. As my hon. Friend the Member for Cardiff Central (Jo Stevens) noted, the Association of British Insurers’ own data in 2016 showed that a tiny fraction— just 0.17%—of all motor claims were proven to be fraudulent.
Like every car owner and insurance buyer, I would welcome genuine measures to prevent fraud. Greater punishments for convicted personal injury fraudsters and, as my hon. Friend the Member for Lewisham West and Penge (Ellie Reeves) said, an outright ban on cold calling from dubious claims management companies would do more to prevent fraud than the measures in this Bill. Indeed, the Bill and the package of which it is a part appear to start from the position that every claimant is a fraudster or a charlatan trying to make a quick buck from a car accident. It will mean a substantial reduction in compensation for all claimants, including those with genuine injuries who make up the vast majority of claimants.
As for the claim that these measures are going to lead to a substantial reduction in the cost of motor insurance, I think we are entitled to be sceptical. Reforms in 2013 have provided insurance companies with a windfall of £8 billion over the past five years, yet we have all seen premiums rise and rise again. According to the Association of British Insurers’ own figures, average premiums have increased by almost 17% each year between 2013 and 2017. I appreciate that Ministers have been written a letter by some insurers promising that if the Bill passes they will cut their premiums. The Secretary of State has claimed that there will be an amendment that will hold insurers’ feet to the fire. Well, that amendment could and should have been published ahead of this debate. I struggle to think of a single measure that Ministers could add to the Bill that would guarantee that premiums were cut. Perhaps that is why such an amendment has not been published today. Perhaps the only measure that might work would be a legal cap on motor insurance premiums. There would of course have to be a bit of consultation first, and I appreciate that those of us who sat through debates about an energy price cap may be sceptical given that that has not stopped energy bills rising either. At the moment, however, this Bill looks like it will amount to a £1 billion boon to some very big companies.
The Bill proposes a new tariff-based system which, conveniently for insurance companies, reduces the average compensation paid out to injured victims of road traffic accidents. In 2015, the average compensation for a whiplash claim with an injury duration of around six months was £1,850. Under this Bill, compensation for the same injury will be reduced to £450—a reduction of almost 80%. To remedy that supposed overcompensation for the genuinely injured, the Government want to make it even harder to bring a claim by forcing increased use of the small claims track, where a claimant’s legal costs are not recoverable. That would see injuries such as facial scarring, fractured ribs and whiplash classed as small claims. As the trade unions and the Law Society have all set out, it amounts to a huge inequality of arms in the courts system for those who have experienced road traffic accidents. Individuals deprived of legal advice will have no choice but to act for themselves, while the insurance companies defending claims will still have huge resources to pay for lawyers to take on the unrepresented.
Until now, it has been left to independent judges to decide on levels of compensation. This Bill stifles that very independence and replaces the flexibility of our judges to appraise each individual case of injury on the roads independently and on merit with a tariff that reduces value for all of us who pay motor insurance premiums. If the tariff system as proposed in the Bill is introduced, it may well open the door to the introduction of similar tariff-based systems in any area that provides a lucrative saving to the insurance industry. Notably, Lord Woolf noted the dangers of the tariff model being applied to holiday claims, industrial deafness claims and so on. The Bill benefits the insurance industry and will not lead to lower motor insurance premiums. I hope that it will be substantially amended or defeated.
Robert Neill (Bromley and Chislehurst) (Con)
This important Bill touches upon significant issues of civil liability and the way in which we treat of them. The Justice Committee considered both parts of the Bill, and I will refer shortly to our reports in those two regards, but I must first refer the House to my declaration in the Register of Members’ Financial Interests.
First, on whiplash, is there a problem with fraudulent claims? My judgment based on looking at the evidence is yes. I say that not least because I have over the past few weeks received cold calls of the kind that other hon. Members have mentioned asking me to make claims relating to accidents that never happened. Some of the debate in the other House indicated the same. Practitioners know that it happens, but the extent of it is harder to measure. We then have to consider whether the measures in the Bill are proportionate to deal with the mischief, because the limitation that could be put upon the honest claimant must be proportionate and acceptable to deal with the vice of the dishonest claims. The Government must be careful in how they draw forward the evidence base on that.
It is pretty clear that there is a significant and persuasive disparity between the number of accidents and the number of claims. On balance, I am rather in agreement with Lord Hope of Craighead, a former justice of the Supreme Court, who said during the Bill’s proceedings in the other place that the Government had
“said enough to persuade me that it is necessary to do something to try to minimise the abuse that has given rise to such a large and disproportionate number of whiplash claims. The abuse has been going on for some considerable time, and it is time that something was done to address it.”—[Official Report, House of Lords, 24 April 2018; Vol. 790, c. 1490.]
I am happy to go with that. He is a highly experienced judge. I would also pray in aid Lord Judge, the former Lord Chief Justice of England and Wales, who said that
“some claims absolutely reek of fraud”.—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1599.]
However, that does not mean that we should assume that everything that is asserted in terms of the benefits will necessarily follow. Like my hon. Friend the Member for South Leicestershire (Alberto Costa), I was sceptical of the evidence of the ABI witnesses, and I found the Medical Protection Society more persuasive. It is therefore important that the Government rigorously monitor such claims and that there is a genuine hold on whether they are actually passed on. That is why there should be some independent monitoring, which the Justice Committee suggested could involve the Financial Conduct Authority as well as the Ministry of Justice, to hold the insurance industry’s feet to the fire.
Secondly, when they are brought in, the tariff levels will be a departure from our norm, although it does happen elsewhere. It is most important that the judiciary are fully consulted on the setting of those tariffs, and I am glad to see the Government recognise that that is the right way to proceed.
Thirdly, in raising the small claims limit, it is most important that we take on board the senior judiciary’s significant evidence on the potential impact in the courts, to which our report refers, and the dangers that will happen if litigants in person—genuine litigants in person—have difficulty navigating the system, which may have the unintended consequence of placing additional burdens on the Courts Service. I recommend the evidence of both the hon. Mrs Justice Simler and his hon. Judge Nigel Bird to our Committee on those matters, on the outworking of the online portals for such claims and on the way in which that matter should be taken forward.
I am glad the Government have agreed to remove vulnerable road users from the Bill, which is an important recommendation of the Select Committee, but they should also consider the position of other claims that are more complex than the normal straightforward whiplash and soft tissue injury claim. In particular, they should consider where we should set the appropriate limit in relation to employment liability and public liability, which almost invariably create more complex issues. It is much harder to expect people, on an equality of arms basis, to deal with issues arising collaterally from the main point in such cases. As the Bill proceeds, we need to look again at how we handle that.
Those are all important issues. It is important that the Civil Procedure Rule Committee is consulted on how those matters should be taken forward. We refer to that in our recommendations, too. None of those is a reason for rejecting the Bill but, frankly, there are areas where the Government need to strengthen the evidence base. Purely relying on the insurance industry is not enough. There is other evidence for strengthening the case on which the Government could rely, and they need to make sure they get the balance right.
The Justice Committee also considered the discount rate, which on balance is a sensible proposal. There was debate among the witnesses who gave evidence to the Committee and among the members of our Committee as to where to pitch it between very risk averse and risk averse. The proposal is realistic, and it is worth observing that the noble Lords who served in the Wells v. Wells case accept that it is appropriate sometimes to revisit the basis of that ruling. We have to reflect real-life practice, so I do not think that is a problem.
I am pleased there will be greater transparency on the way in which the discount rate is set, and all practitioners recognise the value in having a regular reset of the discount rate, rather than having it drift on for a number of years, as it has in the past. If the Lord Chancellor, as I am sure he does, acts independently of Government in a virtually quasi-judicial role and takes proper advice, for which he is accountable to Parliament, it would give us a better system for dealing with the discount rate in future.
I very much agree with the points about periodic payment orders, which should be encouraged more, and there should be much more uptake, as they move risk away from the injured party and towards the insurance company because they are effectively a form of annuity.
We need to do much more to clamp down on cold callers and on the operations of claims management companies, about which my hon. Friend the Member for Croydon South (Chris Philp) made sound points with which I am much agreement. We also need to look at the role of McKenzie friends, particularly paid McKenzie friends, many of whom work for unscrupulous claims management companies and claim to be qualified when they are not. We should probably move to outlaw the use of paid, as opposed to unpaid, McKenzie friends—there is an important difference.
There is much good in the Bill, but there are also things that need to be considered as it goes forward.
Ruth Cadbury (Brentford and Isleworth) (Lab)
It is a pleasure to follow the hon. Member for Bromley and Chislehurst (Robert Neill), the Chair of the Justice Committee, of which I am a member. I welcome his excellent points about our inquiry on this subject, but I do not speak with that hat on.
I co-chair the all-party parliamentary group on cycling, and we are working to shift the transport climate in this country so that more people more often feel safe and able to cycle as a normal means of transport. The Government have said they share that objective because they recognise that having more people cycling improves health and reduces congestion, pollution and costs, but I am concerned that many Conservative Members who have spoken in this debate have generally focused on car drivers and have not appeared to acknowledge that all their constituents are pedestrians at times, that many of them cycle and that many do not drive at all.
My contribution will focus on how those riding cycles, and other vulnerable road users not in a motor vehicle, such as pedestrians and motorcyclists, are affected by this Bill. I was pleased to hear the Justice Secretary indicating that the Government have accepted the recommendation of the Justice Committee and many others to drop the proposal to increase the small claims track limit—the SCL—for personal injury cases from £1,000 to £5,000 for all road traffic collision claims from vulnerable road users. However, I need some clarity on that from the Minister and will be listening carefully to his summing up. First, do the Government mean that vulnerable road users will be excluded from both the tariff and the small claims limit measures? Secondly, I am looking for clarity on how the changes will happen. Will this be through amendments to the Bill in Committee or through statutory instruments?
Notwithstanding my welcoming of the general principle of what the Justice Secretary said and my questions seeking clarity on that, I will continue with my now somewhat revised speech, so that my focus on and concern for vulnerable road users is on the public record.
The Government continue to propose to increase the SCL to £5,000 for all road traffic collision claims, apart from those from vulnerable road users, as we have heard in this debate, although it is also proposed to raise public and employer liability claims limits to £2,000. So there will still be inconsistency among claimants depending on whether the claim is for personal injury or it is a public or employer liability claim. Without change, the Bill would have affected approximately 70% of cyclists’ personal injury claims, and a similar percentage of motorcyclists’ claims, for general damages for pain, suffering and loss of amenity, as many of those—70%—are for less than £5,000. We can assume that for pedestrians the figure is roughly the same, although we do not have the figure. That is why I want to see exactly what the Government mean by removing vulnerable road users from the Bill. VRU claims make up a very small percentage both of all claims and of the total cost of all claims, so doing the right thing will not cost very much.
I wish to focus on three issues, the first of which is the complexity of VRU personal injury claims. The Government repeatedly say that small claims are straightforward and can be achieved without professional support, but often that is not so in the case of road traffic collision claims made by cyclists. Many cyclists’ claims will involve complex arguments concerning what can appear to be conflicting Highway Code rules; there are 14 different rules on junction priority, for example. Even where liability is accepted, contributory negligence arguments are commonly made in courts; arguments are made about a cyclist’s clothing, their position on the road, whether they had their lights on and so on. In pedestrians’ claims, issues are often raised, either in terms of liability or contributory negligence, about where the pedestrian crossed the road; subjective issues also arise, such as whether they took sufficient care for their own safety.
Secondly, I wonder whether one reason the Government are now removing VRUs from the changes is that these road users do not get whiplash injuries and do not make fraudulent claims for whiplash—such claims purportedly being one reason for this Bill. That is because it is almost impossible to get whiplash when on a bike or on foot; those road users generally tend to suffer from broken bones and punctured lungs.
Without these changes being offered today by the Government, we would have had fewer victims of road traffic collisions who were not travelling in a car making a claim. That would have meant a win-win for insurance companies and dangerous drivers, which is unacceptable. Although I am pleased to hear that the Justice Secretary has recognised the concerns of organisations representing vulnerable users—cyclists, motorcyclists, pedestrians and so on—by taking them out of the SCL rate, I still have a concern about the Bill, and it is one raised by other Opposition Members today. It would be fairer to have a uniform small claims limit for all personal injury cases, at or only slightly above the current £1,000 limit. That would achieve the Justice Secretary’s aims of excluding vulnerable road users in a straightforward manner and would also ensure fairness for all road users, regardless of their mode of transport.
Kwasi Kwarteng (Spelthorne) (Con)
Several issues have been raised in this important debate, but I wish to address two main points. Whiplash claims have been a chronic problem in British insurance and road usage for some time. Eight years ago, I joined the Transport Committee, and I served on it for three years. We looked into the issue more than once and found that whiplash claims had gone up in England, so we looked across Europe. What has not been mentioned in the debate is that were Members to look at whiplash rates across the continent of Europe, they would be astonished at how low the incidence of whiplash is. The Transport Committee looked at the issue, including whiplash rates in Germany, five years ago. [Interruption.] I notice the newly appointed Whip, my hon. Friend the Member for Milton Keynes South (Iain Stewart), nodding in agreement. He served on the Committee as well and will remember that we looked into whiplash in Europe and were astonished at the low incidence of claims across the continent. That cannot be because somehow the necks in Germany are more robust than those in Britain. It cannot be a question of Germans being physically different from people in Britain. The case was clearly made that we had a problem with whiplash claims that was specific to the United Kingdom.
My hon. Friend the Member for South Norfolk (Mr Bacon) mentioned the fact that Aviva issued a report more than 10 years ago. Yes, I know that Aviva is a bad, evil insurance company that makes profits, that is successful and that employs people—I know that that is all to be deprecated—but the fact is that its report suggested more than 10 years ago that there was a problem with whiplash. The facts speak for themselves. The idea that over 10 years we could have a 30% reduction in accidents and yet a 40% increase in whiplash claims seems incredible. It cannot be the case that they are inversely correlated. It cannot be the case that as there were fewer accidents, we would have more whiplash claims from accidents. That does not make any sense whatsoever. I am afraid that the Opposition Members who have spoken have failed to address that.
Given the fact that the Transport Committee looked into the issue four or five years ago and that people issued reports more than 10 years ago about whiplash being a problem, and given that we know—as Opposition Members acknowledge—that unscrupulous claims companies are cold calling people, I suggest to Opposition Members that they cannot have it both ways. It cannot be the case that the whiplash increase is simply a scare story whipped up by the insurance industry and at the same time the claims companies are cold calling and being equally unscrupulous. It has to be one or the other. The insurers cannot be suggesting that it is fraudulent while compensation claims companies are at the same time pushing fraudulent claims. The two go together.
The Bill is timely; indeed, it is long overdue in respect of the measures on whiplash claims. My hon. Friend the Member for Croydon South (Chris Philp) was quite right that it cannot simply be a blank cheque for insurers. The Government have to look more closely at how the insurance companies are going to pass on some of the perceived and anticipated benefits of reducing whiplash claims and ultimately reduce premiums for consumers. I fully appreciate that in many ways it has been quite a difficult time for the insurance industry. Insurance premium tax has gone up from 6% at the beginning of the decade to 12%. That is greater taxation. Some of us have argued against such steep increases, but those increases have happened. The idea that, somehow, the insurance industry is a den of profiteers or a wicked industry that acts against the interests of our constituents is silly; it is a crazy idea. It is a very successful British industry, and something that we should be supporting. It is one of a number of industries—not a huge number of industries—in which we are world leaders, so it is very disappointing to hear, once again, the industry being denigrated by Opposition Members.
Chris Philp
The hon. Member for Hammersmith (Andy Slaughter) said that, at £250 million a year, the insurance industry was making excessive profits. Bearing in mind that there are 25 million cars in the UK, that works out at a profit of £10 per insurance policy. That is hardly profiteering, is it?
Kwasi Kwarteng
I would not have thought that it could be described as profiteering. It is a legitimate business. I know that many Opposition Members do not even believe in private enterprise or business. [Interruption.] They do not like that. They laugh rather nervously at my suggestion, but we know exactly where they stand. The idea that companies should make a profit—heaven forbid—is anathema to them. This is a party whose shadow Chancellor is, I believe, listed in “Who’s Who” as wanting to overthrow the capitalist system. He is an out and out Marxist. We can laugh at these things, but they are on the record, and it is actually very serious.
The insurance company is a success story. It does make profits, but we have to recognise and be very honest about the fact that whiplash claims are, in many instances, fraudulent. People in this House have described how they have been cold called. I have been sent countless emails asking me to claim compensation for accidents that I did not even know I was involved in and I think many other people have similar experiences. This is a timely piece of legislation. I am delighted that, after many years, we will tackle this issue.
I just want to touch briefly on the discount rate. I remember when it was reduced a little more than a year ago—I think it was in February last year—that there was huge concern about the very low rate. I believe that it was a negative rate. That was not remotely sustainable and I am delighted that the Government’s legislation is trying to put the discount rate issue on a more sustainable and rational basis. There is little to disagree with in the Bill. It is a good piece of legislation and I am very happy to support it on Second Reading.
Bambos Charalambous (Enfield, Southgate) (Lab)
One of the fundamental principles of the legal system in England and Wales is equality before the law. This Bill skews things even further in favour of the insurance industry at the expense of the general public. It is yet another attempt by the Government to deny access to justice. It is an attack on victims of accidents at work and victims of road traffic accidents.
The insurance industry has been successful in lobbying the Government and already has a huge advantage over the general public thanks to various enactments by previous Conservative-led Governments. In 2012, the Government passed the Legal Aid, Sentencing and Punishment of Offenders Act, which took away legal aid for all personal injury claims and introduced fixed fees, with some costs having to come out of claimants’ damages. In 2015, the Government passed the Criminal Justice and Courts Act, which introduced the “fundamental dishonesty” defence allowing defendant insurance companies to have a claim dismissed if, on the balance of probabilities, the judge was convinced that the claim was fraudulent.
The insurers also set up “askCUE”—Claims and Underwriting Exchange— which, for a fee, can find those who are repeat claimants. The insurers also fund a unit at City of London police to help detect and prosecute fraudulent claims. Insurers have amassed quite an arsenal of weaponry to use against fraudulent claims, but they tell us that this is not enough and that there is widespread insurance fraud. I have yet to see any reliable figures that support that.
Kwasi Kwarteng
What does the hon. Gentleman say to people like me who have received emails from compensation claim companies asking them to commit fraud? Does he acknowledge that phenomenon?
Bambos Charalambous
In the cases of people who are willing to enter into a criminal enterprise with those companies, we should be going after the claims management companies. I would support targeting those, but not at the expense of attacking the public with the measures in this Bill.
Included in their figures of alleged fraud are people who have withdrawn their claims and those who have had their claims refused over the phone. Figures from the Government’s own Compensation Recovery Unit show that claims are at their lowest since 2009. Government measures are already working and the insurance industry is settling 99% of all road accident claims. This Bill and its measures are totally unnecessary and unwarranted.
As hon. Members have already stated, the increase in the small claims limit from £1,000 to £2,000 generally, and to £5,000 for road traffic accidents, is scandalous. If the Bill passes, claims for the same injury suffered by the same person will be treated differently because it occurred when in a car. How is that equality before the law? We should not forget that claimants are the innocent parties and would be suing someone for the negligence that caused their injury. If claimants are not able to secure the services of a solicitor, they may not succeed in their claim. That will deprive them of damages to which they should be entitled, and may well make things difficult. For example, an employee suing their employer for accident at work would find it very hard to do so without a solicitor.
Clause 1 of the Bill tries to define what a whiplash injury is, but seems to have done so without any medical references. It says that an injury is defined as whiplash if it is a “tear” or “rupture”
“of a muscle, tendon or ligament”.
This clumsy attempt to define whiplash fails to take into account the fact that many of these injuries can be debilitating, requiring serious and complex medical treatment. The definition also unfairly captures serious injuries that could result in the victim not receiving the proper compensation they are due.
Clause 3 then goes on to say that the Lord Chancellor will set the tariffs for compensation for whiplash claims. The draft tariffs seem to have been plucked out of thin air. There is no rhyme or reason when compared with the figures currently set by the Judicial College or the Government’s own figures for the criminal injuries compensation scheme. Under the current criminal injuries compensation scheme, if someone was hit by a driver who was then convicted of a criminal offence, and if they suffered whiplash for over 13 weeks, their claim would be worth £1,000; the Government would pay the claimant £1,000. Under the current proposals in the Bill, a claim for a whiplash injury of between three to six months recovery would be worth only £470. Why are the Government allowing insurers to pay less than half of what would be paid by the Government? The inconsistency is staggering and shows just how much the Government are willing to please insurers.
It should not be left up to the Lord Chancellor to set these tariffs. No explanation has been given for how these figures have been reached. It should be for the judiciary to set the tariffs, as they have daily experience of dealing with such evidence-based claims in court. If the Lord Chancellor is allowed to set these tariffs, figures for whiplash will be unlikely to rise if past performance of the criminal injuries compensation scheme is anything to go by.
Under the criminal injuries compensation scheme, a claim for a whiplash injury from which the victim took six to 13 weeks to recover was set at £1,000 in 1995. These figures have been revised twice—in 2001 and 2008—and the compensation rate of £1,000 remained unchanged despite inflation. In 2012, whiplash claims of six to 13 weeks were removed altogether, and the rate of £1,000 was available only for claims of over 13 weeks. If the figure of £1,000 had been index linked to the retail prices index since 1995, a whiplash claim under the scheme would have been worth £2,780.30 in today’s money.
Let me turn to part 2 of the Bill. Last year, the Justice Committee produced a report on the discount rate. The discount rate applies only to large awards of damages for victims who have suffered catastrophic, life-changing injuries that leave them in need of constant care, adaptations to their home and additional support. The Justice Committee recommended the setting up of an independent expert panel to advise the Lord Chancellor on setting the rate and said that the panel’s advice should be published in full. I can see no reason why the Government are trying to restrict the transparency of this process, and I invite them to amend this measure. I think we would all agree that the rate needs to be reviewed more frequently than it has been over a number of years, but three years is far better than five years, as it would ensure far fewer fluctuations in the figure.
It is also deeply concerning that the Lord Chancellor can take into account other factors than those defined by the Bill when setting the rate. This wide discretion opens up the setting of the rate to potential lobbying that could adversely impact the compensation of those who have suffered severe, catastrophic injuries. It is also worth noting that for the purposes of setting the discounted rate, the Bill changes the level of risk of an investment from “very low” to “low”. The lump sum to be invested is there to last for a victim’s entire life, so reducing the level of risk of the investment in setting the discounted rate is concerning, and it has not been properly explained.
This Bill does nothing for the innocent victims of personal injury. It is littered with inconsistencies, has parts that do not stand up to scrutiny, and loads the dice in favour of the insurance companies. The Bill will result in innocent victims of road traffic accidents being penalised because the insurance companies are unable to deal with the alleged whiplash fraud, which they cannot properly quantify. It is shameful that the Government have indulged the insurance companies to such a degree, to the detriment of innocent, law-abiding people. This Bill puts profit before people, restricts access to justice, and creates further inequality before the law. The basic principle that underpins our system of justice is being undermined. This Bill is plainly and simply unjust.
Jack Brereton (Stoke-on-Trent South) (Con)
It is a pleasure to be able to speak in this debate on the Second Reading of the Civil Liability Bill, which brings forward changes that are of great importance to the insurance industry. I am pleased to hear that there has been significant engagement between industry and Government over this essential legislation. Ageas Insurance, for example, is one of the largest providers in the UK, employing more than 400 people in my constituency, and it has communicated to me its enthusiastic support for these changes, shared by the vast majority of the public.
These measures will help to reduce motor insurance premiums for insurance customers by adjusting how the personal injury discount rate is set. Alongside this, the introduction of a new tariff will specifically target exaggerated and fraudulent whiplash claims that have driven up insurance premiums for hard-working households in places such as Stoke-on-Trent. A new fixed compensation level for whiplash injury will be created, putting provisions in place for the court to uplift the compensation available in exceptional circumstances, compared with a final compensation figure being negotiated by the parties involved, as is currently the case.
The compensation culture that has been created, with huge levels of unjustified claims for things like whiplash, saw premiums rise at the fastest rate ever last year. Increases of about 10% a year are totally unmanageable and unaffordable for motorists. These changes must be brought about to reduce the price all motorists are having to pay to compensate unreasonably high levels of claims. Clearly, it is important that these savings are passed on to consumers. I am pleased to hear that the ABI, which represents 93% of the motor insurance market, has written to the Lord Chancellor emphasising its commitment to this. The Government are now working with the industry on a way that this might be evidenced through reporting of savings passed on to consumers—the people who should benefit most from this legislation.
These changes are not about hampering genuine claims; they are about reaching a balance between the costs on motorists and appropriately compensating those who need to make a claim, ensuring that when someone makes a claim for whiplash injuries, it is backed up by a form of medical evidence and is proportionate to the injury suffered. It will also ensure that those who have suffered life-changing injuries continue to receive 100% compensation—a key principle of the legislation.
In the past decade, personal injury claims have risen by 70% while vehicles have become safer and road accidents have fallen by 31%. The number of road accident claims is, remarkably, on an upward trajectory, despite there being fewer injuries. We have even seen people attempting to circumvent the law and take advantage of loopholes to make unreasonable and fraudulent claims. Clearly, the current balance is not right and is unfairly penalising ordinary motorists who must pay the price of over-inflated premiums. This is especially important for younger drivers, such as me, who currently pay double the average. It is predicted by insurers that, without such reform, motor premiums could continue to rise at a rate of about 10% annually. The Government argue that the whiplash reforms in the Bill will deliver around £1.1 billion of consumer savings per year and could lead to motorists’ insurance premiums falling by an average of £35 a year.
As we have heard, the changes proposed are not limited to the motor insurance industry. The adjustment of the personal injury discount rate will, importantly, also impact on compensation of clinical negligence. As we know, our NHS continues to battle with increasing costs, and a significant growing cost is compensation, increasing at around 13.5% each year. In some cases, that is putting undue pressure on NHS budgets, with money designated for health services not being able to be spent on treating patients. Many within the health service have been calling for the creation of a sustainable platform where the level of compensation is more effectively balanced against the ability of the public purse and taxpayers to pay. We have seen increasing expenditure on clinical negligence compensation, and I hope that this legislation will help to limit those costs to a much more manageable level.
The Bill will mean reduced costs for motorists, ending the mounting and unaffordable increases in inflated insurance premiums, limiting the claimant culture that has seen unreasonable and exaggerated claims grow significantly in recent years, ensuring that there is a fair balance between claimants and consumers and allowing my constituents to keep more of their hard-earned money.
Ruth George (High Peak) (Lab)
I will address my speech to you, Madam Deputy Speaker.
I agree with Government Members that the insurance industry plays a valuable role. It has two main purposes: to ensure that innocent victims are compensated for their suffering and its impact on their lives and that perpetrators are appropriately penalised with higher premiums. Unfortunately, the measures in the Bill will do nothing to effect either of those main aims of the insurance industry, but they will impact heavily on innocent victims and ensure that perpetrators do not pay the costs of their actions.
I agree that we need to combat the problem of claims management companies, as we have heard from Members on both sides of the House. However, as the hon. Member for Croydon South (Chris Philp) set out lucidly, claims management companies are fed information by insurance companies, to enable them to target the victims of accidents. Since that was banned directly, they have been doing it indirectly. Insurance companies are not only feeding claims management companies information to enable them to do that but are profiting from it, and they are now briefing Members that it is a problem with claims management companies.
The Minister of State, Ministry of Justice (Rory Stewart)
This may be a naive question, but it seems as though two different arguments are being made by Opposition Members. There was a suggestion from the hon. Member for Jarrow (Mr Hepburn) that the direction of the insurance companies is to try to stop anybody claiming. The hon. Lady seems to be arguing that the insurance companies are also fuelling these claims. Can she explain that paradox? How can they can be involved in both at the same time, and how does that work for them financially?
Ruth George
I cannot answer for other Opposition Back Benchers. I am speaking as an individual Back-Bench MP with experience of the insurance industry, and the hon. Member for Croydon South set out clearly similar experiences.
Along with Government Members, I have met the Association of British Insurers, but I suspect that it was a slightly less happy conversation, and I will certainly read less of its briefings in my speech. I challenged the ABI on the information coming to claims management companies from insurance companies. It agreed that that was happening and said that the Government could look to stop it. When insurance companies are putting information out to solicitors’ firms, they could ban those firms contacting claims management companies to farm out the information.
Rory Stewart
This is a sincere question. The suggestion made by the hon. Member for Jarrow and a number of others is that the entire profit model of the insurance companies is based on charging big premiums and trying to minimise the number of claims, and that that is how they make money. The suggestion is that the entire Bill is driven by the insurance industry trying to stop anybody making claims. At the same time, perfectly reasonably, you are making the argument that the insurance companies are trying to support claims. How do they—
Madam Deputy Speaker (Dame Rosie Winterton)
Order. Having brought to the attention of the hon. Member for High Peak (Ruth George) that she must not use the word “you”, I hope the Minister will follow suit.
Ruth George
Thank you very much, Madam Deputy Speaker. If the Minister has questions about other Members’ contributions, he really should have addressed them to those Members rather than to me.
There are two sides of the coin here. The Government are not combating the claims management companies at all in the Bill. What they are doing, which I absolutely welcome, is making provision for face-to-face medicals. One would hope that that will combat the fraudulent claims that are made for deliberate car crashes, as well as the other examples that have been cited by Conservative Members.
We also need to ban cold calling. If the Government were prepared to look at those two additional measures—banning cold calling and banning information going from insurance companies to claims management companies—they would find that the problem of excess claims was dealt with to a large degree. I hope that they would commit to doing that before looking to take the measures in the Bill, which will impact on innocent victims of road accidents and accidents at work.
I speak as a victim of several road accidents over 20 years spent commuting into Manchester. When people are nose to nose in traffic, they shunt into the back of other people’s cars—it happens. I have suffered whiplash several times, but in the majority of cases it was not serious, however long it lasted. However, the—fortunately—final accident I suffered has had a very serious impact on me and on my life ever since. As a new mother, I was unable to lift my baby from his cot. I was unable to take our puppy for a walk, because he pulled at my neck. When I tried to return to work, I was unable to do my job effectively because I was unable to work at a computer for more than a couple of hours. Every hour of every day since that accident, I have felt its impact.
Whiplash can even lead to trapped nerves in the neck, which I can assure Members is absolutely excruciating and can happen months after the accident itself. Therefore, whiplash injuries affect the same person differently, and they can affect different people very differently. That is why a tariff, especially at the lower levels proposed by the Government in the Bill, are not a fair way to compensate people. At the moment, a judge looks at not just the injury but the level of that injury and the impact on the victim’s life. That is surely what we should be looking for in a proper and fair compensation culture.
I want to look at employers’ liability cases. USDAW, the shop workers’ union, has estimated that there would be a fivefold increase in the number of employers’ liability cases from its members that ended up in the small claims court rather than in the fast-track system. To make a claim for employers’ liability, employees have to prove their employers’ liability, and that is very hard to do. Cases can be extremely complicated, especially when more than one company is involved, as in the case of a delivery driver making a delivery to a company and suffering an accident there. Is it the fault of the company that provided the lorry or the company the driver was delivering to? That is why employers and their insurers contest claims, and legal costs end up being so high because claims are constantly contested.
It is important that employees can take cases against negligent employers. If employers do not have to pay out for insurance claims, they have no incentive to improve the safety of their workers. That is the second and very important role of the insurance industry: to effectively police those who perpetrate accidents and those who do not. Employers who have suffered multiple accidents at their work places or drivers who have been responsible for accidents would rightly have their insurance premiums increased, and that is surely what we want.
The Bill will make it more difficult for the victims of accidents to take a claim against their employers or insurance companies, and it and the Minister will restrict the very proper role of insurance companies in policing the system to make sure that the perpetrator pays.
I hope that the Minister will reconsider the Bill’s measures, look very carefully at alternatives that would not make victims suffer or enable perpetrators to get away with negligence, drop the proposals to increase the small claims limit and to introduce a tariff for whiplash claims and make sure that our insurance industry operates fairly for the good of everyone.
Vicky Ford (Chelmsford) (Con)
A robust and fair system for motor insurance is key to making sure that drivers, passengers, pedestrians and, indeed, all road users are protected. Before I talk about the Bill, may I give a shout out to all road users? It is our first day back after recess and I am sure that everyone has their highlights. One of mine was rising to the challenge laid down by my local riding school in Chelmsford to get up on a horse again after many years and experience what it is like to be in the saddle on Essex roads. Most drivers are great, but some do pass too fast. I pay tribute to the British Horse Society, Cycling UK, British Cycling and the charity Brake for all the work they do to minimise the number of accidents on our roads.
When there is an accident, it is absolutely right that people who are injured are fairly compensated for their injuries and that compensation money must get to those affected. I have learned, however, that for every £1 paid in compensation, 47p is spent on lawyers, so I think things have got out of kilter. Indeed, nine out of 10 people believe that the legal cost of settling a motor insurance claim is too high. I believe that their concerns are justified, because when the costs go up, it is the consumer who bears the price. Many people, especially young people, find that motor insurance premiums are now unaffordable. They simply cannot afford to drive.
Of course, a lot of factors affect the costs of a claim, one of which is the discount rate. When the discount rate goes down, the compensation level in today’s money goes up, so that rate must be fair. There is plenty of evidence that the UK rate is artificially low. It does not reflect the actual way in which compensation money is invested. At less than 1%, the rate in Britain is lower than that in all other European and common law countries, and it is right that the Bill reconsiders it.
I welcome the Bill’s work to reform whiplash claims, especially in ensuring that any future whiplash claims must be based on medical evidence. Whiplash can be a crippling injury and I repeat that it is absolutely right that those who are injured must be fairly compensated, but there is plenty of evidence that something is going wrong. There has been a huge rise in claims—a 40% increase—despite the fact that the number of accidents is down by 30%.
My personal experience tells me that something deeply sinister is going on. Four years ago, on the way to our summer holiday, my family and I were involved in a terrible accident. We were going across the country, from East Anglia to Anglesey, to catch the ferry from Wales, when we found ourselves going along the M6 upside down at 70 mph. How we stepped out of that car is a miracle. The hours that followed were a complete blur. There were ambulances and the entire family were laid up on trolleys in A&E. But none of us had whiplash. We were so lucky. But sometime during those hours I must have been asked whether I was prepared for my phone number to be shared. Ever since then, I have been continually harassed with phone calls from people wanting me to put in claims for accidents that did not happen. Those phone calls are not only morally wrong; they are deeply insensitive and upsetting. Every time the phone goes, one relives the entire experience. That has got to stop.
Some Opposition Members have said that we should just outlaw those calls, but I am not sure that that is the right way forward. There are genuine whiplash claimants who need to be able to put in a genuine claim. Instead, it would be better to put a handbrake on the system and put in the check that a claim for whiplash cannot be made unless there is genuine medical evidence that is aligned with the claim. That is what the Bill will do, which is why I am so glad to support it and the work that the Government are doing tonight.
Andy Slaughter (Hammersmith) (Lab)
I will be brief because a number of my colleagues have made important points that I do not need to repeat and because I have not been here for the whole of the debate. The reason for that is that I wanted to take part in the debate in Westminster Hall on the review of the Legal Aid, Sentencing and Punishment of Offenders Act. There is a certain symmetry to the two debates going on at the same time. The onslaught by this and the previous Government on victims and access to justice really began with the LASPO Act. It continues with this Bill.
The measures on road traffic accidents and the change to the small claims limit are basically unfair. A tariff will be introduced in respect of certain types of injury but not others. The tariff will be at a level that is far below—for a year-long injury, about £2,000 below—what would be set by a judicial authority. There seems to be no basis, fairness or logic for doing that. Why should there be two tiers for different types of injury? If the reason is what we have heard about fraud, I think even the ABI would admit that a small minority of cases are fraudulent, so why should the legitimate cases be punished because of the small minority that are fraudulent?
I used to be a personal injury practitioner and most of my work was done for insurance companies. I was always very happy to run a fraud defence and to cross-examine on that basis. Insurance companies usually were not. They preferred to settle; their eye was always on the bottom line. The Minister made a point earlier about there being a conflict between what insurance companies are up to here, but I do not think there is a conflict. Insurance companies want to depress both access to justice, in terms of people getting meritorious claims into court, and the value of that claim, which the Bill does very efficiently for them—I am sure they will be very grateful for it—but if they can make money wearing another hat through claims management companies or the passing on of information, they will be happy to do that as well. Yes, they are commercial organisations in that way, but the eye of the Justice Minister—I would have thought rather better of the Minister—should be on ensuring fairness.
Another basic unfairness is the increase to the small claims limit. It is not on the face of the Bill, but it is integral to this range of measures. I refer to the increase to £2,000 in relation to employer liability, where no fraud is ever alleged or at least only in very rare cases, and the increase to £5,000 in relation to road traffic accident claims. There is no basis for that. These are complex claims. That has been accepted in a bipartisan way. I am sorry that the House is dividing on party lines, with the honourable exception of the Chair of the Justice Committee. I hope that, in Committee, the Minister will listen more carefully to some of the reasons that have been given.
We are deprofessionalising the justice system. People will no longer be able to get representation for even quite complex legal matters and serious injuries. The judicial arm is being removed by the introduction of the tariff and the medical role is also being downgraded, because there is no proper medical definition of whiplash and a number of quite serious soft tissue injuries are likely to be included.
We have heard time and again that there are abuses that need to be corrected. Pre-medical offers are a recipe for fraud, as is cold calling—I am not sure why certain people are saying that that should not be outlawed. It should. Why are those easy targets, rather than the rights of victims, not being tackled? In employer liability cases, trade unions can effectively represent their members by taking cases to court with representation. Unison says that two thirds of people whom it has helped said that they would not have felt confident enough to pursue their claims without such support.
Finally, I turn to the personal injury discount rate. I hope that the Government will be more open to agreement and consensus on that. Tiny changes can significantly affect the damages awarded to or life experiences of very severely disabled people. I urge the Government to look again at the level of risk, which can affect awards over a lifetime, and to look carefully at the issue of the expert panel, allowing it a greater role.
Eddie Hughes (Walsall North) (Con)
It is a pleasure to follow the hon. Member for Hammersmith (Andy Slaughter).
I grew up in a household with five brothers, and we spent a lot of our time fixing cars: putting them back together and rebuilding them. In those days—the days of the Vauxhall Chevette—people could pick up a second-hand car for 50 quid, go down the tat yard, buy the necessary bits and pieces and bring it back to life.
Now, unfortunately, things are not quite the same. When someone takes a car to a garage, the mechanics do not look under the bonnet; they plug the car into a computer to find out what is going on. That is because cars are now bristling with safety devices, so much so that Volvo has claimed that, by 2020, people will not be able to have fatal accidents in its cars—actually, that is not quite true: the company said that it could not legislate for crazy people who deliberately tried to hurt themselves. But cars will be so safe that it will be really difficult to have accidents.
We live in a world where cars crash less often because they are clever enough to stop drivers crashing. However, there is also a high prevalence of mobile phones, which means that people are distracted and tend to bump into each other. What did this Conservative Government do? We doubled the fine from £100 to £200 and the points penalty from three to six to try to discourage people from driving and texting. As a Government—and it is not just this legislation—we are doing our best to stop people bumping into each other in the first place. But they still do it, obviously: there are 1,500 whiplash claims per day in this country. I personally think it would be a damn good idea if we did something to reduce that number.
I am disappointed that my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) mentioned this, as I thought I would be the only one, but rates of whiplash vary depending on where people crash around the world. For example, according to a study, 91% of 130 accident victims with acute whiplash in Greece had recovered in four weeks. Imagine that! We need some Greek DNA in this country; perhaps we would have fewer whiplash claims. That is one of my policy suggestions for this evening.
Demolition derby drivers—people who crash into each other virtually for a living—suffer very little from whiplash; my hon. Friend the Member for Bexhill and Battle (Huw Merriman) has done some demolition driving and he appears to have no neck problems. There must be some small element of truth in the notion that not all the whiplash claims in this country are always completely bona fide. If this evening’s debate does nothing other than send out the message that we are going to be cracking down and discouraging people from making whiplash claims, perhaps we will have achieved something. We will have saved some money, because insurances premiums will have gone down, and fewer people will be bothering the NHS with pretend illnesses, and as a nation we will perhaps be as safe as they are in Greece when they suffer a road traffic accident.
Huw Merriman (Bexhill and Battle) (Con)
It is a pleasure to follow my hon. Friend the Member for Walsall North (Eddie Hughes). He referred to my banger racing days in the village of Gawcott, which is in your constituency, Mr Speaker, just up the road from where my family live—happy days indeed!
I am pleased to contribute to this debate because I support the Bill hugely. One of my chief reasons for doing so is my concern about the cost of insurance premiums for young people and my appreciation for what the Government are doing for young people. I speak with two instances in mind. The first is the session held jointly by the Transport Select Committee, of which I am a member, and the Petitions Committee on the back of a petition from 100,000 members of the public who successfully petitioned this place to debate the high cost of motor insurance premiums for the young. The other relates directly to my constituency, a rural constituency of 200 square miles where, without the use of a car, a young person is severely limited in their ability to get to work, to find work and to have those experiences. We are losing young people in our constituency to the cities because they cannot afford to work and live there, and that is having a big effect on our demographics and ultimately on the social care issues facing us as well.
For those reasons, any legislation to tackle the high costs on young people has to be considered, and I urge the Opposition to consider the Bill on that basis. The cost of insurance for young people is almost £1,000— 10% of the average wage of an 18 to 21-year-old being paid out on insurance—and it means that young people have to decide whether they can continue to drive and therefore work or whether they have to do something less meaningful for themselves and for our economy. I am very supportive of the Bill on that basis.
The reforms that the Government have laid over the past few years to reduce the number of fraudulent claims have had some success and seen a reduction in insurance premiums by, on average, £50. There have been good reforms to the civil litigation procedure as well—reforming no win, no fee; banning referral fees and the use of benefits by claims management companies as an incentive to bring a claim; extending the fixed recoverable costs regime; and, for soft tissue injury claims, requiring that a fixed-cost medical report be provided at random by one of the approved medical experts. These measures have led to a drop in the number of claims from 780,000 two years ago to 650,000 last year.
It is clear, however, that we still have an issue with whiplash claims, which account for 85% of the 200,000 extra motor personal injury claim cases over the last 10 years. Of course, that is no surprise. It is very difficult for a defendant in one of these claims to establish whether a claimant has indeed suffered this injury, so there is a disincentive to try to disprove it. Added to that, the legal costs are so high that it is more expensive to fight a claim than to pay out. As a result—because of these settlements, one never knows because one never sees a medical report—we do not know whether that money is being paid out for genuine injury claims. As has been pointed out, given advances in technology and car and seat design, as well as the reduction in the number of road traffic accidents, it is completely illogical that claims are going up. I suggest to Opposition Members who cannot bring themselves to accept that there are fraudulent claims that they look at the evidence.
I want to touch on the small claims increase, which is long overdue and makes great sense, because it brings the amount more towards the limit for most other civil disputes. Consistency makes a lot of sense. I hope the Minister will confirm that it is still the case that a judge can decide not to refer a case to the small claims track although it is worth less than £5,000, because the complexity of the case may well mean that it should be dealt with through a more court-based process. That would, I hope, reassure the Opposition.
The measure on the discount rate makes huge sense, because it will reflect investment decisions and, therefore, the yield that claimants will actually receive. However, like other Members, I should prefer a periodic payment rather than a lump sum to be the norm, or the default option. I should also like a legal test to be introduced, requiring a claimant—and, indeed, the claimant’s family—to prove that they will be able to deal with the lump-sum arrangement and that they understand the risks involved. If that test cannot be met, the system of periodic payments should apply.
Overall, I warmly welcome the Bill. It delivers for consumers and for young people, and I think we should bear that in mind rather than some of the vested interests that have been cited as reasons for not supporting it.
Gloria De Piero (Ashfield) (Lab)
This has been an interesting and wide-ranging debate. I shall try to summarise many of the points that have been made.
The right hon. Member for Chipping Barnet (Theresa Villiers) and the hon. Member for Bexhill and Battle (Huw Merriman) talked about the need to tackle the high premiums applying to young drivers. My hon. Friend the Member for Cardiff Central (Jo Stevens) spoke about her personal experience of representing low-paid workers who would be hurt by the Bill. The hon. Members for South Norfolk (Mr Bacon), for North Warwickshire (Craig Tracey) and for Stoke-on-Trent South (Jack Brereton) focused on insurance fraud and what they perceived to be a compensation culture, and expressed their hope that the Bill would reduce premiums.
My hon. Friends the Members for Jarrow (Mr Hepburn) and for Hammersmith (Andy Slaughter) spoke of a pattern of behaviour on the Government’s part in the last eight years, involving attacks on working people and their access to justice. In an interesting speech, the hon. Member for South Leicestershire (Alberto Costa) expressed his concern about a rise in premiums despite a reduction in the number of claims. My hon. Friend the Member for Lewisham West and Penge (Ellie Reeves) made an excellent speech in which she described a legal system in disrepair and said that the Bill would have a disproportionate effect on innocent victims’ access to justice. My hon. Friend the Member for Cambridge (Daniel Zeichner) spoke of vulnerable road users, and his worries about injured workers’ representation. The hon. Member for Croydon South (Chris Philp) described his experience of weekly phone calls following his accident, and Members on both sides of the House condemned such calls.
My hon. Friend the Member for Harrow West (Gareth Thomas) talked about the attacks on working people’s representation that would result from the Bill, but also asked whether it was time to consider a legal cap on insurance premiums. The hon. Member for Bromley and Chislehurst (Robert Neill), the Chair of the Justice Committee, called on the House to hold the feet of the insurance industry to the fire when it came to reducing premiums.
My hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) spoke about cycling, and about how pedestrians, motorcyclists and cyclists would be removed from the scope of the Bill, as indicated by the Secretary of State. The hon. Members for Spelthorne (Kwasi Kwarteng) and for Walsall North (Eddie Hughes) talked about international comparisons on whiplash, and asked why there were fewer instances in other countries. Like so many other Labour Members, my hon. Friends the Members for Enfield, Southgate (Bambos Charalambous) and for High Peak (Ruth George) focused on the attack on injured people, and the bonanza for the insurance companies.
The changes proposed in the Bill will leave police officers, paramedics and firefighters who are injured on the roads without legal support and subject to fixed-tariff compensation, which will potentially reduce the damages that they can receive. The small-claims changes hidden behind the Bill will leave workers like the supermarket assistant, who was left unable to work for weeks after suffering a foot injury while moving stock, ineligible for legal support. Why? Because she was awarded £1,705. As a result of the package of changes associated with the Bill, workers like her, with claims worth less than £2,000, will either have to fight their cases alone or pay for lawyers with money that was meant to cover their injuries and losses.
Unison says that nearly two thirds of the people whom it represents—workers injured through no fault of their own, when there is no whiplash and no suggestion of fraud—would not seek justice without legal representation. The general secretary of USDAW, representing nearly half a million workers, says the changes
“will have a knock-on effect for workplace health and safety, as less scrupulous employers let standards slip because they know they’re unlikely to face the consequences in court.”
There is no suggestion of fraud or of increased numbers of claims by people injured at work. The Government should exclude such claims from this package of measures and from any small claims increase. We all want to stop insurance fraud, but a whopping 400% increase in the small claims limit for all road traffic accident claims means all injured road users—HGV drivers, firefighters, parents driving their kids to school—will be treated like fraudsters claiming falsely for whiplash, and be left with reduced tariff compensation and no legal help. Why?
The justice reforms that the Government passed in 2012 have saved insurers an eye-watering £11 billion, yet they want more. Back then insurers promised to reduce premiums, yet they are higher now than ever. Despite that, the Government have again swallowed the insurers’ promises to reduce premiums hook, line and sinker. This Bill saves insurers another £1.3 billion a year. Again, the rich get richer, the poor poorer. There appears to be a collective amnesia from this Government about the Prime Minister’s promise in 2016, so let me remind the House:
“The Government I lead will be driven not by the interests of the privileged few, but by yours…When we pass new laws, we’ll listen not to the mighty but to you.”
Yet here we are, two years later, with a policy created for the mighty: profitable insurance companies call the shots; working people pay the price.
If the Government will not listen to us and will not listen to the trade unions, will they listen to a Justice Committee headed by a Conservative Member or to experts like Lord Justice Jackson? In his report, approved by the Justice Committee, Jackson proposed that the limit should stay at £1,000 until “inflation warrants” an increase to £1,500. Jackson goes on to say that it should not be increased at all until inflation, from 1999, gets it to £1,500. The Justice Committee sends the same message; it could not have sent a clearer signal to the Government to stop this headlong rush to undermine access to justice.
Labour will be abstaining today in the hope that the Government will think again before the Committee stage. Without some key changes, we will vote against the Bill’s Third Reading. We sincerely hope, for the 99% of injured people even the insurers admit are honest, that they reconsider.
The Minister of State, Ministry of Justice (Rory Stewart)
It has been a great privilege to be able to sit through this debate with an extraordinary number of Members, many of whom have very direct experience as lawyers in the claimant industry or connections to the insurance industry. It has therefore been a very well-informed debate.
Our proposals in this Bill are serious, but to some extent matters of housekeeping. They follow a lengthy and extensive consultation over a number of years, and they attempt essentially to do three things: first, to try to improve the administration of justice in certain key, but relatively limited, ways; secondly, to address some issues around public morality and honesty; and, thirdly, to make sure we guard resources whether in the interests of people paying motor premiums or those who are supporting the NHS.
A number of objections have been made by Members across the Chamber and seven of them have stood out. Four of those I would respectfully and politely disagree with, but three have some real heft and we will take them into account in proceeding with this Bill.
The first of those objections, from the hon. Members for Ashfield (Gloria De Piero) and for Jarrow (Mr Hepburn), largely focused on the questions of damage in the workplace and to people with non-whiplash-related injuries. This is not strictly relevant to this Bill, which deals with whiplash-related injuries. The change in terms of non-whiplash-related injuries is proposed to be from £1,000 to £2,000, roughly in line with RPI since it was set in 1991, and dealing with roughly the same category of cases that were intended when the legislation was first introduced in 1991.
The second issue that has been raised by some hon. Members is that there is no evidence. This will be somewhat depressing for the people who have conducted an extremely extensive consultation, which has taken evidence not only from the insurance industry, as has been suggested, but from the Department for Work and Pensions, from claimant lawyers, from the Medical Reporting Organisation and from a large public consultation.
Thirdly, the hon. Member for Jarrow and, to a certain extent, the hon. Members for Enfield, Southgate (Bambos Charalambous) and for Cardiff Central (Jo Stevens) suggested that very few fraudulent whiplash claims were being made. This is a difficult issue to pursue, as my hon. Friend the Member for Croydon South (Chris Philp) eloquently pointed out, because of the asymmetry of the information. In other words, it is extremely difficult to prove that someone has a whiplash claim because it is, by its very nature, a concealed injury. Nevertheless, the statistics—in particular, those raised by my hon. Friend the Member for Spelthorne (Kwasi Kwarteng)—show that the number of traffic accidents has decreased by a third while the number of claims has gone up by 40%. At the same time, as my hon. Friend the Member for Walsall North (Eddie Hughes) pointed out, cars have become considerably safer. All this suggests that something is going on in relation to these claims.
The fourth objection, raised by the hon. Member for Lewisham West and Penge (Ellie Reeves), related to access to justice. The suggestion was that it was inappropriate to say that people should proceed to a small claims court for claims of under £5,000. The vast majority of existing claims do not proceed to court at all. The district judges who are ruling on these claims are used to dealing with claims of up to £10,000.
The three more serious objections are those that we are addressing. One of them is the idea that the insurance industry will not pass on the savings to motorists in the form of premium savings. As the Secretary of State has indicated, we will therefore be introducing an amendment, which will be with the House shortly and will be available in Committee and on Report, to address this exact concern, which was expressed by the hon. Members for Harrow West (Gareth Thomas), for Leeds East (Richard Burgon) and for Jarrow, and by my hon. Friend the Member for South Leicestershire (Alberto Costa), as well as by the hon. Members for High Peak (Ruth George) and for Hammersmith (Andy Slaughter) .
The second serious concern was about vulnerable road users, and it was raised by my hon. Friend the Member for Chelmsford (Vicky Ford) and by the hon. Members for Cambridge (Daniel Zeichner) and for Brentford and Isleworth (Ruth Cadbury). There, too, we will be introducing changes to ensure that vulnerable road users are excluded from the scope of the Bill and from the raise in the limit. Thirdly, my hon. Friend the Member for Croydon South and others raised concerns around periodic payment orders. The Secretary of State has written to the Master of the Rolls to ensure that PPOs are introduced more frequently, in order to ensure that vulnerable people suffering problems around lifetime care costs are genuinely able to get regular, sustainable and reliable payments out of the insurance industry to sustain them.
Rory Stewart
Very briefly, because I have been told to stop in three minutes.
Chris Philp
What does the Minister think of the idea that we might tweak the system so that periodic payment orders became the default setting unless a judge agreed that there was a good reason to do otherwise and make a lump sum payment?
Rory Stewart
I am very happy to take that issue offline with my hon. Friend. There is a lot to be said for PPOs.
In essence, there are three fundamental arguments that we would make in favour of the Bill. The first is that we need to ensure that the administration of justice is proportionate and sustainable. As my hon. Friend the Member for Chelmsford has pointed out, the fact that nearly 40% of the costs are currently being absorbed by legal fees is a serious issue. Secondly, we need to ensure that the system is straightforward. As my hon. Friend the Member for North Warwickshire (Craig Tracey) pointed out, the introduction of the portal will ensure that the administration becomes more straightforward. Thirdly, my hon. Friend the Member for Croydon South has pointed out that the introduction of fixed tariffs, on the French model, will make the administration of justice more predictable.
The question of fraud and morality is also at the centre of these changes. As my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) said, fraud does happen, and my hon. Friend the Member for South Norfolk (Mr Bacon) has pointed out that it can often be extremely flagrant. My hon. Friends the Members for Spelthorne and for Walsall North (Eddie Hughes) said that even if we cannot prove every case of fraud, it is at least true that claims are becoming more exaggerated. Indeed, as my hon. Friend the Member for Walsall North also pointed out, that can have medical consequences. To quote the polite words of the New England Journal of Medicine:
“The elimination of compensation for pain and suffering is associated with a decreased incidence and improved prognosis of whiplash injury.”
That was the point made by my hon. Friend about the situation in Greece.
The fundamental point is that the Government have a responsibility to balance the administration of justice and honesty with the broader social costs. As my right hon. Friend the Member for Chipping Barnet (Theresa Villiers) pointed out, insurance premiums have been rising, and we need to take them into account. As my hon. Friends the Members for South Norfolk and for Bexhill and Battle (Huw Merriman), premiums are rising in rural areas in particular. Again, as my hon. Friend the Member for North Warwickshire pointed out, the cost of over £1 billion to the NHS that will be addressed through this legislation is one that is borne by every taxpayer and is causing increasing concern among medical professionals.
This is a serious piece of legislation that addresses various focused points. It comes at the end of an extensive consultation, during which we have made several concessions to address the concerns expressed across the House. During the House of Lords’ consideration of the Bill, we introduced new definitions for whiplash, we involved the Lord Chief Justices in the process, and we adjusted some of the timings for the discount rate. Through this legislation we believe that we can contribute towards a more honest and proportional system that takes into account the significant social costs of exaggerated claims. Through a more simple, predictable, effective and rapid administration of justice, we can protect a range of social and economic interests while balancing the rights of road users, claimants, defendants and, ultimately, citizens as taxpayers.
Question put and agreed to.
Bill accordingly read a Second time.
CIVIL LIABILITY BILL [LORDS] (PROGRAMME)
Motion made, and Question put forthwith (Standing Order No. 83A (7)),
That the following provisions shall apply to the Civil Liability Bill [Lords]:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 9 October.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Jeremy Quin.)
Question agreed to.
CIVIL LIABILITY BILL [LORDS] (MONEY)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Civil Liability Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of any expenditure incurred under or by virtue of the Act by the Lord Chancellor.—(Jeremy Quin.)
Question agreed to.
Mr Speaker
In the thitherto unimaginable scenario that Members do not wish to listen to the hon. Member for Oxford West and Abingdon (Layla Moran), they can leave the Chamber quickly and quietly, so that the rest of us can enjoy her mellifluous tones.
Civil Liability Bill [ Lords ] (First sitting)
Tuesday 11th September 2018
(6 years, 3 months ago)
Public Bill CommitteesRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 September 2018 - (11 Sep 2018)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 7 - Question accordingly agreed to.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Chair
If they wish, hon. Members may remove their jackets. It is warm in here and we are trying to open a window. Please ensure that electronic devices are turned off or switched to silent. Tea and coffee are not allowed during sittings. We will first consider the programme motion on the amendment paper, which was agreed by the Programming Sub-Committee yesterday. If there are any matters of interest to declare, we will do that afterwards. We will then consider a motion to enable the reporting of written evidence for publication. In view of the limited time available, I hope we can take those motions without too much debate.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 11 September) meet—
(a) at 2.00 pm on Tuesday 11 September;
(b) at 11.30 am and 2.00 pm on Thursday 13 September;
(c) at 4.30 pm and 7.00 pm on Tuesday 9 October;
(2) the proceedings shall be taken in the following order: Clauses 1 to 10; new Clauses; new Schedules; Clauses 11 to 14; remaining proceedings on the Bill;
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 10.00 pm on Tuesday 9 October.—(Rory Stewart.)
Jo Stevens (Cardiff Central) (Lab)
On a point of order, Mr Stringer. It is a pleasure to serve under your chairmanship. I refer the Committee to my entry in the Register of Members’ Financial Interests. My partner is a solicitor and a chief executive of a personal injury law firm, which is relevant to the matters under consideration.
Robert Courts (Witney) (Con)
Further to that point of order, Mr Stringer. I would like to make a similar declaration, because I used to practise as a personal injury barrister.
Gloria De Piero (Ashfield) (Lab)
Further to that point of order, Mr Stringer. I declare the advice that I have received from Thompsons Solicitors, which will be entered in the register.
Craig Tracey (North Warwickshire) (Con)
Further to that point of order, Mr Stringer. I declare an interest as chair of the all-party parliamentary group on insurance and financial services, and as a former insurance broker.
David Hanson (Delyn) (Lab)
Just to be on the safe side, I am sponsored by the union USDAW, which has made representations to the Committee, and which I may speak on in due course.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Rory Stewart.)
The Chair
Copies of the written evidence that the Committee receives will be made available in the Committee Room. The selection list for today’s sitting is also available in the room.
Clause 1
“Whiplash injury” etc
Gloria De Piero
I beg to move amendment 8, in page 1, line 4, leave out clause 1 and insert—
“Definition of whiplash injury
(1) In this Part ‘whiplash injury’ means an injury, or set of injuries, of soft tissue in the neck, back or shoulder that is of a description specified by the Chief Medical Officer of the Department of Health.
(2) For the purposes of this Part a person suffers a whiplash injury because of driver negligence if—
(a) when the person suffers the injury, the person—
(i) is using a motor vehicle other than a motor cycle on a road or other public place in England or Wales, or
(ii) is being carried in or on a motor vehicle other than a motor cycle while another uses the vehicle on a road or other public place in England or Wales,
(b) the injury is caused—
(i) by the negligence of one or more other persons, or
(ii) partly by the negligence of one or more other persons and partly by the negligence of the person who suffers the injury, and
(c) where the negligence of the other person or persons consists in an act or acts done by the person or persons while using a motor vehicle on a road or other public place in England or Wales.
(3) The fact that the act or acts constituting the negligence of the other person or persons is or are also sufficient to establish another cause of action does not prevent subsection (2)(b) being satisfied.
(4) For the purposes of this section references to a person being carried in or on a vehicle include references to a person entering or getting on to, or alighting from, the vehicle.
(5) In this section—
‘act’ includes omission;
‘motor cycle’ has the meaning given by section 185(1) of the Road Traffic Act 1988;
‘motor vehicle’ means a mechanically propelled vehicle intended or adapted for use on roads;
‘road’ means a highway or other road to which the public has access, and includes bridges over which a road passes.”
This amendment would require the Chief Medical Officer to define “whiplash injury”.
The Chair
With this it will be convenient to discuss the following:
Amendment 9, in clause 1, page 2, line 3, at end insert—
“(iii) unless in respect of 4(a)(i) or (ii) the person is in a motor vehicle during the course of their employment, in which case Clause 1 shall not apply.”
This amendment would exempt people suffering a whiplash injury during the course of their employment from this definition.
New clause 9—Exemption for vulnerable road users and people injured during the course of their employment—
“(1) Nothing in Part 1 of this Act other than Clauses 6 and 7 shall apply to a claim made by—
(a) a pedestrian, cyclist or horse rider; or
(b) a person injured in the course of their employment.”
This new clause would exempt vulnerable road users and people injured in the course of their employment from the provisions of Part 1 of the Bill, except Clauses 6 and 7.
Clause stand part.
Gloria De Piero
It is a pleasure to serve under your chairmanship, Mr Stringer. With amendment 8, we seek to address the Government’s perplexing lack of faith in experts and their overweening belief that their own judgment is right. In the Bill, the Government have chosen to sideline doctors and, as we will see later, judges—two groups rightly held in high esteem in our society. Apparently, the Government know better than them. Quite simply, with this amendment, we say, “This is a medical issue, so ask a doctor.”
Although we have seen the same arrogance that the Government know best and a lack of respect in other areas of policy in recent years, this is the most gratuitous and egregious example I can recall. The only explanation that I can think of as to why they do not want experts involved is that they think that their knowledge is greater and better—or perhaps this is an example of the nanny state that they say they do not believe in.
The Government have chosen not to ban all compensation for whiplash, which indicates that they accept its validity as a medical condition, but they attempt to define it themselves. If they accept that it exists as a medical condition, surely it needs a medical definition. The Minister may tell me that the definition in the Bill comes from doctors. If so, might I ask who? They make no mention of any input from medical experts. Could it be that they have not mentioned their sources because the adviser in this case was all too familiar from almost every other aspect of this Bill? And might the definition of a medical condition in this Bill possibly have come from the insurers, who stand to profit enormously from this huge shift in the law?
On Second Reading in the Commons, the Chair of the Justice Committee, the hon. Member for Bromley and Chislehurst (Robert Neill), alluded to the possibility that in certain parts of the Bill the Lord Chancellor might be acting in a quasi-judicial capacity, although I note that the Minister did not respond to that suggestion. However, even if that were the case, although he might be required to act independently he would not be transformed into a medical expert, which is what is required here.
Before I talk about amendment 9 and new clause 9, can the Minister confirm that vulnerable road users will be exempted from the Bill and from the small claims limit? Also, will he define who a vulnerable road user is?
The Minister of State, Ministry of Justice (Rory Stewart)
Vulnerable road users will be excluded from the Bill and from secondary measures on the small claims court limit. A vulnerable road user is anybody who is neither driving a motor vehicle nor a passenger in one; in other words, the definition includes pedestrians, horse riders, motorcyclists or anyone else on the road who is not in a motor vehicle.
Gloria De Piero
I thank the Minister for putting that on the record.
We absolutely agree that there is a need to act against insurance cheats; no one supports fraudsters. The amendment would not affect the pursuit of those who are claiming fraudulently. By accepting this amendment, the Government can still hit their target. Through this amendment, we simply want to protect those who are injured in the course of their work through no fault of their own. Before it is suggested that this somehow drives a coach and horses through the Government’s intentions, we are not talking about huge numbers of cases.
Thompsons Solicitors deals with workers’ injuries day in and day out. The majority of its work is for the trade unions. Just 16% of its case load consists of injuries from road traffic accidents, and of that number whiplash cases comprise less than 20% of the total. Once we eliminate the large number of these claims that are not work-related, we are left with a tiny percentage of claims related to whiplash that people have suffered in the course of their work.
I have seen no complaint of fraud levelled by the Government against workers nor any suggestion that they are anything to do with the compensation culture of which there has been so much talk, although notably Lord Young said in his report, “Common Sense, Common Safety”, that in any case that view was a perception and not a reality. The Association of British Insurers, which has been very active around this Bill, has produced no examples of fraudulent claims by workers.
This amendment is an opportunity for the Government to exempt employers’ liability claims from the Bill and at the same time exclude them from the small claims limit. If the Government refuse to exempt workers, are they saying that any whiplash claim is evidence of fraud, whoever it is made by? If so, why have they not banned all whiplash claims? If they refuse to exempt workers, are they saying that the police officer, the paramedic, the school bus driver or the firefighter who suffers whiplash while working hard for our communities is scamming it?
Given that the Government have exempted vulnerable road users—horse riders, pedestrians and cyclists—from both the Bill and the associated small claims changes, what is their justification for not exempting workers? Are they saying that vulnerable road users are worthy of more protection than workers? Perhaps the justification is that the cyclist, the pedestrian and the horse rider do not take out motor insurance for their road use, but neither does the professional driver. If the justification for the exemption of vulnerable road users is that they are uniquely exposed, surely the professional driver is, too? For instance, there is the police officer in a high-speed chase or the HGV driver who is on the road for eight hours a day. The reality is that the Government have exempted vulnerable road users because including them would be politically untenable.
Craig Tracey
I just do not see any reason why someone who drives as part of their employment should recover a different sum to somebody else—one of our constituents, for example—who is driving in the normal daily course of their life, because they can still claim loss of earnings. The Bill does not change that, so they can still be compensated if they lose money as a result of being unable to work.
Gloria De Piero
It would be grotesque nonsense for a cyclist or a pedestrian injured through no fault of their own to find themselves subject to a tariff and a £2,000, let alone a £1,000, small claims limit when the target is whiplash and, in turn, apparently fraud. The same applies to workers. What on earth have they to do with whiplash for the purposes of fraud? If the Government will not move on this point, the only conclusion one can draw is that there is one rule for the small number of those wealthy enough to own a horse and another for the tens of thousands who drive for a living, many of them not in well-paid jobs—say, the paramedic or the refuse collector—who run the risk of whiplash when going about their jobs.
It is deeply disappointing that the Government are sneaking through crucial parts of their changes via a statutory instrument in order to avoid this sort of scrutiny. I wish to make perfectly clear today where the Opposition stands on workers for the entire package of measures. Workers, like vulnerable road users, should be excluded from both the Bill and the small claims increases.
Rory Stewart
It is a great privilege to serve under your chairmanship, Mr Stringer. Thank you again for the serious involvement that has gone into the debate. It has been a real privilege, as somebody who is not a legal specialist, to see how many well informed and distinguished colleagues we have on both sides of the House contributing to these interesting questions of definition.
Many of the amendments we are dealing with today reflect the work of the House of Lords and, in fact, of Opposition Members of the House of Lords—Labour Members, Liberal Democrat Members and Cross Benchers—who introduced many of the clauses into this Bill, which were not originally there and which we are now discussing. With your permission, Mr Chair, I will move quickly through amendments 8 and 9 and new clause 9 and then discuss why we feel clause 1 should stand part of the Bill.
The definition of whiplash, which is dealt with in amendment 8, was placed in the Bill after extensive debate pushed by the Delegated Powers and Regulatory Reform Committee of the House of Lords. In the initial version of this Bill, we had not sought to define whiplash. The DPRRC argued carefully and at great length that it felt strongly that it was inappropriate to have legislation of this sort if a definition was not in the Bill. The Committee felt it was not appropriate for any individual, whether a Minister or a chief medical officer, to make this definition on their own. It should be made by Parliament as a whole and it should be made fully explicit.
After a great deal of debate in the House of Lords, we conceded this point. The clause was inserted and everybody—Cross Benchers, Opposition Members of the House of Lords—nodded the amendment through. It was then inserted. The reasons for this are both those brought forward by the DPRRC and, I would add, to assuage some of the concerns put forward by the Opposition. Clause 2 also allows for a review of the definition by the chief medical officer, along with others, every three years to make sure it remains in touch with medical science and medical expertise. The definition is in the Bill and not purely provided by medical experts because, as the House of Lords argued, this is a medico-legal definition. In other words, it is not simply a question for medical specialists; it relates to the operation of law and the way in which the law of tort would operate.
The final reason for which I ask that amendment 8 be withdrawn is that I am afraid it refers only to the chief medical officer for England, whereas, of course, the legislation applies to England and Wales. That is why we feel strongly that clause 2, which refers to the chief medical officer for England and the chief medical officer for Wales and, indeed, the Lord Chief Justice and the Law Society in consulting on the definition of whiplash every three years, is the appropriate way to proceed. On that basis, I respectfully ask that amendment 8 be withdrawn.
It is easy to understand why amendment 9 was tabled and that the Opposition would be concerned. Again, we would respectfully argue that the key point is that the injury has occurred and not why the individual is in the car. The question of why they are in the car would be a distinction without a difference. There are many pressing reasons why somebody might be in a car. I, like many Members here, represent a rural area. Somebody might be in a motor car, for example, because they were having to drive their child urgently to a hospital. They might be in a motor car for any number of reasons that left them with little choice but to be in the car. It would seem invidious to distinguish between them and somebody else who is in the car for the purpose of employment, purely on the basis of the injury. The key is the injury and the fact that the third party who is liable for that injury is held liable.
Jo Stevens
The Minister mentioned choice. The fact is that if somebody is driving in the course of their employment, they do not have a choice because they are doing so on the instruction of their employer. Does the Minister accept that his argument on choice is not relevant when talking about an employer liability claim?
Rory Stewart
The argument I am trying to make is that, in many ways, travelling in a motor car in a rural area is, in effect, not a choice. If you were heavily pregnant and had to get to a hospital, you would have to get into that motor car. You would have no more choice than an individual who was in a car for employment purposes. In my constituency, very sadly, there are simply not the public transport links. People are obliged to be in a motor car, whether or not they are travelling in the course of their employment. Were they to suffer a whiplash injury, travelling in a rural area through no choice of their own, because they were suffering some kind of emergency or they were having to respond, it would seem invidious that they would receive different treatment from an individual who is, for example, driving a postal van.
Ruth George (High Peak) (Lab)
I, too, live in a very rural area with a great scarcity of public transport in recent years. However, the difference between a lot of drivers who drive for a living and those of us who have to drive to get around near where we live, is that drivers who drive for a living are often doing so for eight or even more hours a day. If they are in traffic, it is more likely that they will be involved in a collision with a rear shunt of the sort that creates whiplash. If they accumulate different incidents of minor whiplash, it can cause a much greater injury on the neck than a single incident. People who work for a living put themselves in this situation every day because of their employment. Often, that is their only source of employment and what they feel able to do. Will the Minister reconsider in the light of that point?
The Chair
Order. Before I call the Minister, I remind hon. and right hon. Members that interventions should be short and to the point. We can be relatively relaxed, but not too relaxed.
Rory Stewart
Thank you very much, Mr Stringer. Those two arguments were based on the question of frequency of travel and probability of an accident. Again, the key point in any form of injury claim is the nature of the injury and the liability of the third party that caused it, not the reason someone is in a car. It would be difficult to argue that somebody who travels in the course of their employment is necessarily travelling more frequently than somebody who is not. Somebody in a rural area might, for example, be commuting 5 miles to work in the morning and 5 miles back in the evening. A farmer in my constituency could be travelling between one field and another. There is no necessary reason to feel that they would be travelling more frequently than, for example, a parent taking their child to school in exactly the same area.
Arguments based on frequency or probability of impact should not be relevant. A more fundamental reason is that, in the end, the law is about the injury and the obligation that the third party who caused the injury owes to the injured person, regardless of how frequently that individual is in a car or why they are in a car in the first place. To be blunt, they could simply have gone to the car to get something from it, and could not be driving anywhere, and be struck and suffer whiplash. They would be entitled to exactly the same compensation as an individual driving that car.
Jack Brereton (Stoke-on-Trent South) (Con)
Does the Minister agree that the numbers applicable to amendment 9 would be negligible because most of the claims would be against a third party, not the employer?
Rory Stewart
Yes, I agree, but the key point is the injury, not why someone is in the car. This is a distinction without a difference.
Bambos Charalambous (Enfield, Southgate) (Lab)
The Minister mentioned children. I am conscious that children are not regarded as vulnerable road users. They would still need to go to court and have infant settlements made in their name. What consideration has been given to children who are injured in an accident through no fault of their own, obviously, and who have to go to court for a settlement?
Rory Stewart
In this regard, it is correct that the age of the individual within the motor car is not relevant within the law in assessing the injury, except in so far as the injury is specific to the age of the individual.
Scott Mann (North Cornwall) (Con)
The Minister makes an excellent point about rural areas. Many of my constituents have to travel for at least two hours to visit a GP or a hospital. The point I make is about the frequency of travel. I used to work for Royal Mail, driving for eight hours a day. My driving skill was much higher then than currently. Surely, such a person is less likely to have an accident because they are on the road more?
Rory Stewart
The key point, which goes against both Government and Opposition Members, is not the likelihood of having an accident. That should not affect the level of compensation that someone receives. That should be relative to one thing only: the nature of the injury and the prognosis. It should not be relative to why someone is in the car, how well or how frequently they drive or why they are driving. On that basis, I politely ask that amendment 9 be withdrawn.
New clause 9 reiterates some of the arguments in amendment 9; in other words, it focuses on the question of people injured during the course of their employment. However, it also references vulnerable road users. I have attempted to argue the relevance of someone driving a vehicle in the course of their employment in our discussion on amendment 9. On vulnerable road users, we respectfully request that new clause 9 be withdrawn for the reason I gave in my intervention on the hon. Member for Ashfield—vulnerable road users are already exempted by the Bill, so new clause 9 will be otiose.
On that basis, I respectfully ask that clause 1 stand part. This was a good and serious reform introduced with strong cross-party support by the House of Lords, driven by the DPRRC, which provides a much more accountable, transparent and predictable definition of whiplash to guide the legislation. We owe the Lords a huge debt of gratitude for that. We ask, on the basis that Members of the House of Lords from the Labour party, the Lib Dems, the Cross Benches and the Conservative party all agreed to it, that clause 1 stand part of the Bill.
Gloria De Piero
I have listened to the Government’s arguments, but do not accept them. The Bill’s objective is to reduce fraud. I have not heard anybody suggest that workers injured in the course of their employment are scammers. However, I have heard from Labour Back Benchers that workers drive all day and do not have a choice about whether to drive. I will divide the Committee on the amendments.
The Chair
Before the hon. Lady concludes, does she wish to divide the Committee on amendments 8 and 9?
Gloria De Piero
I beg to move amendment 10, in clause 3, page 3, line 21, leave out “two years” and insert “twelve months”.
This amendment would limit the tariff to injuries lasting less than one year.
The Chair
With this it will be convenient to discuss amendment 11, in clause 3, page 3, line 22, leave out “two years” and insert “twelve months”.
This amendment would limit the tariff to injuries lasting less than 1 year.
Gloria De Piero
The Bill says that if someone’s whiplash injury goes on for up to two years, or if it is thought that it might go on for up to two years, or if it goes on for up to two years because of their failure to “mitigate” their loss—that is, act to get themselves better by taking up an offer of physio, for example—they are eligible for fixed-tariff damages only.
Since 1999, special damages have been exempted from the calculation of whether a claim falls within the small claims limit. I will take this opportunity to nail down the ongoing argument about when the last increase in the small claims limit was. The Government say 1991, which is disingenuous and borders on the dishonest. I can provide quotes from the White Book if the Minister would like to see them. The limit has remained at £1,000 since 1991 but the method of calculating whether a claim falls within that limit changed in 1999 after the Woolf report. If any doubt remains, the evidence can be found in extracts from the White Book before and after the change.
From 1999, a definition of what was included in the £1,000 limit excluded special damages. It contains a helpful example that leaves no doubt that only general damages should be considered to see if a case is within the limit, and special damages are exempted from that time. I am told that special damages in a case add 20% to a claim on average, which means that the change in 1999 increased the limit by 20%. I shall assume that we have now laid that matter to rest and that any calculation from now on will be from 1999, not 1991. We may argue about the appropriate inflation index, or even the percentage increase from the changes made, but there should be no argument about the date from which it applies.
The impact of the clause is that someone could be off sick and losing wages, or having to work reduced hours, because of their whiplash complaint for up to two years before they are taken out of tariff damages. The Office for National Statistics says that the average wage in the UK was £27,200 in 2016-17, so an injured worker could lose more than £50,000 in earnings and still be subject to tariff damages. Someone on the minimum wage of £7.38 who works 35 hours a week for 48 weeks a year might earn £12,400, so they could have no income at all to support themselves and their family for up to two years.
Ruth George
Does my hon. Friend agree that the proposed tariff takes no account of victims’ circumstances? A whiplash injury will have a greater effect on someone in a manual job, who is less likely to be able to perform that job, than someone in a sedentary position, who is more likely to be able to continue to work through minor injury. Someone in a manual job is also likely to have lower wages and be less able to sustain a certain level of loss.
Gloria De Piero
My hon. Friend is completely in touch with the reality of life for working people. That is the argument that we seek to make. In tabling amendments 10 and 11, which bring that two years down to 12 months, we concede that people recover and that that can take time. We are not suggesting a short period, but a reasonable one, and we hope that the Government will concede that it is fair and proportionate.
On amendments 12 to 16, it is proposed that the Lord Chancellor should set the tariffs for pain, suffering and loss—
Bambos Charalambous
The issue of tariffs has been set out in an arbitrary way in the Bill. The criminal injuries compensation scheme was set up in 1991. Since 1995, the scheme has set the damages received for a criminal injury at £1,000 for whiplash that lasts from six to 13 weeks. That was the same figure in 2001, when the scheme was updated, and again in 2008 when the scheme was updated, and even in the current scheme which has not been updated since 2012: the damage for whiplash is £1,000 for more than 13 weeks. That compares unfavourably with the tariff that has been set—£470 for whiplash—so there are two inconsistent schemes operating under Government auspices. Someone is better off if they are injured by another person in criminal activity—for example, during dangerous or careless driving—and then receiving money from the Government. If they are injured negligently in a car accident they would receive far less. It should not be the case that someone receives far less if someone else commits a criminal offence against them than they would as the result of an incident that has occurred through negligence.
Jo Stevens
Does my hon. Friend agree that the Bill is creating tiers of victims of personal injury, so there will be different rates for people injured in Scotland, the workplace and road traffic accidents, and as a result of a criminal act?
Bambos Charalambous
My hon. Friend makes an excellent point. This leads to my next point: the way damages are calculated by judges has evolved over time through the judicial colleges. They have years of experience, yet what we have here is the Lord Chancellor plucking figures out of the air just to make things fit and to satisfy the insurance companies. That is not right. There has to be consistency, and a consistent approach. The measure makes no sense at all, and we should not be a situation in which tariffs are set arbitrarily by the Lord Chancellor that are inconsistent with other parts of the law and even other schemes within the Ministry of Justice.
Ellie Reeves (Lewisham West and Penge) (Lab)
I shall speak to amendments 10 and 11, which have been tabled by Opposition Mems. I stated on Second Reading that Opposition Members had expressed deep concern about the implications of the Bill and the policy agenda that the Government were operating under the cover of cracking down on fraudulent claims. Fraudulent claims are wrong, but we are not in the midst of an epidemic of fraudulent claims as Ministers would have us believe. In fact, insurance industry data show that of all motor claims, 0.17% were proven to be fraudulent in 2016. This is an extremely low percentage.
Craig Tracey
Does the hon. Lady accept that the figure of 0.17% relates to all motor claims, not just those relating to personal injury?
Ellie Reeves
The point about fraudulent claimants is that it is a very low percentage, and the insurance industry has reporting duties. No insurance company has stated that fraud is a material risk. It is not correct to suggest that there is an epidemic of fraudulent claims. Such claims should be tackled, but the way to do that is to go after those who commit fraud rather than innocent victims of road traffic accidents. The implementation of the Government’s package of measures in this Bill and the forthcoming changes to the small claims limit would eviscerate access to justice for many people with genuine injuries. In its current form, the Bill would replace the long-standing and established Judicial Studies Board guidelines with a rigid tariff that would undermine judicial discretion and leave injured claimants worse off.
I agree with the conclusions of the Access to Justice group in its written submissions to the Committee, which state that the increase in the small claims limit and the introduction of a tariff system is punitive and arbitrary. The draft tariff system presented by the Ministry has shown an overwhelming reduction in payments for pain, suffering and loss of amenity for whiplash injuries. In comparison with the 2015 average pay-outs under the existing guidelines, injuries lasting 19 to 24 months would be compensated 13% less, and those lasting 16 to 18 months would be compensated 29% less, while injuries lasting 13 to 15 months would be compensated 45% less. I note that Government amendment 4 would ensure the Lord Chancellor consulted the Lord Chief Justice before proceeding with regulation changes, but it is not satisfactory and would not see access to justice delivered for injured claimants. It misses the point of what is damaging about the move from judicial guidelines.
The Bill classifies injuries dealt with by the proposed tariff scheme as minor. I am not sure by whose definition a minor injury is one that can last up to two years. By most standards, it is surely a significant injury, and I welcome the shadow Front-Bench amendments that would see injuries of more than a year removed from the scope of the tariff system. To grade an injury of up to 15 months as minor and restrict damages to nearly 50% of what they are currently is a clear, ideologically-driven assault on access to justice.
Moreover, the evidence submitted to the Committee by the Carpenters Group showed that 15% of road traffic accident injuries lasted for more than 12 months. We cannot insist that the punitive measures invoked by a move to a tariff system affect the ability of a substantial number of people to access justice. Further, on the secondary legislation changes to the small claims track from £1,000 to £5,000 for road traffic-related personal injury claims and to £2,000 for all other types of personal injury claim, the package of measures, of which this Bill forms part, will see thousands of injured people fall out of scope for free legal advice and potentially denied justice. Current predictions are that around 350,000 injured people will be put off pursuing a claim for an injury that was not their fault. Access to justice is on the line for thousands of genuinely injured people.
Jo Stevens
Does my hon. Friend agree that the impact of the Bill will mean that we are likely to see what happened in the employment tribunals when fees were introduced and there was a drop-off of 90%?
Ellie Reeves
That is absolutely right. If the changes go through, hundreds of thousands of people will simply not be able to pursue claims with legal representation and will be deterred from doing so. The Government’s introduction of employment tribunal fees was found by the Supreme Court to be illegal because they denied people access to justice, and we seem to be going down the same route with the Bill’s further attacks on access to justice and with the related small claims measures. Amendments 10 and11 should be adopted as they provide much needed strength to the legislation and will help protect access to justice for victims of accidents.
The Chair
Order. Minister, as you will have noticed, we have strayed into a stand part debate, so I do not intend to have a separate one. If the Minister wishes to say anything in response, now is the time.
Rory Stewart
I shall focus narrowly on amendments 10 and 11, which focus on the question of reducing the period from two years to 12 months. Perhaps when we move on to amendments 12 to 15, we can talk a little more about the Judicial College guidelines and the question of tariffs.
The hon. Member for Lewisham West and Penge questioned where the word “minor” came from, which is important. It comes from the Judicial College guidelines. The idea that injuries under two years rather than under one year should be separated reflects the process within the Judicial College guidelines and its definition of what constitutes a minor injury. Clearly, that is a legal definition; in no way does the Judicial College intend to suggest that somebody suffering two years of injury is not suffering considerable pain, distress and loss of amenity. It is simply used to make a distinction between an injury that passes over time and an injury that is catastrophic and lasts throughout one’s life. In no way is it intended to denigrate the experience during the two years.
We feel strongly that it is important for the Bill to remain consistent with the definitions within the Judicial College guidelines. In the absence of that, there would be the first problem of imposing a very unfair pressure, which could inflate, on GPs to push through the one-year barrier, but there is a more fundamental problem. Were we to accept the amendments, they would not only take about 11% of cases out, but mean that the provisions on the requirement for a pre-medical offer would then be removed for the one to two-year period. We would suddenly end up with people able to proceed without medical reports for the one to two-year period, which would undermine a lot of the purpose of the Bill.
Ruth George
Surely it is up to insurance companies whether they choose to make pre-medical offers. It is entirely in their hands whether to do so. Whether or not it can be done is for the applicant but the decision is in the hands of the insurance companies; it should not be in the hands of legislation.
Rory Stewart
The hon. Lady puts her finger exactly on the current situation. Currently, the decision is in the hands of the insurance companies. The argument in the legislation is to take that decision away from the insurance companies; it will prohibit them from making an offer without a medical report. That was supported by the Opposition as well as the Government, and that is exactly the intention of the legislation. That is another reason why we will resist amendments 10 and 11.
Gloria De Piero
Does the Minister accept that, although the small claims limit has remained at £1,000, the way that was calculated changed in 1999?
The Chair
Order. Can I just say to the hon. Lady that the Minister had sat down? It is appropriate to intervene when the Minister is on his feet. If the Minister wishes to make a statement in response, I will take it.
Rory Stewart
This is a good challenge. It is not, respectfully, relevant to amendments 10 and 11, but relates to the question of something that will be done by the Procedure Committee, if it were to proceed through secondary legislation—a proposal to raise the limit from £1,000 to £2,000. The hon. Lady is correct that in 1999, changes were made to how the £1,000 limit was calculated, which adds an extra level of complication.
There is also a debate between us on whether CPI or RPI should be used to move that initial 1991 definition and, if so, to what amount. Should the hon. Lady wish to proceed, that is appropriate—not for this amendment or the Bill, but for subsequent measures.
Gloria De Piero
We do not intend to divide on this but we will raise these issues again on Report and Third Reading.
Gloria De Piero
It does, and I thank you for your advice. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Gloria De Piero
I beg to move amendment 12, in clause 3, page 3, line 26, leave out from “amount” to end of line 5 on page 4 and insert
“determined in accordance with the 14th edition of the Judicial College Guidelines for the Assessment of General Damages in Personal Injury Cases or any subsequent revision to these guidelines.”
The Chair
With this it will be convenient to discuss the following:
Amendment 13, in clause 3, page 3, line 33, leave out subsections (3) to (7).
This amendment, together with Amendments 14 to 16, would replace the tariff with the Judicial College Guidelines for the assessment of damages.
Amendment 14, in clause 3, page 4, line 7, leave out
“to which regulations under this section apply”.
See the explanatory statement for Amendment 13.
Amendment 15, in clause 3, page 4, line 9, leave out
“(subject to the limits imposed by regulations under this section)”.
See the explanatory statement for Amendment 13.
Government amendment 4.
Amendment 16, in clause 3, page 4, line 18, leave out subsection (11).
See the explanatory statement for Amendment 13.
Gloria De Piero
The Bill proposes that the Lord Chancellor, rather than judges, should set the tariffs for pain, suffering and loss of amenities. In view of the opposition from those who are judicially qualified and the upholders of the law, can the Minister not see the sense in the point that no politician should be making decisions for which the judiciary is rightly responsible?
To go down that path sets a dangerous precedent. It may be justified by Government when they are the paymasters in the criminal injuries compensation scheme, for example, but in any other sphere of injury compensation it takes away an integral role of the judiciary and introduces another layer of bureaucracy.
The current calculation of damages by both sides—claimant and defendant—is made using the Judicial Studies Board guidelines. Those are based on what judges have awarded in the past—on what is fair. They are used by the parties to guide settlement out of court and by judges in court at trial. That makes the JSB the best guide to what is just and proper in terms of damages awarded. The Government are throwing all that out in favour of the Lord Chancellor—someone with far less expertise and a political agenda.
A lot of people would say that the JSB guidelines are what is just, or that they represent justice for the victim, although I have my doubts about that. After all, although special damages for losses and expenses can put someone back in a position financially, as if the injury had never occurred, general damages can only apologise for what someone has been through and may continue to suffer; they cannot make anyone better. That is at least, for now, something that the courts decide is appropriate; it is not a figure plucked out of the air.
The Government’s attitude is, “What would experts know? It might be a basic tenet of English common law that people are compensated fairly and judges are best placed to assess that but, so what? Let’s rip it up!” That is to ignore Lord Woolf, who said:
“The effect of whiplash injuries, with which we are concerned, can vary substantially according to the physical and mental sturdiness of the victim. This means that the appropriate amount of damages for a whiplash injury can vary substantially…I suggest they are not suited to a fixed cap, as proposed by the Government.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1593.]
Ruth George
As someone who has suffered whiplash, I can speak about the amount of pain and suffering it causes and its impact on a victim’s life. As my hon. Friend said, those things can vary from person to person and from accident to accident, but an injury to the ligaments at the bottom of one’s neck, which carry the head all day long, can have a profound effect on someone’s being able to lift anything at all.
At the time of my injury, I found it very difficult to lift my young baby. When I did so, I was in considerable pain for a long time thereafter, and the problem has continued. I am no longer able to lift very much because it gives me a severe migraine. That is the issue we are considering for people with whiplash.
Rory Stewart
If an injury continued, with migraines more than two years after the incident had occurred, it would not be classified as a minor one under the Bill and would not be subject to the tariffs. It would go through the normal court procedures, via a fast track, and the award would be made by judges.
Ruth George
Absolutely, but what I was going to say was that my injury was then exacerbated by physio. It might have cleared up within two years—I had hoped that it would and for most people it does—but it takes a long time and a lot of suffering to get to that point.
For the vast majority of people who suffer whiplash, and particularly when it is of longer duration where there is significant medical evidence—MRI scans and extended x-rays—the Bill, as the Minister said, will prevent pre-medical offers from being made. There will have to be medical reports showing what has been happening to someone’s neck and the impact on them.
It does not make sense that we are considering introducing a one-size-fits-all tariff at a very low rate that takes no account whatever of the amount of pain and suffering, only its duration. It takes no account of the impact on the victim’s life, including on their work and home life. If someone is a carer, works in a nursery or has another manual job, the impact on them will be far greater than on someone with a similar injury who does not have to perform such tasks.
Rory Stewart
This is an important and serious issue, so I wish to clarify something that I am sure all hon. Members on both sides of the House already understand. The legislation purely relates to general damages, which cover pain and loss of amenity. All the examples that were given, such as loss of earnings or being unable to perform a particular job because of whiplash, would be covered by special damages and are not affected by the legislation.
If an individual had an injury that prevented them from going to work, that loss of earnings would be covered under a separate special damages claim. The legislation relates purely to the subjective judgment on the pain experienced—not the physio costs or the loss of earnings. That is all unaffected by the legislation.
Ruth George
Those of us who have worked in the trade union movement will know that compensation for loss of earnings does not always equate to the amount that somebody loses and the impact on their job. Many employers have schemes whereby anyone who is off sick for more than a certain number of days is unable to return, or suffers some other detriment. With many schemes, people have to survive on sick pay. Even if the difference comes to a significant amount, it takes a long time for that to come through. That feeds into the impact not just on somebody’s work, but on their life. The judiciary can take account of that when they set an award, but this tariff takes no account of the amount of pain and suffering—only the duration—or of the impact on a person’s life at the time of the injury.
Bambos Charalambous
Is my hon. Friend aware that under the criminal injuries compensation scheme, which the Lord Chancellor sets the tariff for, there has been no increase for whiplash claims since 1995? I fear that that is what would happen if the tariff scheme for whiplash was set by the Lord Chancellor.
Ruth George
My hon. Friend makes an excellent point. I was dismayed by the huge cuts in 2012 to the criminal injuries compensation scheme, but the amount for whiplash remained at £1,000. Even this Government, who were looking to remove a vast proportion of the costs of the criminal injuries compensation scheme, did not seek to change the tariff for whiplash, because they accepted that £1,000 for a 13-week injury was a fair amount of compensation, even under the criminal injuries scheme paid for by the Government.
However, the Government are now proposing that insurance companies that receive far more than the amount of tariffs per year from many motorists should have to pay out less, and that for a six-month injury someone would receive perhaps £450. For many motorists an insurance premium for six months is more than £450, begging the question: what will they pay insurance for? Where is the value for money, and where is the fairness to victims of accidents in today’s proposals?
Rory Stewart
I thank the hon. Members for Ashfield and for High Peak for their powerful speeches. Before I move on to amendments 12 to 15 and Government new clause 4, I will clarify some points raised by the hon. Member for High Peak.
Many things are covered by insurance besides the ability to get compensation for whiplash. It would be absurd if the entire purpose of an insurance scheme was simply to give someone an annual pay-out for whiplash, and they paid £450 for that insurance when such claims were capped at £450. The hon. Member for High Peak is right that that would be an absurd system, but insurance covers many things besides whiplash claims. In fact, we are trying to move to a world in which the majority of someone’s insurance would cover things other than their whiplash claim.
This goes to the heart of the discussion so far, and to a point made by the hon. Member for Lewisham West and Penge. Fundamentally, the number of road traffic accidents has decreased by 30% since 2005. At the same time, cars have become considerably safer: headrests and other forms of restraints have made it much safer to be in a motor car than it was in 2005. During that same period, whiplash claims have increased by 40%. Whether we define these as fraudulent or simply exaggerated, there is no doubt of the trend. There are fewer road traffic accidents and cars are safer, yet whiplash claims are going up.
David Hanson
We heard a number times in the Justice Committee, when taking evidence from the Minister’s colleague, Lord Keen, the question of the word “fraudulent”. Can the Minister quantify for this Committee how many fraudulent claims he expects there to be on an annual basis?
Rory Stewart
The answer is that judging fraud in whiplash is almost impossible except statistically through the measures that I have used, because for minor whiplash claims of the sort that are covered in the tariff—not the type of whiplash injury that the hon. Member for High Peak experienced—there is no way of proving whether an injury has occurred. That is why The New England Journal of Medicine has done research on this.
There has been interesting research on what happens if someone sits in a motor vehicle with a simulated accident and a curtain behind them, so that they are unable to tell whether the accident has occurred or not. It shows that 20% of people experienced whiplash without the collision actually occurring. This is clearly a complex medico-social phenomenon. The polite way of putting it is that there is an asymmetry of information. It is close to impossible for an insurance company to prove that an individual did not experience whiplash, particularly at the three-month rate.
David Hanson
Could the record show, Mr Stringer, that the Minister, like his colleague in the House of Lords, could not indicate how many claims per annum are fraudulent?
Rory Stewart
I am very happy for the record to say exactly that, provided we explain why that is the case. The nature of this injury is such that it is impossible to know, in most cases, whether the individual is making a fraudulent claim. In the case of the kind of injury experienced by the hon. Member for High Peak—a much more serious injury—it is possible to detect things through MRI scans, but for the majority of injuries that we will be talking about in the three-month to six-month period, no physical evidence can be adduced one way or the other.
In the end, the qualified GP has to sit down and reach some kind of judgment, through discussion with the individual and gathering the evidence of injury, that the balance of probabilities holds that the individual is experiencing subjective pain, but it is impossible to prove that through the kinds of medical evidence that one would adduce in a normal medical case.
Ruth George
An MRI scan will identify where there is soft-tissue injury. At any stage, the point is whether it is worth going for an MRI scan. By reducing the tariff to such a small amount, GPs in many instances, particularly up to 12 months, may well deduce that it is not worth referring a patient for an MRI scan to produce that medical evidence. The tariffs proposed will reduce the amount of medical evidence produced and may well increase the number of fraudulent claims, because there will be less requirement for medical evidence such as an MRI scan.
Rory Stewart
Many whiplash injuries are not detectable on an MRI scan. Many people are currently receiving compensation for whiplash and have experienced whiplash injury, which cannot be caught on an MRI scan. The GPs who will be asked to decide whether someone has had a whiplash injury will not be holding them to the standards of an MRI scan. Were they to do so, we believe that the number of whiplash injuries would decrease very dramatically. Nothing like 550,000 injuries a year would be recorded on an MRI scan, particularly in the three-month to six-month period.
Jo Stevens
I practiced in this area for nearly 30 years. Every day, I saw the impact of motor accidents and soft-tissue injuries on young and old people from all sorts of backgrounds. What the Minister is saying is absolute nonsense. GPs are able to determine whether someone has suffered an injury—they have been doing so for many years and will continue to do so for many years. This is simply an excuse to increase insurance companies’ profits.
Rory Stewart
There is a fundamental issue—we may get on to it later in the debate—about the different understanding of insurance companies on opposite sides of the House. Two arguments are put forward. The hon. Member for Jarrow (Mr Hepburn), for example, suggested in his speech in the House that the insurance industry worked on a binary basis—that the objective of the insurance industry was simply to increase the premiums as much as possible to sky-high levels, and reduce payouts.
We would argue, as does the Competition and Markets Authority, that there is a third crucial factor—competition—in understanding the impact of the legislation. What prevents premiums endlessly going up and an insurance companies never paying out is that people simply would not go to that insurance company and would go elsewhere. The insurance markets were very carefully studied by the Financial Services Authority and the Competition and Markets Authority. They are confident that 80% of the associated savings in costs will be passed on to consumers through the mechanism of competition and agencies advertising to get customers.
One way in which we seek to demonstrate that point publicly is through inserting an amendment to get the insurance companies to come forward with clear information on the amount of money they have received and the amount they have paid out. We can then have an open debate in Parliament to discover which of us is right—whether the Competition and Markets Authority is right or whether, as the hon. Member for High Peak and the hon. Member for Jarrow argue, it is a purely binary process.
Bambos Charalambous
Is the Minister aware that the insurance companies settle the vast majority of whiplash claims without going to court and pay up without even trying to fight the claims? If the Minister is correct that the claims are hard to detect, why are the insurance companies not fighting more of them and taking people to court?
Rory Stewart
The answer is exactly for that reason. Because they are so hard to detect, they are almost impossible to fight, and therefore insurance companies have historically made that decision. They often do not even get a medical report because it hardly seems worth while to do so. When somebody comes forward with a whiplash claim, the procedure has often been to settle without going to court in order to reduce the legal fees and the associated costs, exactly because it is incredibly difficult.
Whiplash claims are extremely controversial medically. A lot of articles are written about this—I quoted the New England Journal of Medicine in the House, which is particularly stark. Cassidy’s article argues very strongly that the absence of compensation for pain and loss of amenity is associated with a much improved prognosis and reduced duration in the whiplash injury itself. In other words, the New England Journal of Medicine points to the fact that this is not purely a medical phenomenon. It has social and legal dimensions, of which compensation is a part.
Gloria De Piero
Is the Minister familiar with the quote from the head of the City of London police insurance fraud enforcement department? He said in the Insurance Post:
“It would be wrong to say that I believe there is a compensation culture or an insurance fraud culture in general.”
Another expert denied?
Rory Stewart
Such arguments would be more powerful if Opposition Members could explain why the number of whiplash claims has gone up by 40% since 2005, when the number of motor vehicle accidents has declined by 30% and cars have got much safer? A lot of things have been introduced in cars since 2005. Nearly 85% now have the safety features specifically designed to reduce whiplash that only 15% had in 2005. There are fewer accidents and much better protection around the individual.
Rory Stewart
Absolutely. Let me just articulate the question and the hon. Lady can perhaps answer it exactly. Why has the number of road traffic accidents reduced dramatically—cars have got safer so people are much less likely to experience injury, and there are fewer accidents—yet the number of claims has gone up by 40%? Why is she confident that the operation of claims management companies is not associated with the extraordinary increase in whiplash claims? Presumably, we have all received calls from claims management companies. An average of 600,000 claims are made a year—almost one in 100 citizens in the United Kingdom make a whiplash claim. How can that be possible when the number of road traffic accidents is reducing?
Ruth George
The Minister makes an excellent argument for regulating claims management companies properly. He has made no argument for blaming and making innocent victims of road traffic accidents. On Second Reading, we heard that many people are phoned by claims management companies. In many instances, their details are given out by the insurance companies to whom they make an honest claim. The insurance companies, which are linked to those claims management companies, give those details. If the Minister wants to act on the problem of whiplash, he should look at those claims management companies and their tactics of cold calling, as the Bill does in banning pre-medical offers, and end the links between insurance companies and claims management companies, rather than making innocent victims suffer.
Rory Stewart
With permission, I will proceed. There is still no answer to why the number of claims has risen, particularly when the number of road traffic accidents has dropped. The hon. Lady suggested that she would answer the question but did not. I look forward to someone answering that question, but I would like to make progress.
David Hanson
In Committee, it is normal to take interventions. As a Minister I never refused an intervention in Committee. I hope the Minister will accept this intervention. He mentioned the increase in claims being made. How many of those claims does he expect are fraudulent? That is the key. If they are not fraudulent, they are genuine claims, whether they are through a claims management company or from an individual.
Rory Stewart
The statistics suggest very strongly that what happened to an individual in a motor car in 2005 would, on average, have been much more severe than what happens to an individual in a motor car in 2018. A 30% reduction in the number of road traffic accidents, combined with the improvement in safety procedures, would suggest that an individual having a motor vehicle accident today would be considerably less likely to suffer whiplash than would have been the case in 2005. Therefore, the fact that the number of claims has increased by 40% is a very peculiar anomaly that requires explanation, which nobody has produced so far. Will somebody please explain why the number of claims has increased by 40% when there has been no physiological change in the human body since 2005 and motor cars have, if anything, got safer?
David Hanson
The Minister still has not answered the question. How many of those additional claims does he suggest are fraudulent? If a claims management company takes forward a claim, there might be issues about the claims management company but, ultimately, if the claim is not correct it will not be approved. Therefore, how many of those extra claims are fraudulent? He needs to tell the Committee.
Rory Stewart
In 2016, there were 7,572 confirmed fraudulent motor claims and 58,576 suspected claims, resulting in 66,147 detected motor fraud claims. However, my point goes much wider. Because of the asymmetry of information and because it is impossible to prove whether the injury has occurred—particularly at the three to six-month period—it is impossible to put a precise number on it. We can be confident, through the soaring inflation in the number of these claims, that many are exaggerated, to put it mildly, even though we cannot prove the exact number beyond the 66,147 that are actually fraudulent.
Craig Tracey
I spent 20-odd years on the frontline dealing with these types of claims and acting on behalf of the client rather than the insurance company. For genuinely injured people, we found that financial compensation was a minor consideration in the overall claim. They wanted to feel better and get put right. Is it not right that insurance companies should focus on rehabilitation, treatment and proper diagnosis rather than worrying so much about value?
Rory Stewart
I absolutely agree. It is very important to keep reminding the House that we are focusing on general damages, not special damages. In other words, we are focusing on what ultimately must be a difficult, subjective judgment about the level of pain that an individual experiences, and not loss of earnings or other forms of treatment.
Robert Courts
I repeat my declaration that I practised in this area until I was elected two years ago, and I remain a door tenant at my chambers. Having practised in this area for more than 10 years, I too have experience. Does the Minister accept that there is a danger that the Committee is confusing two issues? According to the guidance notes, the manifesto gave a commitment to
“reduce insurance costs for ordinary motorists by tackling the continuing high number and cost of whiplash claims.”
This is not solely about fraud. It is also about perfectly genuine claims where the costs have become very expensive. Are the Government seeking to provide redress for those who have been injured, but to do so in a cost-proportionate manner?
Rory Stewart
Fundamental to decisions that the Ministry of Justice has to make under any Government is the need to think seriously about balancing different types of interest—in this case the interests of the claimant, the third party and the taxpayer, as well as those of road users and people who take out motor insurance. It is therefore appropriate for us to question the overall cost of the system, and—particularly for motorists in rural areas—the fact that the premium could be as much as £35 a year extra, and considerably more for a young driver, because of the hundreds of thousands of people each year who make whiplash claims.
Gloria De Piero
Insurers have never mentioned fraud as a material risk in their financial report. If it were such a serious concern, would they not be required to report it to the Financial Reporting Council?
Rory Stewart
The question of what constitutes a material risk in a financial report is driven primarily by the financial stability of the company, so the question of whether fraud is defined in that way relates purely to the cost of the fraud. The question is a financial one, not one of honesty.
Amendments 12, 13, 14 and 15 relate to the Judicial College guidelines. This debate has had quite a long consultation period—it has been going on for more than three years. We are grateful to the Association of Personal Injury Lawyers and many others, including the Law Society, who have fed in to this consultation, and we have arrived at a compromise. The Opposition were extremely uncomfortable with the initial proposals, and we have made a lot of concessions—that is why I will be asking hon. Members to withdraw their amendments.
The initial proposals by the Chancellor of Exchequer in his Budget speech were to remove general damages entirely, and for no compensation to be offered for pain, suffering and loss of amenity. There was also a proposal to have no judicial involvement whatsoever in setting levels of compensation, and the third element of controversy was about whether it was appropriate to have tariffs at all.
We have made significant concessions on the first two points—in the House of Lords for the second proposal, and before that stage for the first proposal. Under pressure from many people, including Opposition Members, we have accepted that there should be general damages, and that principle has been reinserted. Secondly—this is why I will ask for support for clause 4—we will push ahead with the proposal that the Lord Chief Justice should be consulted on the level of the tariffs. That brings in the judiciary so that it will not be done purely by the Lord Chancellor, which brings us to the question of whether there should be tariffs at all.
A tariff system is relatively unusual in English common law although, as the hon. Member for Enfield, Southgate pointed out, an equivalent exists for criminal injury compensation cases, which creates some paradoxes and contradictions. At the moment, someone who suffers a criminal injury could receive a different level of compensation than if they suffer exactly the same injury without a criminal act. The same is true if someone in a motor vehicle suffers from a terrorist attack. The Government could give someone considerably more compensation if they are the victim of a terrorist attack than if they suffer the injury in a different way.
However, tariffs are not unusual: they have been introduced very successfully in Italy, France and many other European jurisdictions. Under the proposals in the Bill, there will be judicial discretion on the tariffs. That is judicial discretion that we have consulted on closely and will return to under later amendments. It is in line with what the European Court of Justice believes should be the appropriate degree of judicial flexibility when applied to a tariff system.
Bambos Charalambous
Let us assume for a moment that we accept that the tariff system is the right one. Does the Minister not agree that the inconsistencies are just unacceptable and that there needs to be a review of the levels that have been set out, because there seems to be no rhyme or reason to them? Can he explain to me how the levels have been arrived at? I cannot see where they have come from.
Rory Stewart
This goes to the heart of the concerns that the judiciary raised when the first criminal injury compensation schemes were introduced and, indeed, when compensation for a terrorist act was introduced. As the hon. Gentleman suggests, it is perfectly legitimate to question whether, within the tradition of tort in the English common law, it is appropriate to distinguish between an injury suffered at the hands of a criminal or a terrorist and an injury simply suffered at the hands of another third party who is liable, but that is a much deeper philosophical jurisprudential debate than I think we can proceed with here. With that, I respectfully request that the amendments be withdrawn or not pressed and I ask the Committee to support Government amendment 4.
Gloria De Piero
I am afraid that I am going to disappoint the Minister. We feel so strongly, because we are led by the independent experts, by the Select Committee on Justice and by some people in the Minister’s own party, whom I quoted earlier, that we believe that the Committee needs to divide on amendments 12 to 16.
Question put, That the amendment be made.
The Chair
As I indicated, we have debated clause 3 sufficiently not to require any separate stand part debate.
Clause 3, as amended, ordered to stand part of the Bill.
Clause 4 ordered to stand part of the Bill.
Clause 5
Uplift in exceptional circumstances
Gloria De Piero
I beg to move amendment 18, in page 4, line 30, leave out Clause 5 and insert—
“Power of court to uplift the amount of damages payable
(1) A court may—
(a) determine that the amount of damages payable for pain, suffering and loss of amenity in respect of a whiplash injury or a minor psychological injury is an amount greater than the tariff amount relating to that injury;
(b) determine that the amount of damages payable for pain, suffering and loss of amenity in respect of a whiplash injury and one or more minor psychological injuries, taken together, is an amount greater than the tariff amount relating to those injuries;
(c) in a case where the court considers the combined effect of—
(i) an injury or injuries in respect of which a tariff amount is specified by regulations under section 3(2) or (4), and
(ii) one or more other injuries, determine that an amount greater than the tariff amount is to be taken into account when deciding the amount of damages payable for pain, suffering and loss of amenity in respect of those injuries.
(2) In this section ‘tariff amount’ means—
(a) in relation to a whiplash injury, the amount specified in respect of the injury by regulations under section 3(2);
(b) in relation to a whiplash injury and one or more minor psychological injuries, the amount specified in respect of the injuries by regulations under section 3(4).”
This amendment would allow judges to increase the amount of damages payable where they determine the tariff amount to be insufficient compensation, rather than capping judges ability to increase compensation awards to a percentage specified by the Lord Chancellor as the Bill currently does.
Gloria De Piero
This amendment would allow judges to increase the amount of damages payable where they determine the tariff amount to be insufficient compensation, rather than capping judges’ ability to increase compensation awards to a percentage specified by the Lord Chancellor, as the Bill currently does. Once again, I want to point out the long-standing tradition of trusting judges, rather than having politicians interfere with the discretion of the courts—a tradition that the Government are inexplicably undermining with this Bill.
Clause 5(3) states that if the court thinks there should be an uplift from the tariff because of the severity of the injury, the amount by which the court can increase the payment is limited according to a cap set by the Lord Chancellor. Not only are the courts being fettered by a tariff, but when they consider the tariff to be inappropriate, they will get their judicial wings clipped again. This reduces judges to little more than errand boys for the Lord Chancellor.
Many Lord Chancellors these days are not lawyers. They will rely on the advice of their officials, who need not have legal training either. If the Tories do not trust the judges, who do they trust? What are they scared of? What evidence do they have that judges will behave badly and award huge sums? What court cases can they point to in which that has happened? I can find none at all, and nor can the experts whom my team and I have consulted.
I suspect the insurers fear that without a cap, every tariff award will be taken to court, where judges will apply an uplift and blow up their tariff. If that is what they fear, it suggests that they secretly accept that the proposed tariffs are too low. Perhaps the reason for all these restrictions—all these fetters on what a judge can decide for themselves—is that the Government and the insurance industry are running scared that judges will, indeed, rebel against them. Not because judges are intrinsically rebellious—far from it, some would say; they are conservative with a big and a small c—but because they have a duty to be impartial and deliver justice, and the Government’s proposed tariff does not even remotely do that. Amendment 18 would restore judges’ lost autonomy.
Rory Stewart
I thank the hon. Lady for her speech. This amendment relates to the fundamental question of the tariff system and the relationship between the judiciary and the tariff system. Clause 5 provides a pragmatic compromise between a strict tariff system and judicial discretion by allowing the judges to lift that tariff in exceptional circumstances. However, as the European Court of Justice accepted in the arguments made in the Italian case, there needs to be a limit. If there were no limit to judges’ discretion, the tariff system would become unworkable.
In so far as we disagree about whether there should be a tariff system in the first place, I completely understand where Opposition Committee members are coming from. However, given that the fundamental cornerstone of the Bill is that there should be a tariff, we need to strike a pragmatic compromise between the tariff and giving some discretion to judges. Therefore, we propose that the Lord Chancellor will set a percentage of discretion for judges to uplift the tariff. We also propose that he will consult the Lord Chief Justice on the appropriate level of discretion. We will look carefully at the rulings of the European Court of Justice and the decisions that it has made in other countries where tariffs exist to arrive at that figure.
Bambos Charalambous
The tariffs range from £235 to £3,910, which are incredibly small amounts in the great scheme of things. To try to fetter the judges’ discretion on such small amounts, for exceptional circumstances that have yet to be defined, is to use a sledgehammer to crack a nut. We just accepted an amendment to the effect that the Lord Chancellor must consult the Lord Chief Justice. Does the Minister not think that it would be better to use that mechanism, rather than “exceptional circumstances”, to set the tariffs?
Rory Stewart
We certainly will move to introduce an amendment exactly in relation the hon. Gentleman’s question—he has campaigned well on this, as have other hon. Members—setting out that we should consult the Lord Chief Justice on the level of tariffs as well as on the percentage uplift for judicial discretion. Those are two important concessions that I hope will reassure the Opposition.
David Hanson
Before the Minister sits down, can he give some further detail about how he intends to consult the Lord Chief Justice on making the regulations? How much notice will he give the Lord Chief Justice? Will the Lord Chief Justice’s comments be public? Will they be published so that other hon. Members can see them prior to any decision being taken? What happens if the Lord Chief Justice disagrees with the Government’s suggestions? Could the Minister give some outline of those circumstances?
Rory Stewart
As the right hon. Gentleman is aware, clause 5(5) merely states:
“The Lord Chancellor must consult the Lord Chief Justice before making regulations under this section.”
We intend that to be done in an accountable, responsible, transparent and predictable fashion that would give the Lord Chief Justice a serious amount of time to consider and respond, but, ultimately, it is a consultation and the power of decision rests with the Lord Chancellor, as is implied in the legislation.
David Hanson
Will the Lord Chief Justice’s comments on the consultation be public? Will other people apart from those two parties be able to see both their comments?
Rory Stewart
That remains to be determined by regulations introduced by the Lord Chancellor and is not included in the Bill.
Jo Stevens
Why not take the pragmatic approach and just leave it to the judges to decide? They are the experts. Why should a politician influence what is happening?
Rory Stewart
The answer goes to the core of the entire legislation. The proposed tariff recognises that what we are dealing with—or at least, what we believe we are dealing with—in relation to whiplash, with the peculiar anomalies since 2005 and the increase in whiplash claims, is not exclusively medical or legal, but has strong social and political dimensions in terms of insurance premiums and the cost to the public purse, which is why quite a lot of part 2 of the Bill deals with the NHS. The introduction of the tariffs is designed precisely to reduce the amount paid out in the specific case of general damages for minor whiplash injuries. Simply to stick with the judicial college guidelines would obviate the entire purpose of the Bill and undermine the medical, legal, social and political arguments that underlie the legislation.
Ellie Reeves
Under the proposals, an uplift would be allowed only if the whiplash injury was exceptionally severe or the circumstances were exceptional. Does that not hugely undermine the principle of judicial discretion and take away judges’ ability to assess cases and make appropriate awards for damages? The threshold in these proposals has to be far too high.
Rory Stewart
Clearly, a system of the sort we propose, which is modelled on the existing tariff systems in places such as France and Italy, is designed to set in law, through the actions of an accountable Minister, the level of the tariff. The argument is absolutely right. As the hon. Lady suggests, that will remove discretion from judges except in exceptional circumstances. The reasons for that are to do with our policy objective of dealing with the whiplash claim culture. Our intention is to reduce the damages paid for minor whiplash injuries, which are defined in the Judicial College guidelines as those that last less than two years. That will result in general damage payments lower than those currently awarded by judges. However, in exceptional circumstances, judges will be able to increase the award.
Gloria De Piero
What is the fear here? Is it that judges will make awards above the tariff set?
Rory Stewart
The Judicial College guidelines are simply a historical record of awards by the courts. It is a fact that those awards to date have been higher than the awards we propose in the tariff. The policy intention is to reduce the general damages paid, particularly for people at the three-to-six-month level. As we get closer to the two-year level, awards under the tariff come closer to the Judicial College guidelines, but at the lower end, as was suggested, there is a disagreement between the Government and the current practice of judges about the appropriate award for pain, suffering and loss of amenity.
There has been a lot of discussion about experts, but right hon. and hon. Members must remember that we are discussing general damages, not money for loss of earnings or to pay for physiotherapy. We are discussing a judgment of exactly how many pounds and pence someone should receive for a whiplash injury—for the subjective experience of pain in their neck or shoulder. It is difficult to argue that there is particular expertise on the question of the subjective experience of pain. Indeed, as the hon. Member for Enfield, Southgate suggested, it is impossible for anyone—whether they are a Minister, a judge or a doctor—to suggest that the money that is paid can remove the pain. The pain remains. Money paid in general damages is intended simply as an acknowledgement of the existence of pain, suffering or loss of amenity. It cannot, as would be the case with special damages, remove the pain itself. On that basis, I politely request that the amendments be withdrawn and the clause be accepted.
Gloria De Piero
We do not accept the Minister’s arguments, so will divide the Committee.
Question put, That the amendment be made.
Gloria De Piero
I beg to move amendment 19, in clause 6, page 5, line 37, after “injuries” insert—
“provided by an accredited medical expert selected via the MedCo Portal”.
This amendment, together with Amendments 20 and 21, would ensure that any medical evidence of a whiplash injury must in all cases be provided by a person registered on the MedCo portal website.
The Chair
With this it will be convenient to discuss the following:
Amendment 20, in clause 6, page 6, line 1, leave out subsection (3)
See explanatory statement for Amendment 19.
Amendment 21, in clause 6, page 6, line 22, at end insert—
‘(7) In this section, the “MedCo Portal” means the website operated by Medco Registration Solutions (company number 09295557) which provides a system for the accreditation of medical experts.’
See explanatory statement for Amendment 19.
New clause 3—“Recoverability of costs in respect of advice on medical report, etc.—
‘(1) For the purposes of civil procedure rules, the costs recoverable by a claimant who recovers damages in a claim for a relevant injury which is (or would be if proceedings were issued) allocated to the small claims track include the costs of the items set out in subsection (2).
(2) The items are—
(a) legal advice and assistance (including in respect of an act referred to in paragraph (a) or (d) of section 6(2)) in relation to the quantum of damages in the light of a medical report or other appropriate evidence of injury; and
(b) in a case where liability for the injury is not admitted within the time allowed by any relevant protocol, legal advice and representation in relation to establishing liability.
(3) For the purpose of ascertaining the amounts recoverable in respect of those items, the claim is to be treated as if it were allocated to the fast track.
(4) In this section “relevant injury” means an injury which is an injury of soft tissue in the neck, back, or shoulder, and which is caused as described in paragraphs (b) and (c) of section 1(4) (negligence while using a motor vehicle on a road, etc.), but does not include an injury in respect of which a tariff amount is for the time being prescribed under section 2.’
This new clause would ensure that a successful claimant is able to recover costs incurred for legal costs in respect of advice sought in relation to determining the quantum of damages following a medical report or the establishment of liability where it is in dispute.
Gloria De Piero
The amendments would ensure that any medical evidence of a whiplash injury must in all cases be provided by a person registered on the MedCo portal website. The Government say in clause 6 that cases should never be settled until the claimant has been medically examined. We fully agree, but amendments 19 to 21 would go even further. The Government say that the Lord Chancellor can decide what constitutes appropriate evidence, but it is very simple. The only form of appropriate evidence must come from a proper doctor registered as such on the portal website of MedCo, the umbrella organisation through which doctors in all personal injury cases are currently chosen. Why on earth would the Government not go through the currently accepted route for all other personal injury cases and the same process that insurers accept in every other case? The only people to gain from offers without a medical are defendant insurers who get cases off their books at an undervalue.
Lawyers for the claimant are obliged to put any offer to the client. Reputable lawyers will always advise against acceptance until there is a medical, but some clients are desperate and reject their advice. Unsurprisingly, and heartbreakingly, it tends to happen when a client’s sick pay runs out or perhaps near Christmas when people have been off sick and are desperate. Any downgrading of the requirement for a medical certificate by a medical registered doctor—this is the risk without the amendments —is just another way that vulnerable workers who have to take time off because of their injuries could be harmed by insurers who make record profits.
We suspect that the vagueness about what qualifies as proper medical advice might be an attempt to allow the use of physiotherapists for the evidence. Insurers have long pushed for that. Physiotherapists are great people doing wonderful work in an extremely important part of post-accident rehabilitation, but they are not doctors and are not able to assess and provide a long-term prognosis.
We fear that if we do not specify in the Bill who should provide the medical reports we will have injured people being prescribed a couple of sessions of physiotherapy and then being described by the insurers as malingering when they are not back to full health following the limited treatment, when in reality their condition might require far more intense rehabilitation efforts over a longer period. In some cases, the insurers might see a financial gain to employing a physiotherapist or owning a rehabilitation company. Without the amendments, that would suggest the insurers control not only the payment of damages, but the medical process leading to the award. Let us avoid that conflict. Let us trust doctors and specify where a medical report should come from. Any deviation from the gold standard of a medical doctor would negate the good that is done by effectively banning the settlement of whiplash claims without medical evidence, as this part of the Bill attempts to do.
On new clause 3, the Government say that the cases they intend to sweep into the small claims track are minor, straightforward and simple. We do not think that that is so, or that the injured claimant left on their own to fight insurance companies—let us be in no doubt that insurers will fight—will think that their cases are either small or simple. The new clause would ensure that, at the very least, when the injured person gets a medical report, as the Government in clause 6 rightly say they should, they can get independent legal advice on what the report means in terms of the value of their claim, so that, if they remain fighting on their own, they settle at an appropriate sum. How else would they know what their case is worth?
The Government might say that insurers will not rip people off and that they always pay what is fair. If that is the case, they have nothing to fear in ensuring that the injured get advice paid for that reassures them that that is the case. There is a societal benefit. If people settle at an undervalue or their conditions are not properly recognised, they will fall back on the state—the NHS or the benefits system—and the taxpayer will foot the bill that should properly have been met by the negligent party. The polluter will end up not paying and we will all pay through our taxes.
The same principle applies to cases where the insurers do not admit liability. The Government think that, when a claimant chooses to fight a case, the injured person will have the confidence to fight on. Facing a denial of liability, the claimant will, the Government think, be equipped to fight on, but, without help, we do not think they will be.
Rory Stewart
I very strongly support the basic principles and philosophy of amendments 19 to 21. I have huge respect for MedCo—right hon. and hon. Members will be aware that it is a non-profit portal designed to select at random an expert witness in order to testify in whiplash injury claims. I can reassure them that the intention is for MedCo to be the appropriate channel through which advice is sought.
The only reason we have not put MedCo on the face of the Bill is to provide for the eventuality that, in 20 or 30 years’ time, an entity other than Medico might exist— as hon. Members will see in clause 6(4), we are specifying the form of evidence, the person, the accreditation and the regulations. That was on the advice of counsel, which has had strong experience over the last century, that defining a non-profit on the face of the Bill could cause massive challenges if something unforeseen happens to it. We absolutely agree that MedCo is the appropriate body to use at the moment. All the arguments made by the Opposition are accepted, but on counsel advice, we respectfully advise that it would be better to allow flexibility rather than defining MedCo on the face of the Bill, and therefore ask them to withdraw those amendments.
New clause 3 argues for an individual to be able to reclaim their legal costs while pursuing their whiplash claim. This is a fundamental point of debate and disagreement, and goes against the fundamental principle of the small claims court, the idea of which is that an individual should be a litigant in person and not in a position to recover their legal costs. The argument made is that, under the level proposed—which in the case of certain kinds of damages is £10,000, in relation to whiplash would be £5,000 and in relation to personal injury could be as much as £2,000—we believe that the nature of the claims, particularly with a medical report in place, should be relatively straightforward. We have made some concessions about the online portal and the roll-out, all of which, we think, makes it inappropriate to ask for the reclaim of legal costs.
Ellie Reeves
Are we not going to be in exactly the same situation we were with employment tribunal fees? For people pursuing claims, fees, whether they are court fees, legal fees or medical costs, will put people off pursuing claims and therefore undermine their access to justice. The Government were called out on this by the Supreme Court regarding employment tribunal fees and we seem to be going back down the same route.
Rory Stewart
This will be entirely different. The disagreement is only about whether one can employ a lawyer and recover the cost of the lawyer. The individual will be able to recover from the insurer the medical costs on the report they got—for example if they spent £140 going through the MedCo portal. The small claims court cost of registering the claim would also be recoverable. However, in the vast majority of cases at the moment—we consider that this will be true in the future—cases do not go to court at all. In the vast majority of cases, a claimant will get a medical certificate, follow the path of the online portal and the settlement will come without them having to proceed to court.
Jo Stevens
The Minister’s impact assessment, which I referred to on Second Reading, explicitly states that the measure will affect the number of people who will bring cases, and that the number of cases will go down. Will he comment on that please?
Rory Stewart
Absolutely. The Government’s contention is that some of the cases currently being brought forward are fraudulent or exaggerated claims motivated by a desire to get a payout when either an injury has not been experienced or the injury experienced was considerably less than claimed in court. We believe that, by reducing the level of tariffs that paid out and by removing the industry of lawyers whose costs can currently be reclaimed through the process, it will be less likely that an individual who has not suffered an injury will go through the inconvenience of seeking a medical report, and less likely that they will proceed to the small claims court or go through the online portal to receive payment for an injury that did not occur. They would not be supported and encouraged by the legal profession or, more likely, claims management companies in proceeding down that path.
Jo Stevens
Will the Minister clarify? Is he saying that, although his impact assessment states that the number of cases will go down, the measure will apply only to fraudulent cases? Is he saying that no genuine victim of injury will not pursue a claim because they are not able to recover their costs?
Rory Stewart
The impact assessment, which is based on an enormous amount of expert evidence and discussion, boils down to a pretty straightforward assumption about human behaviour. Under the proposed new system, if someone has a car crash and injures themselves, they will proceed to their insurance company, register the fact that they have genuinely injured themselves, be directed towards MedCo, which would provide a report, go to the online portal and, in an effective, efficient and transparent fashion, proceed towards a predictable tariff based on their medical reports. If the medical reports say that the prognosis is six months, a fixed tariff would be paid out.
The experts’ contention is that, if someone has a car crash and genuinely nothing happens to them, it would be unlikely, in the absence of a claims management company encouraging them to do so, that they will tell the insurance company that they have a whiplash injury, or be coached to mislead a doctor in the MedCo process to get some kind of report suggesting they have a whiplash injury. Therefore, somebody who either did not experience an injury or experienced an injury so minor that they were not interested in pursuing compensation would not proceed. We believe that, under the current system, the practice of some claims management companies is to encourage people who either have not experienced an injury or have experienced a considerably more minor injury to make a fraudulent or exaggerated claim. We believe that those claims will be not entirely excluded but reduced.
Bambos Charalambous
Does the Minister accept that there has to be a hearing to settle children’s claims, and that infant settlements require representation? Children often sue their parents if there has been a road traffic accident that is no fault of their own. Will he consider exempting them from the scope of the Bill? They require solicitors, because there has to be a hearing for there to be a settlement.
Rory Stewart
Perhaps we can return to that very interesting point on Report. It has not been raised in any of the amendments tabled so far, but I would be very interested to see an amendment tabled and to discuss the matter outside this Committee.
On the basis of the arguments I have made about MedCo, I respectfully request that the Opposition withdraw amendments 19, 20 and 21.
Gloria De Piero
Will the Minister say a bit more about the advice he has received from counsel and about why he will not accept the amendments?
Rory Stewart
It is pretty straightforward. MedCo is a non-profit organisation set up relatively recently as a portal funded by the insurance industry. We intend the Bill, like any law we pass, to have sustainability and resilience. Potentially, it will last 50 or 100 years. It is very difficult, looking forward over that period, to be confident that the exact portal or organisation by which doctors qualify to provide an assessment of whiplash will be called MedCo—it may be called something else. The measure provides the flexibility, through regulations from the Lord Chancellor, to define the form of evidence, the person, the accreditation and the regulation necessary to proceed. We think it would give a hostage to fortune to put the brand name of a specific non-profit on the face of the Bill. On that basis, I request that amendments 19, 20 and 21, and new clause 3, be withdrawn.
Civil Liability Bill [ Lords ] (Second sitting)
Tuesday 11th September 2018
(6 years, 3 months ago)
Public Bill CommitteesRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 September 2018 - (11 Sep 2018)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 8 - Question accordingly agreed to.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Chair
Members may remove their jackets if they wish. Will everyone ensure that their telephones are switched to silent? Tea and coffee are not allowed during sittings.
Clause 6
Rules against settlement before medical report
Amendment proposed (this day): 19, in clause 6, page 5, line 37, after “injuries” insert—
‘provided by an accredited medical expert selected via the MedCo Portal’.—(Gloria De Piero.)
This amendment, together with Amendments 20 and 21, would ensure that any medical evidence of a whiplash injury must in all cases be provided by a person registered on the MedCo portal website.
The Chair
I remind the Committee that with this we are discussing the following:
Amendment 20, in clause 6, page 6, line 1, leave out subsection (3).
See explanatory statement for Amendment 19.
Amendment 21, in clause 6, page 6, line 22, at end insert—
‘(7) In this section, the “MedCo Portal” means the website operated by Medco Registration Solutions (company number 09295557) which provides a system for the accreditation of medical experts.’
See explanatory statement for Amendment 19.
New clause 3—Recoverability of costs in respect of advice on medical report, etc.—
‘(1) For the purposes of civil procedure rules, the costs recoverable by a claimant who recovers damages in a claim for a relevant injury which is (or would be if proceedings were issued) allocated to the small claims track include the costs of the items set out in subsection (2).
(2) The items are—
(a) legal advice and assistance (including in respect of an act referred to in paragraph (a) or (d) of section 6(2)) in relation to the quantum of damages in the light of a medical report or other appropriate evidence of injury; and
(b) in a case where liability for the injury is not admitted within the time allowed by any relevant protocol, legal advice and representation in relation to establishing liability.
(3) For the purpose of ascertaining the amounts recoverable in respect of those items, the claim is to be treated as if it were allocated to the fast track.
(4) In this section “relevant injury” means an injury which is an injury of soft tissue in the neck, back, or shoulder, and which is caused as described in paragraphs (b) and (c) of section 1(4) (negligence while using a motor vehicle on a road, etc.), but does not include an injury in respect of which a tariff amount is for the time being prescribed under section 2.’
This new clause would ensure that a successful claimant is able to recover costs incurred for legal costs in respect of advice sought in relation to determining the quantum of damages following a medical report or the establishment of liability where it is in dispute.
Gloria De Piero (Ashfield) (Lab)
It is a pleasure to serve under your chairmanship, Sir Henry. The Minister had just concluded his remarks, and I had started to say that we would press the amendments in the group to a Division.
Question put, That the amendment be made.
Gloria De Piero
I beg to move amendment 17, in clause 8, page 7, line 15, at end insert—
‘(4A) The Treasury must, within one month of the passing of this Act, make regulations specifying that the Financial Conduct Authority is to require all insurers holding a licence to offer UK motor insurance to publish a report—
(a) on the loss cost savings achieved as a result of the provisions of Part 1 of this Act; and
(b) how, and the extent to which, such savings have been applied to reduce motor insurance premiums.
(4B) The first such report from insurers must cover the period of 12 months beginning with the first day of the month immediately after the commencement of Part 1 of this Act and must be sent to the Financial Conduct Authority by the end of the period of 15 months beginning with the commencement of Part 1 of this Act.
(4C) The Financial Conduct Authority will require further annual reports.
(4D) The Financial Conduct Authority, within the period of 18 months after the commencement of Part 1 of this Act, must make and publish a reasoned assessment of whether it is satisfied that every insurer covered by this section is passing on to customers any loss cost savings made by those insurers arising from Part 1 of this Act.
(4E) Regulations made under subsection (4A) must make provision for the Treasury to grant powers to the Financial Conduct Authority to enforce a requirement for insurers to pass on loss cost savings, achieved as a result of the provisions of Part 1, from insurers to consumers through a reduction in the cost of premiums if, after the period of 30 months following the commencement of this section, the Financial Conduct Authority advises the Treasury that such powers are necessary.”
This amendment would require the Financial Conduct Authority to require insurers to report on the savings they have made as a result of this Bill and the extent to which such savings have been passed on to insurance consumers.
The Chair
With this it will be convenient to discuss the following:
Government new clause 2—Report on Effects of Parts 1 and 2.
New clause 6—Passing on savings made by insurers.
‘(1) Any savings made by any insurer as a result of anything in this Act or associated changes by regulation shall be passed to policyholders by way of reduced premium.
(2) The Financial Conduct Authority shall require all such insurers to submit an annual report detailing the savings they have made and how all those savings have been used to reduce policyholder premiums.
(3) In this section—
“savings” means any reduction in an insurer’s outlays in damages or costs paid in personal injury claims from the time this Act receives Royal Assent;
“insurer” means any insurer holding a licence to offer UK motor insurance;
“policyholder” means the holder of a policy of motor insurance with the insurer;
“premium reduction” means a reduction in the annual cost of a policy of motor insurance taken out by a policyholder.”
This new clause would require insurers to pass on to insurance consumers all savings made as a result of these changes.
Government amendments 5 and 6.
Gloria De Piero
Amendment 17 would require insurers to report on whether savings have been passed on to consumers. New clause 6 would require insurers to pass on all savings as a result of the changes to consumers. Unlike the Government’s over-wordy, over-complicated new clause 2, which I will discuss shortly, amendment 17 and new clause 6 are straightforward. They would require the Financial Conduct Authority to insist that insurers report on the savings they have made as a result of the Bill, and the extent to which such savings have been passed on to policy holders. There are no caveats, no get-outs—it is a straight-line requirement to do the right thing.
The Bill is the latest in a long line of Government handouts to the insurance industry. Back in 2012 in a closed-door meeting at No. 10, the insurers—in return for being able to set the fixed costs in the new fast track that the new Legal Aid, Sentencing and Punishment of Offenders Act 2012 introduced—promised to reduce insurance premiums. Since then, insurers have saved more than £11 billion; those are Association of British Insurers figures, not my own. As the Minister must concede, motor insurance premiums are higher now than they were then. So much for those promises.
In the Bill, the Government have, again, swallowed hook, line and sinker the insurers’ promises that they will reduce premiums. History is repeating itself. Insurers are making record profits: Direct Line’s profits in 2017 jumped by 52% to £570 million and Aviva recorded a profit of £1.6 billion. No, that is not all motor related, but in the case of Direct Line it will largely be so.
Meanwhile, insurer CEOs are on multimillion pound packages—Paul Geddes from Direct Line and Mark Wilson from Aviva made more than £4.3 million each in 2017. We are now discussing measures that will save the insurers £1.3 billion a year. Of that, the insurers might—if the wind is blowing in the right direction and none of the ludicrously large get-out clauses in new clause 2 apply—hand across up to 80%. Notably, the cuts to insurance premiums of £35 a year, which insurers are promising now, are much lower than the previous estimates of £50 per year promised in the Prisons and Courts Bill. The Government represent a party that claims to oppose red tape: here is a chance for them to avoid it. Let us have a simple clause that does what it says on the tin.
That leads me to Government new clause 2, which is as full of red tape as it is holes. Perhaps my most fundamental question to the Minister is this: what is wrong with the word “will”? The new clause is peppered with the word “may”. If the Government are genuinely committed to ensuring that savings are passed to consumers, why do they not insist that that happens? Paragraph 3 includes provision for all kinds of ways in which, by regulation, insurers should provide information. Is there any reason why that information should not be made publicly available?
Paragraph 4 is a catalogue of reasons why insurers could wheedle out of being transparent and evade passing on the very substantial savings that the Government’s impact assessment makes clear they will be making. The truth is that all the Government have managed to extract from the insurers, who stand to gain massively from this Bill, is a vague promise that they will pass on savings.
Embarrassed by the lack of hard evidence for a commitment, the Government have tabled this new clause, which is riddled with get-outs and opportunities for insurers to worm their way out of the flimsy commitments they have made. We know—and if the Government are honest, so do they—that insurers will seek to avoid paying the savings that they make back to policy holders. That is what happened when they last made promises in 2012. Given the weakness of the new clause, that is what will happen again.
In truth, the Government have rolled over and the new clause is simply a fig leaf to cover their embarrassment. The answer, I suggest, is to include a simple clause that—and I use a phrase from Conservative Back Benchers on Second Reading—will
“hold the insurance industry’s feet to the fire.”—[Official Report, 4 September 2018; Vol. 646, c. 111.]
Our new clause would mean that any savings made by any insurer as a result of anything in this Act, or associated regulation, will be passed to policy holders by way of reduced premiums. What could be simpler? The Minister may notice that our proposed new clause quite deliberately refers to
“savings made…as a result”
of changes by this regulation.
The Government have refused to include in the Bill the small claims changes that they propose; we will come back to that issue later in our other amendments. What is crucially different between the Government’s new clause 2 and our new clause 6 is that our new clause is not only simpler but mentions the savings that insurers will make from the small claims changes.
In calculating the £1.3 billion in savings that the insurers will make every year, the Government’s impact assessment includes the savings created by the increase in the small claims limit as a result of the so-called wider package of measures. For the Government not to include the savings made from the small claims limit changes in their new clause 2 renders it virtually worthless, and undermines their much-vaunted and fundamental promise that motor insurance premiums will drop by £35 a year.
David Hanson (Delyn) (Lab)
It is a pleasure to serve under your chairmanship today, Sir Henry.
I know it is a long time ago, but I will take the Committee back, if I may, to 25 November 2015, when George Osborne, as he is now known, was the Member for Tatton and serving as Chancellor of the Exchequer. At that time, he said—it was recorded in Hansard:
“We will bring forward reforms to the compensation culture around minor motor accident injuries, which will remove… £l billion from the cost of providing motor insurance.”
And here is the crucial bit:
“We expect the industry to pass on this saving, so that motorists see an average saving of £40 to £50 per year off their insurance bills.”—[Official Report, 25 November 2015; Vol. 602, c. 1367.]
When this Bill was introduced to the House of Lords and subsequently to this place, the Ministry of Justice’s impact assessment indicated at first that the figure would now be £40, not £50—not between £40 and £50, but £40. However, when the general election was fought last year, the figure had miraculously gone from £40 to £35.
In October last year, one of the insurance companies that the Minister in another place, Lord Keen of Elie, has been fond of quoting—Liverpool Victoria or LV=—spoke. Caroline Johnson, director of third party and technical claims at LV=, spoke at the Motor Accident Solicitors Society’s annual conference in Sheffield, which must have been an important place to say this; it was not just said off the cuff, but at the conference. She said, “The £35 may or may not be achievable”.
I ask my first question today in support of the new clause tabled by my hon. Friend the Member for Ashfield and to start the testing of the Minister’s new clause. In his response, can the Minister give the latest Government assessment of what the £50/£40/£35/possibly-not-achievable £35 is as of today? We are expected to take on trust the figures that he has given.
There is no doubt that the insurance companies will save £1.3 billion a year. That figure has been accepted by the Government and the insurance companies, and I suspect that it will be cited again—not only by my hon. Friend the Member for Ashfield, but by others who will say that it is the saving, the prize, that the Government seek. My concern is not the insurance companies and the £1.3 billion; my concern is how much, if there are savings to be made in the areas we are concerned about, of that £1.3 billion will land in the pockets of those individuals who would then have lower premiums as a result.
I am very pleased to sit on the Justice Committee, just as I was very pleased to sit coterminously this morning with this Committee; I have to say that was very interesting. The Justice Committee carried out an investigation into this area and came to a conclusion as a whole—it was not just the Labour members of that Committee. It is chaired by the hon. Member for Bromley and Chislehurst (Robert Neill), who is a Conservative; it has a Conservative majority; and it has unanimous support for the recommendations it made in this very area. The Committee said:
“As obtaining insurance involves a commercial transaction with a private sector body...there is little that the Government can do to enforce lower premium rates without significant change to present policies.”
My question to the Minister is about his proposed new clause 2. There is something I cannot find in it—it may be hidden in there within the legalese—but, if it is, could he please put it in simple language for the Committee? What happens if this investigation proves that the insurance companies have made a saving of anything between nothing and £1.3 billion? What steps will the Government take at that stage to enforce their policy objective of ensuring that £50/£40/£35/possibly £35 goes into the pockets of individuals who pay the insurance companies?
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
Is it not the case that the best time for an assessment to be made would be in the first year following the changes—not years down the line?
David Hanson
My hon. Friend makes a valid point; it is one I had not thought of and I am grateful to him for bringing that to the Committee’s attention. If this saving is going to be made, it would be sensible to say whether it is made early on, because downstream, as my hon. Friend indicated, there will no doubt be a tapering.
To be honest with the Committee, the Minister is only proposing new clause 2 because he got done over in the other place by Members of the House of Lords and could not get the Bill through the House of Lords without this new clause. He got done over in the other place because the Justice Committee unanimously called for
“the Financial Conduct Authority to monitor the extent to which any premium reductions can be attributed to these measures and report back to us after 12 months.”
I go back to the all-party Justice Committee, chaired by a Conservative MP, with a Conservative majority, which said in its report on this Bill that there should be a report within 12 months. We have been helpfully reminded by my hon. Friend the Member for Brighton, Kemptown why we suggested that at the time: because we wanted to see the impact within 12 months.
On the amendment tabled by Lord Sharkey in the House of Lords, Lord Keen, the Minister dealing with this in the other place, said on Report:
“the Government are not unsympathetic to the underlying intention of Amendment 46, as tabled by the noble Lord, Lord Sharkey. The point is that having made a firm commitment, insurers should be accountable for meeting it.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1632.]
That is what this Minister’s colleague said in the House of Lords, and I do not disagree with it. I only say to the Minister that April 2024 seems a tad far in the future to secure the proposals that he is putting to the Committee today.
The Minister needs to say firmly to the Committee what he anticipates the savings to be now, how he will monitor what the insurance companies are making—not just now, but in the next five years—and how he will hold the insurance companies to account. How will he ensure that, whatever date we end up with—be it 1 April 2024 or, if the amendment of my hon. Friend the Member for Ashfield is accepted, as I hope it will be, an earlier date—they meet their obligations and give the money back to the people who are funding it in the first place?
The Minister of State, Ministry of Justice (Rory Stewart)
It is a great honour to serve under your chairmanship, Sir Henry. I am grateful to right hon. and hon. Members for bringing proposing the amendments and new clauses.
Effectively, as the right hon. Member for Delyn has pointed out, new clause 2 was introduced with a lot of influence from the House of Lords—it was driven by Opposition Members of the House of Lords to meet exactly the concerns raised by right hon. and hon. Members. Therefore, I am tempted to argue in my brief argument that amendment 17 and new clause 6 are, in fact, unnecessary. The noble Lords did a good job in new clause 2 of addressing many of the concerns raised in the debate, which is why the Government are keen to ask for the Committee’s support.
At the heart of this, the Committee will discover, is a fundamental disagreement about the nature of markets, which will be difficult to resolve simply through legislation. There are profoundly different views on both sides of the House about what exactly is going on in a market. Again and again, all the arguments—from the hon. Member for Jarrow (Mr Hepburn) right the way through to the eloquent speech by the right hon. Member for Delyn—rest on the fundamental assumption that every company, insurance or otherwise, in the country is simply involved in trying to charge their consumers as much as possible and provide as few services as possible, and that there is nothing to prevent their doing that.
Of course, what prevents companies from doing that ought to be competition. It does not matter whether that is the insurance industry or, to take a more straightforward question, why Tesco’s does not charge £50 for a loaf of bread and try to produce one slice. In the end, the decision on what premiums are charged will be driven by competition between different insurance companies. All the arguments, whether in relation to these or other amendments, are based on that fundamental misunderstanding. The Labour party is again effectively pushing for a prices and incomes policy. They are trying to get the Government to fix the prices of premiums and control the prices that insurance companies charge because they simply do not trust the Competition and Markets Authority, the FCA, the insurance industry or any other business to pass on savings to consumers.
David Hanson
With respect to the Minister, in this case the Labour party is just asking for confirmation of what the Government want to do. They said that they want to save £1.3 billion, and in November 2015 said that they would give back £50 as premiums. That figure has changed. All I am asking is this: what is their estimate of the figure today? The Minister should be able to give an estimate because he has done so on two previous occasions—in an assessment of the Bill’s financial implications in the Conservative party manifesto, and in the Chancellor’s statement to the House of Commons.
Rory Stewart
Unfortunately, something is being missed in the way the right hon. Gentleman is framing his arguments. He is suggesting that there is a fixed, stable situation—the Chancellor of the Exchequer offered £50, nothing changed, and now it is £35. If that were true, it would indeed be a disgrace, but the reality is that, following the negotiations that took place in the consultation and in the House of Lords, the savings that the insurance companies will realise and will be in a position to pass on to the man or woman paying the premium have been considerably reduced.
When the Chancellor of the Exchequer—[Interruption.] The right hon. Gentleman might be interested in listening to the answer rather than talking to somebody else. When the Chancellor of the Exchequer spoke, he of course suggested that all general damages would be entirely removed. His proposal was that there would be no general damages at all. It is therefore perfectly reasonable. If no general damages at all were paid, the insurance company’s savings would be considerably larger, and the savings passed on to the consumer might indeed have been £50.
Due to the very good work that the Opposition and the noble Lords put in, there have been a number of compromises to the Bill, which mean that the savings passed on to the insurers, and from the insurers in the form of premiums, will be considerably reduced. One of those compromises is that, whereas in the past there were going to be no general damages paid to anybody getting a whiplash injury of under two years, there is now a tariff for money to be paid out. As it gets closer to two years, the tariffs paid out will be much closer to the existing Judicial College guidelines, so the savings will be considerably less.
Bambos Charalambous (Enfield, Southgate) (Lab)
We have been here before with the Domestic Gas and Electricity (Tariff Cap) Act 2018, in which the Government fixed the energy price cap and said that the big energy companies would give money back to the consumers, even though the money is not as high as we expected. Then it was £100, and now it is about £70. Why does the Minister not want to do that with insurance companies?
Rory Stewart
That is a very good question. The hon. Gentleman and the right hon. Member for Delyn are essentially asking the same question. Indeed, that is what this whole debate is about. The question is about the extent to which the Government wish to interfere in the market to fix prices. As the hon. Member for Enfield, Southgate suggested, a very, very unusual and unprecedented decision was made about the energy companies following a suggestion originally made by the Labour party that we should get involved in fixing prices. That is something about which, from a policy point of view, we generally disagree with Labour because—this deep ideological division between our two parties goes back nearly 100 years—we are a party that fundamentally trusts the market.
The Financial Conduct Authority and the Competition and Markets Authority argue that the insurance companies are operating in a highly competitive market. The reason why we did not initially suggest that we need to introduce anything equivalent to new clause 2 is precisely that we believe that the market is operating well, and that the savings passed on to the insurance companies will be passed on to the consumers, as happens in every other aspect of the market. I have not yet heard a strong argument from the Opposition about why they believe that not to be the case. Logically, Opposition Members can be making only one argument: they must somehow be implying that the insurance companies are operating in an illegal cartel.
Rory Stewart
I give way to hear why the Opposition believe that is not the case.
Jo Stevens
The Minister has said that the Opposition want to fix the market and prices. He also mentioned trust, which is exactly what this is about, because we have been in this situation before. Previously, insurers promised to return savings to consumers and did not. Why is it different this time? Why does the Minister think we can take insurers at their word this time when they have not returned savings previously?
Rory Stewart
Recent evidence on the cost of motor premiums shows that, after the implementation of the last set of reforms, there was a flattening off in the increase in the insurance premiums that was lower than inflation. The reason we believe this mechanism works—this was all part of the evidence put forward by the Competition and Markets Authority—is that it is a very mobile market. Currently, 72% of policyholders have switched their motor insurance provider—it is not a static market where people do not move between providers, which gives a very strong incentive to compete on the premiums. Fifty per cent. of insurance customers are going to comparison websites to compare the premium prices.
Gloria De Piero
Does the Minister accept that, since the changes made in 2012, insurance companies have saved £11 billion?
Rory Stewart
I am not in a position to accept or reject that figure—I am not familiar with that figure and I am not clear how it has been arrived at. I am happy to look at that in more detail before Report stage of the Bill.
Craig Tracey (North Warwickshire) (Con)
The Minister mentioned the reforms of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, but is it not right that, in the two years following those reforms, insurers passed on £1.1 billion of savings, and that average premiums dropped by £50?
Rory Stewart
Again, the Competition and Markets Authority is our best guide. Its job is to look very closely at the operations of its industry. It believes that this is a very competitive industry, which is why it is confident that the reforms introduced led to savings that were passed on to customers and why it believes that the current reforms will lead to the same. If that does not happen, it would be interesting to hear Labour Members’ theories about why competition is not operating in this market and why they believe there is a cartel. If that is the argument they wish to make, they will be assisted and not impeded by the Government new clause, which will enable them to gather the information with the Treasury and the Financial Conduct Authority in order to make precisely that case.
Jo Stevens
Perhaps I can help the Minister on the figure that my hon. Friend the Member for Ashfield mentioned—the £11 billion of savings after the 2012 changes. That is an Association of British Insurers figure. That figure was saved in claims costs over six years, according to its evidence, but premiums are now higher than ever.
Rory Stewart
I will return to the fundamental disagreement between right hon. and hon. Members. We can all agree that there were significant savings to the insurance industry. We can all agree that some of those savings were passed on to customers and that premiums ceased to rise at the rate at which they had been. There is some disagreement between the two sides of the House about whether enough of those savings were passed on—we argue that the industry passed on sufficient savings—and whether premiums went up more than they should. However, without Government new clause 2, the evidence or information will not be available to people in order to make such arguments.
It is not enough to produce a general figure, saying, “Here is £11 billion, and this is how much was passed on in premiums.” That is why the new clause has no less than 11 subsections that detail the kind of data that would need to be extracted from the insurance industry by the date recommended in order to prove that case. I was asked why reporting would not be done annually. The answer, of course, is that a claim can be brought any time within three years of an accident. The date takes into account that the law is due to come into effect in 2020. We add three years to that for the claim, and then time for the data and evidence gathering in order to report in 2024.
David Hanson
If the Bill comes into effect in 2020 and we add three years, that is 2023. However, new clause 2(7) says:
“Before the end of a period of one year beginning with 1 April 2024”.
That means that the report may not be done until the end of March or April 2025. It may be published by the Government after that, and then there will be discussion. Therefore, even on the Minister’s timetable, we are talking about three years past the 2023 deadline that he indicated to the Committee a moment ago. He should reflect on that and table an amendment to his new clause on Report that brings forward the proposed date considerably.
Rory Stewart
The reason why I respectfully request that the Government amendments are supported and the Opposition amendments are withdrawn is that pushing for one-year rather than three-year reviews and attempting to price fix the result would leave the opposition amendments open to judicial review and create an enormous, unnecessary burden on the market. Our contention is that the market already operates—we have the Competition and Markets Authority to argue that that is the case—and, by introducing our new clause, we will be able to demonstrate that over time. It is a very serious thing.
I remain confident that, if insurance companies are compelled to produce such a degree of detail and information to the Financial Conduct Authority and the Treasury, they will pass on those savings to consumers because, were they not to, they would be taking a considerable legal risk. The industry initially resisted this move, and understands that it is a serious obligation.
Ruth George (High Peak) (Lab)
As the Minister said, the insurance companies have said that they will pass savings on to consumers, and the Government have been actively engaged in trying to ensure that all insurance companies sign up to a pledge to reduce premiums, which in itself is a way of fixing the market. However, if it will take insurance companies seven years from now to produce the information, from what date will premiums be reduced? When will consumers see payback from the policy?
Rory Stewart
We would expect, because of the nature of competition, for premiums to begin to reduce soon—almost immediately—as insurance companies anticipate the nature of the changes and move to drop premiums to compete with each other and attract new customers. In fact, following legislation in 2012, premiums dropped from £442 in 2012 to £388 in 2015.
Ruth George
If the Minister expects premiums to drop so soon, why can the Government not report to the House on those premiums dropping?
Rory Stewart
The premiums dropping will be assessed and published in the normal fashion. The requirement in new clause 2 is much more complex. The new clause requires a prodigious amount of information about all forms of income streams, the number of claims and the number of premium holders so the Treasury and the Financial Conduct Authority can develop a sophisticated and detailed picture in order accurately to address the concerns of Opposition Members that, over the period—particularly the three-year period that will be affected by the introduction of the Bill—insurance companies will not pass on savings to consumers. We believe they will, which is why we are comfortable pushing for this unprecedented step of gathering that information to demonstrate that the market works.
On that basis, I politely request that the Opposition withdraw their amendments and support Government new clause 2, which after all was brought together by Opposition Members of the House of Lords and others, and which achieves exactly the objectives that the Opposition have set out.
Gloria De Piero
The Minister talked a lot about where the Committee disagrees, but there are things we can all accept as fact—the facts that insurance profits are up massively and that these changes will save insurance companies £1.3 billion, for instance—and we all want premiums to come down. We believe only amendment 17 and new clause 6 will deliver that, so we seek to divide the Committee.
Question put, That the amendment be made.
Ellie Reeves (Lewisham West and Penge) (Lab)
I beg to move amendment 24, in clause 10, page 9, line 20, leave out from “SCHEDULE A1” to end of page 14, and insert—
“SCHEDULE A1
Assumed Rate Of Return On Investment Of Damages: England And Wales
Periodic reviews of the rate of return
1 (1) The Lord Chancellor must instruct the expert panel to review the rate of return periodically in accordance with this paragraph.
(2) The first review of the rate of return must be started within the 90 day period following commencement.
(3) Each subsequent review of the rate of return must be started within the 5 year period following the last review.
(4) It is for the Lord Chancellor to decide—
(a) when, within the 90 day period following commencement, a review under sub-paragraph (2) is to be started;
(b) when, within the 5 year period following the last review, a review under sub-paragraph (3) is to be started.
(5) In this paragraph—
‘90 day period following commencement’ means the period of 90 days beginning with the day on which this paragraph comes into force;
‘5 year period following the last review’ means the period of five years beginning with the day on which the last review under this paragraph is concluded.
(6) For the purposes of this paragraph a review is concluded on the day when the Lord Chancellor makes a determination under paragraph 2 as a result of the review.
Conducting the review
2 (1) This paragraph applies when the Lord Chancellor is required by paragraph 1(2) or (3) to instruct the expert panel to conduct a review of the rate of return.
(2) The Lord Chancellor must instruct the expert panel to review the rate of return and determine whether it should be—
(a) changed to a different rate, or
(b) kept unchanged.
(3) The expert panel must conduct that review and make that determination within the 140 day review period.
(4) When deciding what response to give to the Lord Chancellor under this paragraph, the expert panel must take into account the duties imposed on the Lord Chancellor by paragraph 3.
(5) During any period when the office of Government Actuary is vacant, a reference in this paragraph to the Government Actuary is to be read as a reference to the Deputy Government Actuary.
(6) In this paragraph ‘140 day review period’ means the period of 140 days beginning with the day which the Lord Chancellor decides (under paragraph 1) should be the day on which the review is to start.
Determining the rate of return
3 (1) The expert panel must comply with this paragraph when determining under paragraph 2 whether the rate of return should be changed or kept unchanged (‘the rate determination’).
(2) The expert panel must make the rate determination on the basis that the rate of return should be the rate that, in the opinion of the expert panel, a recipient of relevant damages could reasonably be expected to achieve if the recipient invested the relevant damages for the purpose of securing that—
(a) the relevant damages would meet the losses and costs for which they are awarded;
(b) the relevant damages would meet those losses and costs at the time or times when they fall to be met by the relevant damages; and
(c) the relevant damages would be exhausted at the end of the period for which they are awarded.
(3) In making the rate determination as required by sub-paragraph (2), the expert panel must make the following assumptions—
(a) the assumption that the relevant damages are payable in a lump sum (rather than under an order for periodical payments);
(b) the assumption that the recipient of the relevant damages is properly advised on the investment of the relevant damages;
(c) the assumption that the recipient of the relevant damages invests the relevant damages in a diversified portfolio of investments;
(d) the assumption that the relevant damages are invested using an approach that involves—
(i) more risk than a very low level of risk, but
(ii) less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims.
(4) That does not limit the assumptions which the expert panel may make.
(5) In making the rate determination as required by sub-paragraph (2), the expert panel must—
(a) have regard to the actual returns that are available to investors;
(b) have regard to the actual investments made by investors of relevant damages; and
(c) make such allowances for taxation, inflation and investment management costs as the expert panel thinks appropriate.
(6) That does not limit the factors which may inform the expert panel when making the rate determination.
(7) In this paragraph ‘relevant damages’ means a sum awarded as damages for future pecuniary loss in an action for personal injury.
Determination
4 When the expert panel makes a rate determination, the expert panel must give reasons for the rate determination made.
Expert panel
5 (1) For each review of a rate of return, the Lord Chancellor is to establish a panel (referred to in this Schedule as an ‘expert panel’) consisting of—
(a) the Government Actuary, who is to chair the panel; and
(b) four other members appointed by the Lord Chancellor.
(2) The Lord Chancellor must exercise the power to appoint the appointed members to secure that—
(a) one appointed member has experience as an actuary;
(b) one appointed member has experience of managing investments;
(c) one appointed member has experience as an economist;
(d) one appointed member has experience in consumer matters as relating to investments.
(3) An expert panel established for a review of a rate of return ceases to exist once it has responded to the consultation relating to the review.
(4) A person may be a member of more than one expert panel at any one time.
(5) A person may not become an appointed member if the person is ineligible for membership.
(6) A person who is an appointed member ceases to be a member if the person becomes ineligible for membership.
(7) The Lord Chancellor may end an appointed member’s membership of the panel if the Lord Chancellor is satisfied that—
(a) the person is unable or unwilling to take part in the panel’s activities on a review conducted under paragraph 1;
(b) it is no longer appropriate for the person to be a member of the panel because of gross misconduct or impropriety;
(c) the person has become bankrupt, a debt relief order (under Part 7A of the Insolvency Act 1986) has been made in respect of the person, the person’s estate has been sequestrated or the person has made an arrangement with or granted a trust deed for creditors.
(8) During any period when the office of Government Actuary is vacant the Deputy Government Actuary is to be a member of the panel and is to chair it.
(9) A person is ‘ineligible for membership’ of an expert panel if the person is—
(a) a Minister of the Crown, or
(b) a person serving in a government department in employment in respect of which remuneration is payable out of money provided by Parliament.
(10) In this paragraph ‘appointed member’ means a person appointed by the Lord Chancellor to be a member of an expert panel.
Proceedings, powers and funding of an expert panel
6 (1) The quorum of an expert panel is four members, one of whom must be the Government Actuary (or the Deputy Government Actuary when the office of Government Actuary is vacant).
(2) In the event of a tied vote on any decision, the person chairing the panel is to have a second casting vote.
(3) The panel may—
(a) invite other persons to attend, or to attend and speak at, any meeting of the panel;
(b) when exercising any function, take into account information submitted by, or obtained from, any other person (whether or not the production of the information has been commissioned by the panel).
(4) The Lord Chancellor must make arrangements for an expert panel to be provided with the resources which the Lord Chancellor considers to be appropriate for the panel to exercise its functions.
(5) The Government Actuary’s Department, or any other government department, may enter into arrangements made by the Lord Chancellor under sub-paragraph (4).
(6) The Lord Chancellor must make arrangements for the appointed members of an expert panel to be paid any remuneration and expenses which the Lord Chancellor considers to be appropriate.
Application of this Schedule where there are several rates of return
7 (1) This paragraph applies if two or more rates of return are prescribed under section A1.
(2) The requirements—
(a) under paragraph 1 for a review to be conducted, and
(b) under paragraph 2 relating to how a review is conducted, apply separately in relation to each rate of return.
(3) As respects a review relating to a particular rate of return, a reference in this Schedule to the last review conducted under a particular provision is to be read as a reference to the last review relating to that rate of return.
Interpretation
8 (1) In this Schedule—
‘expert panel’ means a panel established in accordance with paragraph 5;
‘rate determination’ has the meaning given by paragraph 3;
‘rate of return’ means a rate of return for the purposes of section A1.
(2) A provision of this Schedule that refers to the rate of return being changed is to be read as also referring to—
(a) the existing rate of return being replaced with no rate;
(b) a rate of return being introduced where there is no existing rate;
(c) the existing rate of return for a particular class of case being replaced with no rate;
(d) a rate of return being introduced for a particular class of case for which there is no existing rate.
(3) A provision of this Schedule that refers to the rate of return being kept unchanged is to be read as also referring to—
(a) the position that there is no rate of return being kept unchanged;
(b) the position that there is no rate of return for a particular class of case being kept unchanged.
(4) A provision of this Schedule that refers to a review of the rate of return is to be read as also referring to—
(a) a review of the position that no rate of return is prescribed;
(b) a review of the position that no rate of return is prescribed for a particular class of case.”
This amendment would require that the discount rate was set by the expert panel, not the Lord Chancellor.
The Chair
With this it will be convenient to discuss the following:
Amendment 22, in clause 10, page 10, line 13, at end insert—
“( ) the expert panel established for the review;”
This amendment, together with Amendment 23, would require the Lord Chancellor to consult the expert panel before the initial discount rate determination, rather than just the subsequent ones as currently required.
Amendment 23, in clause 10, page 10, line 21, at end insert—
“( ) The expert panel must respond to the consultation within the period of 90 days beginning with the day on which its response to the consultation is requested.”
See explanatory statement for Amendment 22.
New clause 5—Review of assumptions on which calculation of the personal injury discount rate is based—
“(1) Within 3 years from the date on which this Schedule comes into force, the Lord Chancellor must arrange for the expert panel to review the assumptions on which the personal injury discount rate is based, and review how investors of relevant damages are investing such damages.
(2) The review must report to the Lord Chancellor whether the assumptions on which the personal injury discount rate is based should be changed and set out recommendations.”
This new clause would require the Lord Chancellor to arrange for the expert panel to conduct a review of the assumptions on which the discount rate is based in light of how claimants are in practice investing their compensation.
Clause stand part.
Ellie Reeves
The personal injury discount rate is a pivotal part of the compensation process. It must be carefully reviewed, calculated and set. The rate is critical as it helps to determine what an injured person receives following what can often be life-changing injuries. Damages are paid to individuals, usually as a lump sum, to account for the losses caused by an injury. The level at which the personal injury discount rate is set is based on assumptions about the risk of the recipient’s investment of the damages they are awarded, which helps to ensure that any future market fluctuations are accounted for. The rate ensures that recipients ultimately receive the level of compensation that was intended and do not enter a state of extreme over or under-compensation.
The need for the rate to be set correctly is clear. An individual involved in a major car crash who breaks their back and may as a result never work again might need to adapt their home and pay for care, and might have loss of earnings. When they receive their compensation as a lump sum, they would need to invest it. At present, injured individuals are treated as very risk-averse investors, rightly so given the impact that a major injury would likely have on one’s perception of risk. Also, they are not investors looking at the stock market. Their future quality of life depends on ensuring that they have enough money to live on and to provide important care. It is therefore imperative that the rate is set at the correct level to ensure that compensation awards are delivered as intended—based on the risk of the investments that the sums are put in.
Bambos Charalambous
Let us be clear what we are talking about with the discount rate: damages for people who have suffered catastrophic, life-changing injuries. The lump sum they receive is to last them their entire life and is to pay for urgent treatments, care, support, adaptations—a whole host of things. We need to be very careful how we deal with this, as very small variations in the discount rate can have serious impacts.
As an example, I have been advised by a leading law firm that it settled a claim in 2015 for a client in her 30s who suffered cardiac arrest and irreparable brain damage due to negligence. She was awarded £9.95 million when the discount rate was 2.5%. That award was to pay for extensive medical treatments, childcare and live-in carers for the rest of her life. Had the claim been settled in 2017, when the discount rate was changed to -0.75%, it would have resulted in a settlement of £20 million.
Such cases are relatively few in number, but when they do occur, we must make sure that they are dealt with as precisely as possible, without leaving such large fluctuations to chance. We would all agree that the time between the setting of the two discount rates was far too long. I very much support a shorter period of time for that to take place. Someone who receives such a lump sum would surely choose to invest it in as low risk a manner as possible—they would not want any risk if possible—because it has to last them their entire life. The discount rate should be set on the basis that the investment will be very low risk.
In setting the discount rate, the Lord Chancellor is given wide-ranging discretion. That opens up potential for other factors to influence the Lord Chancellor, which could adversely impact the compensation received by someone who has suffered catastrophic injuries. We need to be clear about the reasons why the Lord Chancellor will be setting the rate. As my hon. Friend the Member for Lewisham West and Penge mentioned, the Justice Committee recommended setting up an independent panel of experts to advise the Lord Chancellor on setting the rate. It also recommended that the panel’s advice be published in full. The Bill has removed that transparency. I have grave concerns about the reasons for that and how the rate will be set. We need to know how the rate has been set. When the Bank of England sets interest rates, it has a panel of experts and it gives reasons why. A similar system should apply here.
I support the amendments and new clause. It would be right and proper for the power to be taken away from the Lord Chancellor and for the rate to be set by an independent panel of experts, at regular periods.
Rory Stewart
I have enormous sympathy for the amendments, in particular the arguments on amendments 24, 22 and 23. As the hon. Member for Lewisham West and Penge and the hon. Member for Enfield, Southgate have clarified, we are dealing here with people who have suffered catastrophic, life-changing injuries and we have a very particular responsibility, particularly since some of those people can be immensely vulnerable. They can include children who have catastrophic, life-changing injuries. We all have an obligation to ensure that the principle of 100% compensation is met.
The discount rate can seem a slightly technical mathematical formula. It is there to try to hedge effectively against inflation and the expected rate of investment returns in setting an award. As the hon. Member for Enfield, Southgate pointed out, a shift in the discount rate could mean a difference between an award of £10 million and an award of £20 million—a very significant difference.
In setting the discount rate, our first obligation has to be to the very vulnerable individuals who have suffered a catastrophic or life-changing injury. We need to ensure that they are able to make an investment that does not carry substantial risk. We cannot guarantee everything because inflation and markets can move. Insofar as we can do so in advance, we should attempt to arrive at a rate that fairly reflects the likelihood of their getting the compensation that it was anticipated they would receive from the judge. That means that we should not aim to chase a median rate. We should aim to chase a rate on the basis of advice from the Government Actuary and later from the expert panel, to determine the fair rate of return.
In that case, why are the Government challenging amendments 24, 22 and 23? The answer is that amendments 22 and 23 reflect the original position of the Government on the Bill, so we are slightly going round in circles. We had originally suggested in the version of the Bill that we presented to the House of Lords that the Lord Chancellor should consult the expert panel before setting the rate. Under pressure from Opposition Members in the House of Lords, in particular Lord Sharkey, the Lords pushed us into a position where we agreed that, instead of an expert panel, it should be the Government Actuary, working with the Lord Chancellor, who set the first rate.
The argument made by the Lib Dem peer and backed by others, including Lord Beecham, was that the problems for the NHS caused by the discount rate are so extreme and the costs on the public purse so extreme, that the first change in the discount rate should happen relatively rapidly, on the advice of the Government Actuary. Were we now to reject that amendment, which we accepted after long negotiation in the House of Lords, we would have to go back to the drawing board and set up the expert panel again, leading to a very significant delay, which would impose costs on the NHS.
We are in the ironic position that the Opposition are now proposing as amendments the original Government position, which the Opposition struck down in the House of Lords. We are slightly in danger of going round in circles. We are where we are and, given the problems of time, I suggest that the pragmatic compromise is that the Government Actuary, who is an independent individual with enormous expertise, works with the Lord Chancellor on the first setting or the rate, and that for subsequent settings of the rate, the expert panel comes in, as the House of Lords recommended.
That brings us to the lengthy amendment 24, which the hon. Member for Lewisham West and Penge introduced with great eloquence. That essentially argues that the rate should be set by the expert panel alone and not by the Lord Chancellor. We disagree fundamentally with that because the expert panel and the Government Actuary would argue that it is not their position to set the rate. It is their position to provide actuarial advice on different investment decisions that could be made, the likely rates of inflation and the likely rates of return.
Ultimately, a Minister accountable to Parliament should set that rate, because they have to balance some very different issues: our obligation towards vulnerable people who have suffered catastrophic life-changing injuries and our obligation on the costs to the national health service, which run into billions of pounds, and balancing these different public goods.
It simply would not be fair to expect an actuary to make those kinds of political and social decisions. It is entirely appropriate to expect actuarial experts to provide the expert advice on what the range of options would be, and to reassure individuals that the Lord Chancellor is not likely to make a decision that would have a significant negative impact. It is only necessary to look at what the Lord Chancellor did two years ago in setting the rate of -0.75%. If it had been the case that the Lord Chancellor was fundamentally driven by Treasury calculations and was not interested in defending the vulnerable individual, they would not have moved the rate from 2.5% to -0.75%, effectively doubling the compensation paid. The Lord Chancellor, in setting this rate, on the advice of the expert panel, will be acting as the Lord Chancellor, not as the Secretary of State for Justice.
Bambos Charalambous
The Minister said there was a big change when a previous Lord Chancellor set the rate at -0.75%. I wonder what advice and from whom she received in setting that rate. Clearly, she would have had some advice, rather than plucking that figure out of the air. I wonder what the situation is now.
Rory Stewart
At the moment, the advice received would be from actuaries. Ultimately, we commission the Government Actuary’s Department voluntarily to provide the best advice on what the rate should be. It then arrives at a gilt rate, which drove us towards -0.75%. The Bill puts the role of the Government Actuary into law, so it is no longer voluntary but compulsory. It will be obligatory for the Lord Chancellor to consult, and in future there will be a broader expert panel around the Government Actuary.
Gloria De Piero
My learned and experienced colleagues have spoken in great detail about our issues with the amendments, so I do not anticipate making a long speech. I wholeheartedly concur with the comments that my hon. Friend the Member for Lewisham West and Penge made about the importance of periodical payment orders and a proper, timely review of the personal injury discount rate. As everybody who has contributed has said, we are talking about the most seriously injured. They cannot and must not be let down by our playing politics or by insurers seeking to save money.
In amendments 22 and 23, we say that, if an expert panel is appropriate for subsequent reviews, why should not expert opinion from the panel be appropriate for the initial determination of the rate of return? That is why we will press them to a Division.
Ellie Reeves
I thank the Minister for his response to the points that I made. For the reasons that I and my hon. Friend the Member for Enfield, Southgate set out, I want to press amendment 24 and new clause 5 to a Division.
Question put, That the amendment be made.
Gloria De Piero
I beg to move, That the clause be read a Second time.
New clause 1 deals with one of the most important effects of this package of measures. It says that the whiplash small claims limit can increase only in line with inflation based on the consumer prices index. It specifies that the limit can increase only when inflation has increased the existing rate by £500 since it was last set.
The Government have been disingenuous in trying to sneak through these changes to the small claims track limit by using delegated legislation, which restricts the proper scrutiny that such significant changes deserve. With the new clause, we ask the Government to do the right thing and to put it on the face of the Bill, enshrining the terms that a plethora of experts agree on: the use of CPI over the retail prices index when it, and using 1999 as a start date for any recalculation of the limit for a small claims track.
The White Book that I showed the Minister shows that there was a 20% increase in the small claims limit in 1999 when special damages were removed from the calculation of the limit. Lord Justice Jackson, in his “Review of Civil Litigation Costs: Final Report” said that the only reason to increase the personal injury small claims limit would be to
“reflect inflation since 1999. As series of small rises in the limit would be confusing for practitioners and judges alike.”
He made it crystal clear that the limit should remain at £1,000 until inflation warrants an increase to £1,500.
The Government admitted to me this morning that there is a difference of opinion in their own ranks about which of these years should be the benchmark. We say again that they must listen to the Lord Justice Jackson and the Justice Committee chaired by one of their own, the hon. Member for Bromley and Chislehurst (Robert Neill), who agrees with him. We should state on the face of the Bill that 1999 must be the start date for any recalculation of the small claims limit, not 1991. The Government accepted all the key recommendations in the Jackson report save the recommendation that there should be an increase in the small claims limit to £1,500 only when inflation justifies it.
To turn to another aspect—the Government have admitted that it has caused a dispute among Ministers—I want to make the case, as I have done before, that CPI and not the RPI is the correct measure to apply for inflation. It seems that the Government use RPI when it suits and use CPI when it suits. CPI is what we use for the pensions and benefits paid to injured workers while they are pursuing justice for that injury through the claim. Even the Chief Secretary to the Treasury agrees with me. When asked at the House of Lords Economic Affairs Committee whether she agreed that RPI was an inadequate measure, she said:
“We certainly agree that it is not the preferred measure of inflation. CPI is a much better measure of inflation… we agree that it is not the preferred method, and we are seeking to move away from RPI”.
Why are we moving towards it here? The Government say they wish to apply RPI to the small claims limit because RPI is applied to updating damages—the same damages that they are taking an axe to with the new tariff.
Perhaps some in the Conservative party are persuaded, like me, that CPI is the best option, because of yet another expert who has lined up to say so. On 30 January 2018, the Governor of the Bank of England, Mark Carney, said:
“At the moment, we have RPI, which most would acknowledge has known errors. We have CPI, which is what virtually everyone recognises and is in our remit.”
It is perfectly clear that we need to enshrine CPI as the key measure on the face of the Bill. The amount of £1,000 from 1999 would now be worth either £1,440 if CPI is applied, or £1,620 if RPI is applied. Lord Jackson said that it should not go up to £2,000, as the Government suggests, until inflation warrants it.
I trust the Minister will not be as dismissive as Lord Keen was when he said in his evidence to the Justice Committee:
“We do not feel that there is a material difference between setting it at £1,700 today and seeing it drop behind inflation next year, and setting it at £2,000 without the need to review it again for a number of years.”
Try telling the nurse, the caretaker or the bus driver that there is no material difference between £1,700 and £2,000. For those on real wages, that has a real impact.
Rory Stewart
Relatively rapidly, I would say that we have five types of disagreement with the amendments. Broadly speaking, those are political, philosophical, economic, financial and constitutional. The political disagreement is that the amendment would go to the heart of the Bill. The entire concept of the Bill is to try to effect a change in the current practice and process around whiplash claims by moving the claim limit to £5,000. That is part of the entire package—the tariffs and small claims limits are related to that.
Philosophically and fundamentally, we are not arguing that the shift to £5,000 is fundamentally a question of inflation. There are many other reasons why the small claims limit has been moved in the past. Indeed, in relation to some types of claim, as you will be aware Sir Henry, as one of our learned friends, some of the claims have been moved to £10,000, which goes a long way beyond inflation.
Largely, the driver of whether or not something is on a small claims track is to do with the nature of the claim, not the nature of inflation. However, if we worked on the narrow question of inflation, the Judicial College guidelines are currently on RPI as opposed to CPI. I respect the arguments that the hon. Member for Ashfield made but that is not the fundamental argument the Government are making.
The amendment would have curious financial implications. It would create a strange syncopated rhythm, whereby movements in CPI are not necessarily reflected in the triennial review except in £500 increments which, over time, mathematically will lead to peculiar results.
The fundamental reason we oppose the amendment is the final argument I mentioned, which is constitutional. This is business for the Civil Procedure Rule Committee, as it always has been, and it is not suitable to put in the Bill. On the basis of those political, philosophical, economic, financial and constitutional arguments, I respectfully request that the amendments be withdrawn.
Robert Courts (Witney) (Con)
I want to make a few brief comments. I entirely understand the force of the comments made. As someone who started his practice in the small claims court before progressing to other courts, I have seen how they work. I have a couple of pertinent points—the Minister alluded to the first. For some very complicated cases, particularly commercial ones, there are already limits of £10,000. As other Members who have practised will realise, the fact that someone is in a small claims court and not represented does not mean that they are completely unassisted. The district judges who hear those claims are solicitors or barristers and are extremely competent and experienced in their own right. Therefore, there is every reason to believe that they will be able to hear those claims, which will have justice as their case is heard.
Jo Stevens
I take the hon. Gentleman’s point but judges are not there to represent in that case, whereas a solicitor would be there to represent. Does he agree that he is comparing apples with pears?
Robert Courts
The hon. Lady is absolutely right. I know she has a long history of practising, as do I. That is, of course, absolutely correct, but it does not mean that they are simply left to sink or swim on their own. I have seen countless cases in my practice where a district judge, although not representing someone, clearly points out arguments that may wish to be made. District judges frequently bend over backwards to ensure that the correct points are made by claimants. Although that is true and I accept the force of the hon. Lady’s point, I suggest that the overall thrust of enabling justice, but at a reasonable and proportionate cost, is being addressed.
Ellie Reeves
Is it not the fact that district judges increasingly have to assist litigants in person when people cannot get legal representation, and that that is putting a huge burden on the courts and district judges? That is not their role but they are increasingly having to do that, which puts an extra burden on them and increases court costs.
Robert Courts
The hon. Lady makes an excellent point. Clearly, cases where judges have to assist claimants are likely to take longer. However, this comes down to ensuring that claimants in cases at the lower end of the scale—I do not for a moment downplay the seriousness of people having been hurt in this way—can be heard at proportionate cost, and that the court’s resources, particularly for the payment of costs, go to cases at the higher end. Ultimately, the costs burden is what denies access to justice.
Ruth George
Is it not the case that the district judges set out in their response to the Government consultation back in 2015 that courts would become clogged with litigants in person if this change were made? It simply will not be possible for district judges to support those litigants given the number of claims. Have Government Members read that powerful submission and listened to the arguments of those judges?
Robert Courts
Although I understand the arguments made by district judges, I have faith in their ability to deal with cases efficiently, because I have seen that happen so often. In an ideal world, I would of course prefer everyone to be legally represented. That would be more efficient and would mean that people had someone to argue for them. However, it is not practical within the costs regime under which we live.
Ruth George
I spent more than 20 years working for the Union of Shop, Distributive and Allied Workers. In many claims involving road traffic accidents and workplace injuries, claimants were referred by their union to a solicitor who gave them the support they needed to bring a case. As the hon. Gentleman set out, lawyers are experienced and often give claimants the advice they need about whether they can take a claim forward or whether that is not worth doing, and therefore protect district judges and the court system. Projections show that there will be an extra 36,000 cases a year in the small claims court. With the best will in the world, district judges, who are already struggling, will not be able to cope with that additional workload. That is what the district judges themselves said in response to the consultation. [Interruption.] They said it whether the Minister chooses to shake his head or not.
Many younger claimants and those who do not have experience of dealing with the legal system will find it much harder to bring a case themselves. This is not just a question of compensation up to the level we are discussing for minor cases. We have debated the figure for general damages but, as the Minister said, there are exceptional circumstances payments and compensation for loss of wages on the back of that, so an individual’s total claim may be much higher than the limit on small claims. I note that even someone with a claim for a whiplash injury that lasted up to two years will fall under the £5,000 small claims limit. Even someone who suffered an injury that prevented them from working for two years will not be able to take their case to the general court, but will have to represent themselves in the small claims court. The associated loss of wages may have a huge impact on their life and wellbeing.
I hope the Minister looks again at this measure, which will severely disadvantage people who are not able to take claims through themselves. People often need a lawyer to support them. That would make the system more efficient and effective, and that is what we argue for.
Question put, That the clause be read a Second time.
Ellie Reeves
I beg to move, That the clause be read a Second time.
To understand the importance of new clause 4, we must understand the significance of the use of periodical payments to compensate those who have been injured through negligence, often catastrophically, with little or no capacity for work and with considerable care costs.
More often than not, successful claimants are paid a lump sum, which is intended to compensate them for the rest of their life. However, the benefits of periodical payments, rather than a lump sum, are threefold. First, periodical payments are index-linked so they go up in accordance with rising costs of living or care. Secondly, in such cases, there are often arguments about life expectancy. If the court accepts that a victim of a catastrophic injury is likely to live until 42 but medical advances mean that they actually live until 80, a lump sum will run out many years earlier. With periodical payments, the injured person is compensated every year for the rest of their life. Thirdly, receiving an annual periodical payment rather than a lump sum means that injured people do not have to make difficult investment decisions and, equally, it removes the risk that they will spend the money all at once.
The setting of the discount rate is highly relevant to periodical payments. When the rate stood at 2.5%, it was far more attractive for defendants to pay a lump sum that was discounted by 2.5% than to pay index-linked annual payments. That meant that in all but the most serious cases, periodical payments often met huge resistance from defendants. A rate that assumes a much lower level of investment risk by injured people may well result in an increase in the use of periodical payments, particularly in cases not at the most catastrophic level where resistance from defendants has been greatest. The benefits to the injured person are clear, and the benefits to the state of not having to pick up the bill for care or housing, if and when the money runs out, are obvious.
On Second Reading, the Minister said that he welcomed the use of periodical payments. Can he tell us the percentage of personal injury claims in which they are used? It is my understanding that the figures are astoundingly low, often due to resistance from defendant insurers. New clause 4 makes it incumbent on the Civil Justice Council, with its expert knowledge, to review the impact of part 2 and the discount rate on the prevalence of periodical payments being awarded. If we agree that periodical payments are a good thing, surely we can agree that their use must be monitored so that appropriate and evidence-based action can be taken where necessary. This would benefit injured people and the Treasury alike.
Rory Stewart
Once again, I want to take this opportunity to praise the hon. Member for Lewisham West and Penge. The arguments for PPO are very strong. It is absolutely correct that the ideal thing is to give someone a PPO. The problem at the moment with receiving a large sum with a discount rate is that one could end up overcompensated or undercompensated. Overcompensation means a huge cost to the NHS and the taxpayer. Undercompensation can be catastrophic for one’s lifetime care costs. Rather than taking a lump sum, the PPO ensures that one gets the amount of money required to look after one’s costs. Therefore, we agree with the nature of this argument.
The disagreements with this amendment are technical. The 18-month period from Royal Assent is too short to take real effect. Regarding the basic question the hon. Lady has raised—whether the Civil Justice Council should look at the use of PPOs and the impact of discount rates on PPOs—we have written directly to the Master of the Rolls to request that the Civil Justice Council look at the use of PPOs. We remain open to doing that again, once the new review of discount rate is introduced.
It is absolutely right that we should encourage more uptake and challenge the insurance companies, which have said publicly that they want more use of PPOs, to ensure that more PPOs are given out. That is the best way to protect an injured person. There are some narrow cases where it is not appropriate—somebody may not have sufficient insurance or the financial weight to deliver a PPO—but when it is paid out, it ought to be paid and that is why we are grateful that, for example, the NHS continues to use the PPOs in the case of catastrophically injured children. I request that the hon. Lady withdraw the amendment.
Ellie Reeves
I thank the Minister for that response and, to some extent, his assurances. However, given that the Bill seeks to make big changes, if we are committed to periodical payments and their use, there should be a mechanism for review built into the legislation. I shall press the new clause to a Division.
Question put, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss new clause 8—Restriction on increase in small claims limit for relevant personal injuries suffered by people during the course of employment—
‘(1) In this section, the “PI small claims limit” refers to the maximum value (currently £1,000) of a claim for damages for personal injuries, specifically general damages, for which, in accordance with Civil Procedure Rules, the small claims track is the normal track.
(2) Civil Procedure Rules may not increase the PI small claims limit in respect of relevant injury claims to an amount above £1,000 for the first time unless—
(a) the Lord Chancellor is satisfied, and has certified in writing, that on the day the rules are to come into force, the value of £1,000 on 1 April 1999 adjusted for inflation, computed by reference to CPI, would be at least £1,500, and
(b) the rules increase the PI small claims limit to no more than £1,500.
(3) Civil Procedure Rules may not increase the PI small claims limit in respect of relevant injury claims on any subsequent occasion unless—
(a) the Lord Chancellor is satisfied, and has certified in writing, that on the day the rules are to come into force, the value of £1,000 on 1 April 1999 adjusted for inflation, computed by reference to CPI, would be at least £500 greater than on the day on which the rules affecting the previous increase were made, and
(b) the rules increase the PI small claims limit by no more than £500.
(4) In this section—
“CPI” means the all items consumer prices index published by the Statistics Board;
“relevant injury” means an injury which is an injury of soft tissue in the neck, back, or shoulder suffered during the course of employment which is caused as described in paragraphs (b) and (c) of section 1(4) (negligence while using a motor vehicle on a road, etc.);
“relevant injury claim” means a claim for personal injury that consists only of, or so much of a claim for personal injury as consists of, a claim for damages for pain, suffering and loss of amenity caused by a relevant injury, and which is not a claim for an injury in respect of which a tariff amount is for the time being prescribed under section 2;
“general damages” shall mean damages for pain, suffering and loss of amenity.’
This new clause would limit increases in the small claims track limit in relation to people who have suffered a whiplash injury during the course of their employment to inflationary rises in increments of £500 only.
Gloria De Piero
The Government have refused to allow the small claims changes, which will have a fundamental impact on access to justice for hundreds and thousands of injured people every year, into the Bill. New clause 7 is designed to ensure that vulnerable road users are exempted as the Minister has promised. New clause 8 would do little more than reflect the recommendations of Lord Justice Jackson in his civil justice review. The Minister agreed this morning that there had been a change to the small claims limit in 1999. New clause 8 says that 1999 is the date from which any change to the small claims limit should be calculated and that the increase should be by no more than £500 at any one time. As I have said, that reflects the recommendations of Lord Justice Jackson.
There is a difference between us on the appropriate level of inflation. We say CPI—the consumer prices index. There is absolute logic in that because that is the inflation rate applied by the Government to benefits paid to injured people. It is also, of course, the rate that the Governor of the Bank of England recommends.
Rory Stewart
Given that we are coming towards the end of the proceedings, I again pay tribute to right hon. and hon. Members on both sides of the Committee for the quality of debate. It has been quite testing personally: a lot of very learned friends have asked a lot of fundamental questions, ranging from inflation rates to the good challenges from my friend the right hon. Member for Delyn (David Hanson), who keeps me on my toes. I thank them very much for their various contributions.
With the final group of amendments, we come to questions that relate to some of the debates that we have had already, in different forms. This in effect is a subset of the arguments made on new clause 1. As right hon. and hon. Members will remember, new clause 1 involved an argument that the reductions should be made in relation to all personal injury claims. These proposals take the same arguments and apply them to two subsets of people who are injured: vulnerable road users and people injured in the course of employment. On both those things, there are some differences between us, again, on the correct level at which to set the rate, but there are also some important concessions that are worth bearing in mind. They were made in the House of Lords and in the subsequent process.
In relation, first, to people injured in the course of employment, personal injury claims that are not as a result of whiplash, we have listened very carefully to right hon. and hon. Members. They will remember that in the initial consultations there were suggestions about raising the limit to £10,000 or £5,000. The agreement has been that for non-whiplash-related injuries, it is kept at £2,000.
There is some discussion about whether it is correct to see that in terms of CPI or RPI—the retail prices index—but broadly speaking, it is not very significantly different from the rates that were set in the 1990s when inflation was applied, although there is some disagreement between the two sides of the House, to the extent of a few hundred pounds, on the extent of headroom put on top of inflation. There could be a broader argument, which was raised earlier, about the fundamental principle that compensation should be paid for the injury rather than on the basis of why somebody was present on the scene, whether in the course of employment or another activity. However, that goes beyond the scope of the amendment.
The real concession has been made in relation to vulnerable road users, which I hope hon. Members on both sides of the House will welcome. We listened carefully to representations made primarily not by people who own horses—although I remind hon. Members that there are more than a million horses in the United Kingdom, so it is not quite as much of a minority pursuit as some might like—but by cyclists, who led a strong campaign arguing that they are particularly vulnerable on the roads. They are: they are not encased in a sheet of metal. We accept that the same argument also applies in spades to pedestrians—as a proud pedestrian, I feel that very strongly—and to people on motorcycles, who are not encased in metal either.
We are delighted to confirm that vulnerable road users will be excluded in respect of the small claims limit and the Bill. On that basis, with many thanks to everybody for their prodigious and learned contributions, I politely ask that the amendment be withdrawn.
Gloria De Piero
I will disquiet the Minister one more time and press the new clause to a Division.
Question put, That the clause be read a Second time.
Rory Stewart
I beg to move amendment 7, in clause 14, page 16, line 6, leave out subsection (2).
This amendment removes the privilege amendment inserted by the Lords.
The amendment is procedural. It is a privilege amendment that changes subsection (2) of the short title. The House of Lords has said that nothing in the Act shall impose any charge on the people or on the public funds. Bringing it to the House of Commons means the Ministry of Justice should be liable for any charges to the funds. The House of Commons is able to take on the terms of the fund. This is a normal procedural amendment for when something comes from the House of Lords to the House of Commons, so we ask that Government amendment 7 is accepted.
Amendment 7 agreed to.
Clause 14, as amended, ordered to stand part of the Bill.
Bill, as amended, to be reported.
Civil Liability Bill [Lords]
Tuesday 23rd October 2018
(6 years, 1 month ago)
Commons ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 23 October 2018 - (23 Oct 2018)
15:00 - The House divided: - Ayes: 240 / Noes: 287 - Question accordingly negatived.
15:15 - The House divided: - Ayes: 243 / Noes: 288 - Question accordingly negatived.
17:31 - The House having divided: - Ayes: 243 / Noes: 298 - Question accordingly negatived.
19:00 - The House divided: - Ayes: 294 / Noes: 238 - Question accordingly agreed to.
Gloria De Piero (Ashfield) (Lab)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss new clause 2—Small Claims Track: Children and Protected Parties—
‘(1) The Small Claims Track Limit in relation to claims made by children and protected parties for whiplash injuries may not be increased unless the increase is to an amount which is not more than the value of £1,000 on 1 April 1999 adjusted for inflation, computed by reference to the consumer prices index.
(2) In subsection (1),
“children” means any person or persons under 18;
“protected parties” means any person who lacks capacity to conduct the proceedings;
“lacks capacity” means lacks capacity within the meaning of the Mental Capacity Act 2005’.
This new clause would limit increases in the small claims track limit for those suffering whiplash injuries to inflationary rises only, for people who are either children or people lacking capacity to make decisions for themselves (as defined in the Mental Capacity Act 2005).
Gloria De Piero
We are again confronted with the reforms in the Bill, which will cost the NHS at least £6 million a year and taxpayers at least £140 million a year, the Government admit. Even they accept that it will result in more than 100,000 injured people not pursuing a legitimate claim that they could pursue now; we say the figure is far higher. Insurers, meanwhile, will get an extra £1.3 billion of profit every year. The Government say that they will hand 80% of that to consumers in the form of reduced premiums, but they have said that before, and insurers have saved over £11 billion since the last Government reforms in this area, in the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Despite a brief dip in 2012-13, premiums are now higher than ever.
The Government have moved a little on the Bill, and in Committee the Minister confirmed what he intimated on Second Reading: that vulnerable road users will be exempted from both the Bill and the small claims limit. That is welcome. As Labour has done repeatedly throughout the process, we will attempt today to make the Bill fairer still by setting out some key amendments.
New clause 1 would ensure that the whiplash small claims limit could be increased only in line with inflation based on the consumer prices index, and it follows Lord Justice Jackson’s recommendation that increases should come in £500 increments and only when inflation justifies them.
One of the most disappointing aspects of this package of reforms is the Government’s attempts to sneak through key changes to the small claims track limit through the use of statutory instruments. Today we want to give those changes the scrutiny they sorely deserve and put them in the Bill.
Whereas the threshold for getting legal representation for personal injuries is currently £1,000, the Government are trying to raise it to £2,000 or £5,000, which will make a massive difference to someone injured through no fault of their own. That position is supported by a raft of experts, including some in the Minister’s own ranks—the Tory Chair of the Select Committee on Justice for one. The White Book, which I took the trouble of sharing with the Minister in Committee, shows that there was an effective 20% increase in the small claims limit in 1999 when special damages were removed from the calculation of the limit. I note that the Lord Chancellor conceded in his letter to the Chair of the Justice Committee dated 15 August 2018 that 1999 is the correct date from which to calculate an increase.
It is worth pausing at this point, since the Government now accept that there was a significant change in 1999, to understand what that change meant. An example is given in paragraph 26.6.2 of the White Book:
“a claim for £4,000 for loss of earnings and other losses, plus a claim for £800 for damages for pain and suffering, is a claim which would be allocated to the small claims track”.
In layman’s terms, a claim may be made for under £1,000 for pain and suffering, but when losses and expenses are added in it could be considerably greater. The example in the White Book suggests that, if an £800 pain and suffering award has a losses and expenses claim of £4,000, although the total value of the claim is £4,800, it still falls into the small claims track. We are talking about claims far in excess of the small claims limit.
Lord Justice Jackson, in his review of civil litigation costs, all the recommendations of which the Government accepted and implemented in the 2012 Act, said in paragraph 1.3 of chapter 19 of his 2009 review:
“Personal injuries litigation is the paradigm instance of litigation in which the parties are in an asymmetric relationship.”
In words that we all understand, this is David versus Goliath. Sir Rupert Jackson went on to say that
“the only reason to increase the Personal Injury small claims limit would be to reflect inflation since 1999”
and that
“I propose that the present limit stays at £1,000 until inflation warrants an increase to £1,500”.
He could not have been clearer, yet the Government appear to have plucked the proposed £2,000 limit out of thin air.
The new clause states that the CPI, which is used for the uprating of pensions and benefits paid to injured workers, should be used to calculate the small claims limit. Even the Chief Secretary to the Treasury agrees that CPI is the way to go. She said earlier this year to a House of Lords Committee:
“CPI is a much better measure of inflation…we are seeking to move away from RPI”.
The Governor of the Bank of England agrees, too. He has said:
“We have RPI, which most would acknowledge has known errors. We have CPI, which is what virtually everyone recognises and is in our remit.”
It is perfectly clear what we need to do: enshrine CPI as the key measure in the Bill.
Andy Slaughter (Hammersmith) (Lab)
I congratulate my hon. Friend on getting the Government to admit that the increases are arbitrary and not linked to inflation in any way. Is it not the case, therefore, that the only reason for the increases is to prevent injured people from getting representation and thereby preclude people with meritorious cases from getting the damages that they deserve?
Gloria De Piero
My hon. Friend is absolutely right. Even if we use RPI, the Government still do not get to their proposed £2,000 new small claims limit. Instead, using the flawed RPI from 1999 would take the £1,000 to roughly £1,700. That is what we on the Labour Benches suspect is going on here.
Chris Philp (Croydon South) (Con)
The hon. Lady is making an argument about whether RPI or CPI should be used, but is there not a bigger point here? For almost all claims generally, outside this area, the small claims track limit is £10,000. If we are to be consistent, is there not a case for making it £10,000, the same as everything else?
Mr Jim Cunningham (Coventry South) (Lab)
Surely the only gainers here are the insurance companies. Most people, because legal aid has been reduced, cannot afford solicitors.
Gloria De Piero
Exactly. I do not think anybody in this House will want to shed a tear for those insurance companies whose profits are going up and up. In 2017, profits for Direct Line went up 52% to £570 million and Aviva recorded a profit of £1.6 billion—and I have not even talked about the packages that some insurance company bosses take home.
The Government appear to have rounded this figure up. We say base the figure on the advice and recommendations of countless experts and follow the evidence. Even if the hon. Member for Croydon South (Chris Philp) does not listen to me, I wish he would follow the evidence of the experts. New clause 1 does just that. It would increase the limit only by CPI since 1999 and limit any increase to £1,500. That way, injured people with significant injuries and potentially even more significant losses will get the representation they need and deserve.
Ruth George (High Peak) (Lab)
Does my hon. Friend agree that in the case of an accident at work it is even more important that an injured employee is able to get legal representation to take a case against their employer? The employer will be armed with lawyers and their employers’ liability insurance company. That is stacked up against an individual whose task will be hard enough. They will be feeling victimised enough as it is.
Gloria De Piero
My hon. Friend is absolutely right. It is not an easy thing to take a case against your boss. You need a lawyer to hold your hand, an expert to talk you through, and the Government’s proposals are going to make that so much more difficult. She makes an appropriate point.
New clause 2 would ensure that children and protected persons, for example those lacking mental capacity, are treated the same as other vulnerable groups by excluding them from the small claims limit increase for whiplash injuries. Having made a welcome concession on Second Reading, and clarified in Committee that they would exclude vulnerable road users from the impact of the Bill and secondary measures on the small claims court limit, the Government appear to have forgotten others. Horse riders, pedestrians, motorcyclists and cyclists are rightly to be excluded from the changes, but some of the most vulnerable in our society, who are currently recognised by the courts as requiring special status, will be left, with everybody else, facing a new small claims limit of £2,000 or £5,000. As it stands, any settlement awarded to those who lack capacity to conduct their own proceedings, such as children or someone suffering with a mental disability, must be rubber-stamped by a judge because of the claimant’s recognised vulnerabilities. That will continue to be the case after these changes are introduced.
The law requires children and other protected people to have a litigation friend to conduct proceedings on their behalf. In the small claims court, those who provide this required representation are not and will not be paid for their time. Yet by increasing the small claims limit, there will be a significant increase in the number of people coming through the small claims court with higher-value and more complex cases, where they need a lawyer more than ever. We are asking a litigation friend to take on potentially complicated matters for those most in need, on their own, in their own time, for no pay. Injured horse riders, cyclists and pedestrians and motorcyclists will not be subject to a tariff. The small claims limit for them will remain at £1,000, meaning that they will get a lawyer to act for them for free in any case over that value.
Can the Government not see that children and protected persons need this support, too? How on earth can the Government justify protecting one vulnerable group but not another? Why is the horse rider worthy of exemption, but not a child or a person without the capacity to conduct proceedings? Are we really willing to let some of the most vulnerable people in our justice system be left simply to hope for the good will of others to protect their interests because we in this House have failed to do so?
I know that the Minister is aware of this issue from discussion in Committee with my hon. Friend the Member for Enfield, Southgate (Bambos Charalambous). The Minister suggested returning to this point and that he would be very interested to see an amendment tabled. So here is his chance: a ready-made amendment that makes a simple correction and is an opportunity for the Government to rectify what I presume is an oversight. It simply extends the exemption already provided to others. It removes children from the changes being made to the small claims limit or tariff, and ensures that protected groups are excluded from the increase, the same as horse riders, cyclists and pedestrians. It removes the double standard of some vulnerable road users being granted an exemption and others not. Ultimately, it does little more than extend the protections already afforded to some and allow the Government to show that they care for all.
Chris Philp
Thank you, Mr Speaker, for calling me so early in this debate. I rise to oppose the Opposition’s new clause 1, which seeks to prevent the Government or any other public body from increasing the small claims track limit in relation to these personal injury cases, particularly road traffic personal injury cases, above £1,500.
I strongly oppose the measure. I touched on one of the reasons for doing so in my intervention on the shadow Minister earlier. For the vast majority of general commercial claims and indeed personal claims, the small claims track limit is £10,000. The reason it is as high as £10,000 is that some level of materiality is applied to the claim in question. The view taken by Parliament in the past, rightly, is that matters below the £10,000 limit should be sufficiently simple for a small claims track procedure to be used without the involvement of often very expensive lawyers.
In response to my intervention, the shadow Minister, before she was distracted by another intervention, drew attention to the fact that these are personal injuries. I accept that point, of course. However, the fact of their being personal injuries is not germane, in my view, to the question, which is: is the matter sufficiently simple to be adjudicated via the small claims track rather than through lawyers? That is the question—not whether the matter is serious or not serious but whether the matter is sufficiently simple to be dealt with properly by the small claims track rather than through lawyers. That is why I think there is a strong a case, on the grounds of consistency, for a £10,000 rather than a £5,000 limit.
Ruth George
In road accident claims and particularly in employment liability cases at work, establishing who is to blame for an accident is far from simple. It is an extremely different sort of case from that of establishing whether a fridge was working or not when it was bought, or whether there is something wrong with a car. I really think the hon. Gentleman is not doing justice to the victims of personal injury accidents by the arguments that he seeks to make.
Chris Philp
Of course the £10,000 small claims track limit applies to a far wider range of issues than simply whether a fridge functions or not. The hon. Lady mentions as an example the question of culpability for a road traffic accident. Given that we are talking about much less serious types of injury if the limit is, say, £5,000, determining responsibility for that road traffic accident does not need to be an enormously complicated procedure. For those of us who have been involved in such road traffic accidents, the minor ones we are talking about here, determining responsibility is not a highly complicated matter. I accept that, in much more difficult cases where very serious injuries have been suffered, one must of course take a lot more legal care and attention. For very minor injuries, however, where by definition the accident is a minor one, I suggest that determining responsibility and culpability does not need to be an extremely complicated matter.
Andy Slaughter
With the greatest respect, I do not think that the hon. Gentleman knows what he is talking about. Given of the relatively low levels of compensation for injury, the effects of a £5,000 injury can be quite severe and debilitating over a period of time. The complexity of personal injury cases, which involve expert evidence and issues of causation, means that they are in a different category. Even the Government accept that, so he is batting on a rather poor wicket.
Chris Philp
The hon. Gentleman’s arguments are ones that the legal community often advance, whether in this arena or others, to justify very high levels of legal and judicial intervention, which is often very expensive. We need to maintain a sense of proportionality, lest legal costs and expenses get out of control.
Chris Philp
I shall in just a moment. I have seen figures suggesting that 47% of the pay-outs made by insurance companies for these relatively minor road traffic injuries get consumed by legal fees. If such a high proportion of pay-outs is being consumed by expenses, it suggests to me that the entire system is out of proportion, and that some reform is therefore needed. I give way to the Chair of the Justice Committee.
Robert Neill
I am afraid that my hon. Friend is not making the best case on the Government side that I have ever heard. Does he accept that lawyers act in the interests of their clients and that when they do, they are bound by professional obligations? Is not a better point that we should assist people through the system by working up a very good and accessible online portal, which the Minister has sought to do, so that we find the means of balancing cost with people’s ability to seek access to justice? I gently say to my hon. Friend the Member for Croydon South (Chris Philp) that that is perhaps a stronger point that the Government have been able to advance. The Minister has taken care to delay the implementation of aspects of the Bill in order to get the online portal up and working, and I suggest that that might be a more fruitful area to consider.
Chris Philp
I am always delighted to take advice and guidance from such a distinguished, learned and experienced Member as my hon. Friend the Member for Bromley and Chislehurst (Robert Neill). He adds further weight to the case by drawing attention to the benefits of the online portal, which I hope could be used to further simplify such matters and enable claimants to manage them, rather than having to rely on lawyers.
Jo Stevens (Cardiff Central) (Lab)
I refer the House to my entry in the Register of Members’ Financial Interests. Is the hon. Gentleman aware that in most personal injury claims, there are fixed costs for lawyers’ fees?
Chris Philp
In many cases there are, but in many cases those costs inflate. I referred to the fact that 47% of the value of pay-outs get consumed by legal fees. I hope that the fixed tariffs provision, which is not the subject of any amendment but is in the Bill, will further simplify matters.
One reason why we have a problem that needs solving in this area—new clause 1 would inhibit that solution—is qualified one-way costs shifting, which was introduced a few years ago. I understand why it was introduced—the shadow Minister referred to David and Goliath—but under a system of qualified one-way costs shifting, unless the respondent can prove quite a high level of intention, deceit or malfeasance, the claimant’s legal costs are borne by the respondent in any event, even if the claim is dismissed. That creates significant moral hazard, as it means that claimants can bring claims, even if those claims have relatively little merit, safe in the knowledge that they, or indeed their advisers, will never have to bear the cost of the claim. It is a one-way bet, which means that claimants may as well just have a go and see what happens. The number of cases in which a claimant is shown to be so egregiously fraudulent that they have to pay the cost is extremely small. This one-way bet—this free option—that the legal system now provides is one of the reasons why there has been such an explosion in claim numbers.
Craig Tracey (North Warwickshire) (Con)
I should declare that I chair the all-party group on insurance and financial services. I agree with my hon. Friend’s opposition to the new clauses. Does he have any thoughts on why personal injury claims have risen by 40% over the last decade, yet during the same period, cars have become safer and accidents have reduced by nearly a third?
Chris Philp
My hon. Friend is right—he makes exactly the point that I was about to come on to. Over about a decade in which accidents have reduced by 30% and cars have become safer, the number of claims has gone up by 40%. He asks why, and I think it goes back to qualified one-way costs shifting. There is a huge financial incentive for claimants to have a go—encouraged, of course, by claims management companies—in the hope that they can make a successful claim. Defendants, typically insurance companies, have rather irresponsibly taken the view that because defending one of these claims—probably successfully—will cost £10,000 or perhaps more, they should simply choose to settle, which may involve paying out £3,000 or £4,000, without bothering to defend the claim. Obviously word has spread both in the claims management community and among the wider public that people can simply make a claim and the insurance company will settle, because it is cheaper for them to settle a bad claim than to fight it. That has created the most extraordinary perverse incentives. Insurance companies have been seriously at fault, as they have set up this situation by paying out for claims with no merit, for understandable commercial reasons, but they have made a big mistake, and we now have to correct it through the Bill.
My hon. Friend asks why the number of claims has increased so dramatically. It is because claims management companies have been phoning around, encouraging the public to submit fraudulent claims, and I will elaborate on that in a moment.
Bambos Charalambous (Enfield, Southgate) (Lab)
The hon. Gentleman makes my point for me in saying that insurance companies are paying up on a regular basis. They are not even defending these claims, yet the Bill is designed to protect them. What does he say about that?
Chris Philp
The companies are not defending the claims because qualified one-way costs shifting makes it more expensive for them to successfully defend a claim than simply to pay it out. The system simply is not working.
Sir Edward Davey (Kingston and Surbiton) (LD)
Does the hon. Gentleman think that any genuine claimants will be hit by this measure and will not receive the compensation that they should get?
Chris Philp
The right hon. Gentleman raises a fair concern. Of course, we need to make sure that we do not overcompensate and find ourselves in a situation in which genuine claimants are prevented from claiming. The way in which we are legislating strikes that balance and genuine claimants can still make a claim. My hon. Friend the Member for Bromley and Chislehurst referred to the use of an easy-to-operate online portal as a way of ensuring that claims can be handled easily, even by laypeople. The concern that the right hon. Member for Kingston and Surbiton (Sir Edward Davey) raises is reasonable, but I think that the Government have addressed it in their handling of the matter. However, I am sure that the Minister will comment further on the right hon. Gentleman’s point.
Eddie Hughes (Walsall North) (Con)
This might be a peculiar counter-intuitive point, but it is often the case that whiplash claims are associated with bad headlines in the press. People think that the numbers of claims are dramatically exaggerated. Perhaps it might be helpful if we send a message from the Chamber about discouraging fraudulent claims, which would mean that people with a genuine claim would be more likely to have their cases dealt with more quickly.
Chris Philp
As always, my hon. Friend makes a very good point. As Members of Parliament, we should send out a clear message to our constituents and the wider public that making fraudulent claims is not a victimless crime. They affect the insurance premiums that all of us and all our constituents pay. Fraudulent claims are extremely bad for society as a whole. They encourage a sense that people can somehow get money without really deserving it, which is morally corrosive as well as financially damaging.
Jo Stevens
I am sure that no one in the Chamber thinks that we should encourage fraudulent claims—absolutely not—but may I bring the hon. Gentleman back to some facts? Between 2015 and 2017, the number of registered claims for whiplash fell by 15%, while the number of claims being reported through the police also fell, which might have something to do with the 37% reduction in the number of road traffic police officers in the last 10 years.
Chris Philp
Clearly the number of injury claims made via an insurance company is not related to the number of police officers on the street. The hon. Lady mentions the slight but welcome reduction in the number of whiplash injuries. Over the same period, the number of claims to insurance companies for back injuries has increased, so the total number of claims is down only very slightly over the last couple of years, and is still dramatically up over 10 years, which is clearly a more meaningful period. When the two are taken together, therefore, there has not been a significant reduction.
Robert Neill
The House will know about my declaration in the Register of Members’ Financial Interests. I am glad that my hon. Friend has mentioned claims management companies. Would he agree that some of the concerns about balancing access to justice with discouraging fraudulent claims—we all agree about them—would be met by continuing to revise and strengthen the regulation of claims management companies, which are not regulated to the degree that solicitors are, and in particular by bearing down on the employment of paid McKenzie friends—non-qualified, quasi-lawyers who are particularly rife in the claims management sector? Will he work with me in persuading the Government to move swiftly to ban them?
Chris Philp
Once again my hon. Friend makes a very good point—two very good points, in this case. The operation of claims management companies, which have been actively engaged in encouraging the public to commit fraud, has had an extremely negative effect in this area. I want an outright ban on them making cold calls, but I am slightly concerned that even if the Government take all the action that he and I would like, these people, being extremely adept in such matters, would adapt their behaviour to circumvent the legislation and regulation. For example, they might start making cold calls from outside the UK’s legal jurisdiction, as we saw following the ban on referral fees that came into force two or three years ago. Insurance companies were banned from receiving referral fees from claims management companies, but some insurance companies and claims management companies sought to circumvent the ban by setting up what they euphemistically termed “alternative business structures”, whereby the claims management company effectively remunerated the insurance company via an equity stake rather than a referral fee. I am therefore concerned that even if we take all the action we can, these often rather dubious characters will find new and ingenious ways of circumventing the legislation.
Ellie Reeves (Lewisham West and Penge) (Lab)
I welcome the fact that the hon. Gentleman supports an outright ban on cold calling by claims management companies, but does he agree that the Government’s measures in the Financial Guidance and Claims Act 2018 do not go that far? Rather than punishing injured victims, would it not be far better to introduce that outright ban on claims management companies’ cold calling?
Chris Philp
As I said a moment ago to my hon. Friend the Member for Bromley and Chislehurst, an outright ban would be welcome—it might be something the Government are looking at in any case—but because these people are so ingenious at circumventing even the best-written rules and regulations, there would still be a problem.
Huw Merriman (Bexhill and Battle) (Con)
I thank my hon. Friend for giving way—he is being most generous with his time. May I press him on the point made by my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) about McKenzie friends? I am going back years now, but in my day, when I first started at the Bar, the concept worked very well: they were volunteers who accompanied people to court and assisted them, and they certainly were not paid. Surely we just need to go back to the system as was, as I suggest that things would then work very well.
Chris Philp
I agree wholeheartedly with my hon. Friend, who I know has a distinguished legal background. Both he and the Chair of the Justice Committee have powerfully made the point that McKenzie friends should be voluntary and unpaid. I hope the Minister heard that excellent recommendation, which has now been made by two learned hon. Members of this House.
Sir Edward Davey
I congratulate the hon. Gentleman on making a speech against the Bill. He has admitted that the insurance companies should be fighting the claims, that McKenzie friends should not be paid and that claims management companies should be regulated. He might not have realised it, but he has defeated the Bill by himself.
Chris Philp
I am grateful to the right hon. Gentleman for granting to me such wide-ranging powers of persuasion, but I am not speaking against the Bill; I am speaking only against new clause 1. Despite all the measures we have just been discussing, including the three that the right hon. Gentleman mentioned, I do not think that they, on their own, will be enough, for the reasons I have outlined. The financial incentives created by qualified one-way cost shifting will remain, and claims management companies will find ways of circumventing any tightening of the rules that might be legislated for separately. There is no question but that the British public are being incited to submit fraudulent claims on an industrial scale—[Interruption.] The shadow Minister, the hon. Member for Leeds East (Richard Burgon), is tut-tutting and shaking his head in a way that leads me to believe he disagrees with that statement—I think that I have fairly summarised his view.
Chris Philp
I was about to reply to the shadow Minister’s implied disagreement, but go on then; I give way.
Eddie Hughes
I just wondered if my hon. Friend would comment on a previous interaction between me and my hon. Friend the Member for Bexhill and Battle (Huw Merriman) about stock car racers, who obviously are involved in multiple collisions and yet do not seem to suffer any whiplash, or at least not to the same extent as others. In addition, people in Greece make far fewer claims than we do in the UK. Will he comment on that?
Chris Philp
Once again, my hon. Friend makes an excellent point. Not only has the number of claims for such injuries dramatically increased over the past 10 years, at a time when the number of road traffic accidents has fallen, but they are far more prevalent here than in other European jurisdictions—not just Greece but countries such as France and Germany. Could it be that British necks are weaker than French and German necks, or could it be that our system encourages fraudulent claims?
Ruth George
The hon. Gentleman, who is making an excellent speech, has answered his own question. He has talked about the prevalence of claims management companies and the way they are inciting people to make claims on an industrial scale. Surely those claims management companies, and the insurance companies they are linked to in most cases, should be bearing the brunt of this problem, not the innocent victims of accidents, as would be the case under the Bill.
Chris Philp
The hon. Lady evidently agrees that claims management companies have been inciting fraud on an industrial scale—a point of view that her Front-Bench colleague perhaps disagrees with. That said, claims management companies are only part of the problem. As I said, the incentives inherent in the system have encouraged the kind of behaviour I have been describing.
I want to come to the implied sedentary disagreement from the shadow Minister earlier. I inferred from his gesticulation that he disagreed with my suggestion that claims management companies were inciting fraud on an industrial scale. I will start with a personal anecdote, which I realise does not make the general point, but I will then come on to that more general point. My interest in this area stems from personal experience. About three or four years ago, just before being first elected, I had a minor road traffic accident while driving along the M5 to Cornwall with my wife and our two small children. [Interruption.] I think I am being heckled by the Chair of the Justice Committee.
Nobody was injured in the accident—the bumper was a bit dented, but that was it. It happened at low speed, the traffic having slowed down. For about a year, however, I was bombarded with calls to my personal mobile by people from claims management companies, I think, that had somehow found out about the bump, trying to persuade me that I or my family had suffered a neck injury. No matter how often or how insistently I told them that everyone was fine, they would say things such as, “If you just say your neck hurts, you’ll get £3,000.” The incitement to commit fraud was clear and direct. Subsequently, as recently as in the last two or three months, I have received repeated automated calls—robocalls—again to my mobile, although wholly unrelated, I think, to the first set of calls. I received a recorded message saying, “We are calling about your accident. Do you want to talk about it?” There was then a pause during which I was expected to reply. That is clearly happening on an industrial scale.
Jo Stevens
Who does the hon. Gentleman think sold his details to that claims management company?
Chris Philp
In the first instance, it was very likely to have been an insurance company that had been circumventing the referral fee ban through an alternative business structure, which is a practice that I wholly deplore, and I encourage the Government to ban it. However, as I have said three or four times before, simply trying to legislate away claims management companies will not in itself be enough when the incentives inherent in the system are so powerful. Raising the small claims track limit to, say, £5,000—which is still half the level of the general small claims track limit—will serve to diminish the financial incentives in the system whereby lawyers are taking nearly half the value of pay-outs.
Several hon. Members rose—
Chris Philp
I give way to the hon. Member for Hammersmith (Andy Slaughter).
Andy Slaughter
The proportion of fraudulent claims is about 1%. If I understand the hon. Gentleman’s argument correctly, he is saying that all meritorious claimants should be debarred from proper representation so we can identify that 1%, because it is too difficult for the Government to legislate. Is not the truth of the matter that the Government, as always, are joined at the hip to the Association of British Insurers, and are simply legislating in its interests?
Chris Philp
I disagree with all three things that the hon. Gentleman has said. First, as I said earlier to the right hon. Member for Kingston and Surbiton (Sir Edward Davey), the Government have no intention at all of preventing legitimate claims from being made. The Government are keen to facilitate those claims, and the online claims portal will help with that. There is categorically no intention of disbarring, preventing or in any other way inhibiting legitimate claims from being made.
Secondly, the hon. Gentleman referred to the 1% fraudulent claims figure. The reason the reported figure, which in my submission is dramatically under-reported, is so low is that insurance companies are, quite wrongly, choosing to settle those claims—even suspicious claims, even claims without merit—without defending them, because the cost of defending them, which is about £10,000 or £15,000, far exceeds the value of the pay-out. So the 1% figure cited by the hon. Gentleman goes nowhere close to reflecting the true scale of fraudulent claims in this area.
Sir Edward Davey
Will the hon. Gentleman respond to a general point? Does he believe that when we are tackling a problem, in any aspect of society, we should deal with the symptom or the cause?
Chris Philp
Of course we should deal principally with the cause, and that is what the Bill seeks to do. [Interruption.] The right hon. Gentleman asked about causes. We can talk about claims management companies and we can talk about referral fees—those are important issues to deal with—but the cause of this problem is the financial incentives created by qualified one-way costs shifting, whereby claimants, aided and abetted by claims management companies, can have a crack for free, suffering no loss if their unmeritorious claims are dismissed. If the right hon. Gentleman wants to go into the cause of the problem, that is the cause of it, and elevating the small claims track limit to £5,000 will do a great deal to eliminate the cause. If he wishes to address the cause, as his intervention implied, he should vote against new clause 1.
Several hon. Members rose—
Chris Philp
I give way first to my hon. Friend the Member for Bexhill and Battle.
Huw Merriman
I thank my hon. Friend for giving way again. It is not just the case that we do not really know the number of fraudulent cases, although we can certainly make a very fair estimate, given that there are 200,000 extra claims and 85% of them relate to whiplash. The real issue is that we tend not to see any medical reports because of the settlements. It is not just that the cases are not defended; we never see the medical reports, so we do not know exactly what the full figure would be.
Chris Philp
My hon. Friend is absolutely right. Because the claims are settled upfront by the payment of, typically, £3,000 or £4,000, there is often no medical examination. There is therefore no evidence on which to assess whether the claim was fraudulent or not, which is why the 1% figure cited by the hon. Member for Hammersmith (Andy Slaughter) is essentially meaningless.
One of the other provisions in the Bill, which we debated on Second Reading, is the requirement for a medical examination to take place before an offer is made. That is an essential reform. In response to an intervention from me, the Secretary of State for Justice confirmed that such medical examinations would have to be face to face. That would begin to address the issue that my hon. Friend the Member for Bexhill and Battle (Huw Merriman) has rightly raised.
Jo Stevens
I thank the hon. Gentleman for giving way to me again; he is being very generous. He mentioned the purpose of raising the small claims limit to £5,000, and what that would do. What it will do is deny victims of injury access to justice, as the Government’s own impact assessment expressly states.
Chris Philp
I do not accept the premise of the hon. Lady’s intervention. I think that in the case of the smaller claims, whose value is less than £5,000, it is perfectly possible and perfectly reasonable for individuals to submit their own claims—these are relatively simple matters—using the online portal to whose importance my hon. Friend hon. Member for Bromley and Chislehurst drew our attention earlier. Members have also referred to the role that unpaid McKenzie friends can play in assisting members of the public who submit claims. I do not accept the suggestion that bona fide claims will be prevented or inhibited by the proposed reforms.
Several hon. Members rose—
Chris Philp
The hon. Member for Glasgow South West (Chris Stephens) has tried several times to intervene, so I must give him an opportunity to make his point.
Chris Stephens (Glasgow South West) (SNP)
I am grateful to the hon. Gentleman, because he has been generous. May I put a different scenario to him, because this aspect of what he is saying is confusing me? If, in the course of his employment, a resident of Glasgow South West were injured in Croydon South, why would he be treated less favourably because the injury was sustained in the hon. Gentleman’s constituency than he would be in the constituency of Glasgow South West? In Scotland personal injury claims are exempt from the small claims limit, and civil legal aid is available to claimants.
Chris Philp
I infer from the hon. Gentleman’s question that these matters are devolved in Scotland. Is that the case?
Chris Philp
The two cases are treated differently because there is an entirely different legal system in Scotland, and there is a devolved Government there. It is perfectly within the competence of that devolved Government to take a different view. Clearly the Government in Scotland, and the Scottish Parliament, have taken a different view, as they are entitled to do so, but I, as an English MP—as a London MP—take my own view, and it is the one that I have been expressing here today.
Chris Stephens
I thank the hon. Gentleman for that, but does he realise that the Bill affects 407,000 people—Scottish residents who are employed in England and Wales?
Chris Philp
It may well affect residents of Scotland. Of course, it also affects residents of France, Germany, the United States and Kazakhstan who may choose to visit my constituency. I strongly encourage all of them to do that, by the way. If, heaven forbid, they were to suffer an injury in Croydon South, they would be equivalently affected. The mere fact that there are different rules in different jurisdictions is no reason not to change the rules in this one. Which jurisdiction is the hon. Gentleman suggesting that we align ourselves with? Scotland? France?
Chris Philp
While I admire the hon. Gentleman’s patriotism in inviting us to follow the Scottish example, I am afraid that this Parliament will form its own view on what is appropriate, and I do not think that he can be in any doubt about what I think the right view is on the question before us today.
Ruth George
The hon. Gentleman is indeed being very generous. However, he constantly claims that the injuries sustained in road traffic accidents are minor. Written into the Bill is that an injury caused by the
“rupture of a…tendon or ligament in the neck, back or shoulder”
that lasts for up to two years will be included within the limits. Does the hon. Gentleman agree that that sort of “minor injury”, which could affect people for such a large portion of their lives, should be included?
Chris Philp
The Government consulted extensively on the definitions before legislating. I understand that the definition to which the hon. Lady has referred was recommended by the Sentencing Council, and I would certainly not wish to second-guess or naysay the recommendation of such an august institution.
I did not quite have the opportunity to finish a point that I was making in response to the hon. Member for Leeds East who, some moments ago, was expressing disagreement with my suggestion that claims were being farmed on an industrial scale. I have given my own personal example, but I also want to submit to the House, in support of what I said, an example uncovered by The Sunday Times in July 2015. It involved a company called Complete Claim Solutions, which was based principally in Brighton but also had an office in the Borough of Croydon—although not in my constituency, I hasten to add. It was discovered to be systematically encouraging members of the public to submit fraudulent claims. It was such a disreputable organisation that it used the film “The Wolf of Wall Street” as an instructional video illustrating the kind of behaviour it considered appropriate. This is no small company; it was responsible for making no fewer than 7 million outbound calls per year. One of its salespeople, Tom Murray, was recorded boasting to a journalist from The Sunday Times that he was able to easily persuade the public to lie. He said that
“if they want that £2,000, they’ll lie.”
He also said:
“When it comes down to a woman who’s had an accident…I’ll make her cry”
as a way of persuading her to make a claim.
That is just one example of the shocking behaviour of these claims management companies, in this example one making 7 million calls per year.
Several hon. Members rose—
Chris Philp
I have taken up a great deal of the House’s time. [Interruption.] I am glad that I have at last said something that finds favour with the Opposition Front Bench. I am sure many other colleagues wish to contribute to this debate.
There is overwhelming evidence that our system is broken, in terms not only of the claims management companies and the use of alternative business structures to get information into their hands, but of the fundamental incentives inherent in qualified one-way costs shifting. The proposals the Government are contemplating to increase the small claims track limit will do a great deal to choke off this problem at source—to deal with the cause, as the right hon. Member for Kingston and Surbiton requested a few moments ago. For that reason I will be energetically and enthusiastically voting against new clause 1.
Ellie Reeves (Lewisham West and Penge) (Lab)
It is a pleasure to speak in this debate. I welcome the opportunity to try to counter the worst aspects of this Bill by speaking to Opposition new clauses 1 and 2.
Access to justice may sound like a catchphrase or buzzword, but it underpins so much within our society, and it should not be bandied about and dismissed with the cavalier attitude currently shown by this Government. The Bill will cause a regression in the ability of genuinely injured people to seek compensation and justice for their injuries. The narrative of wanting to clamp down on fraudulent claims has long worn thin and the statistics the Government are using to justify these policies are entirely erroneous. Of course fraudulent claims are wrong and should be investigated and clamped down on, but we are not experiencing the epidemic levels we have been repeatedly warned of. In 2017, 0.22% of all motor claims were proven to be fraudulent; bearing in mind that that is for all motor claims, whiplash injuries will be an even smaller percentage.
Instead of looking at empirical evidence to create legislation, the Government are using disputed statistics to legitimise their agenda. This is wrong, and the impact on access to justice that the Bill will have will be substantial: 350,000 injured people without the free legal cover they are currently able to access. That is the true cost of implementing the Government’s package of measures.
As I outlined on Second Reading and in Committee, the changes to the small claims limit—although not on in the Bill, they are intrinsically related to its content—will be utterly damning on any reasonable definition of access to justice. The proposal to increase the small claims limit from £1,000 to £5,000 in road traffic injury cases and from £1,000 to £2,000 in all other personal injury claims would mean thousands of injured people could fall out of scope for free legal advice and representation and could be denied justice. Costs are not recoverable from the losing party in the small claims court, so injured people will either have to pay their legal costs themselves, which is likely to be cost-prohibitive, or, more likely, forgo legal assistance altogether, or simply not pursue a claim.
In giving evidence during the Justice Committee’s inquiry into the small claims limit, the Minister in the Lords, Lord Keen, suggested that injured people could instead seek advice from their citizens advice bureau. I am sure that many Members will understand the great number of cuts that have befallen citizen advice bureaux in recent years, and this suggestion is not only unfeasible but is completely out of touch. If there is to be any change in the small claims limit, it must be done proportionately by pegging it against consumer price inflation.
Ellie Reeves
I want to make some progress.
That this must be done in this proportionate way is a widely held view, and those who advocate the approach include the Justice Committee, which published a recommendation in its small claims limit report in May; trade unions, including USDAW; the Association of Personal Injury Lawyers; the Law Society; and over 50 Members of this House who have signed my early-day motion calling for the increase to be in line with CPI inflation. These disproportionate and misguided hikes are, it seems, favoured only by this Tory Government and the insurance industry.
New clause 1 in my name and those of my hon. Friends would limit increase in the whiplash small claims limit in line with inflation and permit the limit to increase only when inflation had increased the existing rate by £500 since it was last set. By linking any rise to inflation, it would remove the power from the Lord Chancellor to determine the level and would instead tie it to an economic measure used by both Government and the Bank of England. The Lord Chancellor has an important role, but it is not one that should be afforded powers to artificially dictate rates such as the small claims limit for political reasoning or motivation. If we remove the politics from the decision-making process by using a widely recognised measure such as CPI, people, whether insurers or injured people, can have confidence in the system. It would provide certainty and clarity, be easy to track and would allow stakeholders to adjust for subsequent rises accordingly.
Complementing new clause 1, new clause 2 would firm up the proposal made by my hon. Friend the Member for Enfield, Southgate (Bambos Charalambous) in Committee that would limit increases in the small claims limit for children and people lacking capacity to make decisions for themselves. The Minister stated in Committee that vulnerable road users will be excluded from the Bill and from secondary measures on the small claims limit. This is welcome, but it is disappointing that no Government amendments have been tabled on Report to shore up that promise and include it in the Bill immediately. I hope that this is not a repeat of the Government’s promise to pass the predicted £1.3 billion-worth of insurance industry savings on to customers. I am afraid that the amendment in Committee on that issue was little more than a fudge, and its effect on customers’ premiums will be negligible at best, while the aggressive changes in the draft tariff system will involve reductions of up to 87% in payments for pain, suffering and loss of amenity from road traffic accident-related soft tissue injuries. Under the proposed tariffs, people will be compensated more for a flight delayed for three hours than for being injured for three months. The widely held and understood values of access to justice should not be undermined on a whim to satisfy the insurance industry.
What these Opposition new clauses highlight above all else is the true damage this Bill will do to access to justice and the principles that uphold the right to access to justice. In Committee, I warned the Minister that the changes made by the Government’s package of measures will be similar in scope to the disproportionate implications of the Legal Aid, Sentencing and Punishment of Offenders Act 2012—LASPO—and the unlawful introduction of employment tribunal fees, both of which are key pieces of Tory legislation that have done nothing but remove the rights of many people in seeking access to justice. What we have been left with is an 84% fall in civil legal aid and a 68% fall in the number of employment tribunal cases as a result of these Tory policies.
Matt Rodda (Reading East) (Lab)
Does my hon. Friend agree that this is part of a wider package of pressure on people who have some of the lowest incomes in our society? I wish to be associated with her new clauses and her points, and does she agree that the Government’s proposed measures are part of a wider package of pressure on the most vulnerable people in society?
Ellie Reeves
I agree with my hon. Friend. This is yet another attack on ordinary people’s access to justice. Should the Bill pass its remaining stages today, those shunned by LASPO and tribunal fees will be joined by an additional 350,000 injured people who will be left without the free legal cover they can currently access.
John Howell
I thank the hon. Lady and fellow Select Committee member for giving way. She has talked about access to justice, but she has not mentioned at all the impact of the online courts. Does she have a feeling about what sort of effect that would have for increasing access to justice?
Ellie Reeves
I thank the hon. Gentleman for making that point.
The Bill will have a significant impact on access to justice, and we know that the portal system is nowhere near ready to accommodate the changes. It has not been properly tested. Under successive Tory Governments, access to justice has fast become a luxury available only to the few. A recent survey showed that 63% of Unison members would not proceed or be confident to proceed with a claim without legal representation. The small claims limit changes in the Bill will push nearly two thirds of genuinely injured people away from pursuing a claim if they do not meet the arbitrarily imposed criteria dictated by the Lord Chancellor. The idiom of adding insult to injury has never been more apt, and it is surely time to think again.
Bim Afolami (Hitchin and Harpenden) (Con)
I have done something a bit novel: I have listened to what has been said in the debate, and my remarks will focus on that. I did not come here with a prepared speech; I came here and listened to the contributions from both sides.
I would like to start by responding to the hon. Member for Lewisham West and Penge (Ellie Reeves) and taking up a couple of points that she made. The first relates to the idea that the Government are somehow doing this because of special pleading from the insurance industry and that they are somehow in bed with the industry. The aim of the Bill is to reduce premiums for individuals. That is the focus of the Bill. If I were the insurance industry, I would want premiums to go up, but the aim of this package of measures is for premiums to go down for ordinary people. I therefore do not agree with her assertion.
Another point that the hon. Lady made was that the setting of the limit by the Lord Chancellor, or any future Lord Chancellor, was arbitrary, unfair and unjust, but that is why we have this House and why we have Ministers. They are not here just to do interviews on the “Today” programme. We have Ministers to make judgments that they are then held democratically accountable for. I accept that Labour Members—or, indeed, at some point in the very distant future, Conservative Members, when they are sitting on the Opposition Benches—might dislike a judgment that is made by a future Lord Chancellor, but we settle these things through the democratic accountability of this House. To reject that principle and to suggest that every limit in any area of law, whether this or anything else, should somehow not—
Ellie Reeves
I thank the hon. Gentleman for giving way. He talks with great passion about the democratic accountability of this House. Does he therefore agree that any changes to the small claims limit should not be done by negative statutory instrument, as the Government are proposing, and that they should instead be debated on the Floor of the House?
Bim Afolami
That is an interesting point. I have served on many Committees, as we all have, and some have huge amounts of engagement from lots of Members while others have less. But this House is not just this Chamber; it is also all the Committee Rooms. Negative statutory instruments provide a way for significant amounts of secondary legislation—I do not know how many pieces of legislation; probably hundreds—to go through Parliament. I cannot agree with the hon. Lady 100% that using that procedure will always result in a lack of democratic accountability, because frankly, in modern government, it plays a significant part in our governance process. I recognise the point she makes, however, and it is fair to say that sometimes people do not pay as much attention in Committees as they might do, but that is fundamentally the case for this Chamber, too.
Ruth George
Does the hon. Gentleman therefore agree that, on occasions, statutory instrument Committees do not provide a democratic procedure, as in the case of the cuts to criminal injuries compensation in 2012? At the time, one Committee completely overturned the Minister’s proposals and asked for them to be brought back. A separate Committee was then reconvened, made up of Parliamentary Private Secretaries, and it railroaded through exactly the same criminal injuries compensation cuts. This House should not be seeking to use that kind of procedure for something that is so important to hundreds of thousands of accident victims.
Bim Afolami
I do not want to leave the House, or the hon. Lady, with the impression that I believe that statutory instruments are undemocratic. They are democratic, and they are a form of how we do things in this House. I was unaware of the case that she mentioned. The broader point is that getting primary legislation through, particularly in a hung Parliament such as this, will always be difficult—[Interruption.] No, primary legislation is not always the place where we make every single change. That is why we have a Committee system.
Bambos Charalambous
Is the hon. Gentleman aware that many of these claims companies operate on a no win, no fee basis? Therefore, if no payment is made and a claim is defended, the claimant will not be paid if they are defeated.
Bim Afolami
That is obviously factually accurate, but we need to ensure that we deal with the cause of these problems. As I have said, the Bill does not deal with everything, but it does deal with at least part of the problem. That, in and of itself, is a valuable thing.
Ruth George
The hon. Gentleman talks about the underlying cause that makes these changes necessary, as has the hon. Member for Croydon South. As they have both identified, that underlying cause is surely the fact that insurance companies should not be defending claims that could be fraudulent.
Bim Afolami
It is partly that, but the important point is that no single piece of legislation in this House can deal with every single problem. We can identify a particular problem and deal with it in a particular piece of legislation.
Huw Merriman
Does my hon. Friend agree that we can speak proudly from these Benches about the fact that civil litigation reform over the past few years has led to changes in no win, no fee, as well as to the banning of referral fees and the use of benefits by these companies? Government Members actually have something to say on this. Those changes have also led to a reduction of about £50 in insurance premiums.
Bim Afolami
I agree with my hon. Friend. I reiterate that the point of this legislation is to bring down insurance premiums for ordinary people by, I think, between 35% and 40%. I look to the Minister to check whether that is right.
Jo Stevens
The UK’s leading insurance companies earned more than £2.6 billion in profits in 2016, up on 2015. The proposed changes do not guarantee any reductions in premiums; they simply say that the premiums may fall. There is no guarantee that they will, and we know from previous Bills that this does not happen. Why does the hon. Gentleman suppose that things will be different this time?
Bim Afolami
I take the hon. Lady’s point. The industry has pledged to pass this on. My understanding is that premiums fell by an average of roughly £50 a year in 2012. When we talk about averages, we must bear in mind that if premiums were to fall by an average of, say, £35 under this legislation, the figure in some instances would be much greater—especially for young drivers, for example. Those are my remarks, based on what I have seen and heard today, and I commend this speech to the House.
Andy Slaughter
I did not intend to speak, therefore I will be brief. The House is being treated to ad hoc speeches, which are always a delight. They sometimes benefit from a little knowledge of the subject, I gently say to the hon. Member for Hitchin and Harpenden (Bim Afolami). I also urge him not to be quite so credulous of what insurance companies tell us because experience shows that they always say that premiums will go down, and sometimes they go down and then up again, and sometimes they do not go down at all.
I also wonder about the hon. Gentleman’s question of whether we can expect everything to be done in a single Bill. I would argue that the two main things that the Bill will do are to prevent people with meritorious claims and those with often serious injuries from getting into court, and, if they get there, to reduce the legitimate level of damages that they can expect to receive. Would not it be better to have a Bill that deals with a matter that probably everybody in the Chamber thinks is right to tackle: strengthening defences against fraud? There has already been some change in legislation to make it easier to defend fraud cases, yet one may ask why insurers still do not instruct lawyers—whom they are able to employ, unlike claimants, perhaps, after the Bill is passed—to defend those cases. Why do they not insist on medical evidence? Why do they in fact encourage fraud? Why does a proportion of insurance companies’ profits come either from selling information on, which perpetuates claims management companies, or from owning claims management companies themselves?
The problem with the Bill is that it has the wrong targets. I made that point earlier when I intervened on the hon. Member for Croydon South (Chris Philp). All Labour Members can be brief because he substantially made the case for why this is a bad Bill, as the right hon. Member for Kingston and Surbiton (Sir Edward Davey) said.
However, the hon. Member for Croydon South said that the limit should be £10,000, as if personal injury claims were the same as simple money claims, which no one has ever argued. We are arguing about a difference in what the limit should be. In employers’ liability cases, the difference is relatively small, but the difference in road traffic accident cases is substantial: between what inflation would provide—around £1,500 as a small claims limit—and £5,000, which the Bill proposes.
The Association of Personal Injury Lawyers said about the Bill:
“Claims under £5,000 are not minor, and an increase in the small claims limit will cover far more than soft tissue injuries. These claims could include a brain or head injury, injuries to the eyes, a collapsed lung, or fractured cheekbones. This is a disproportionate response to the stated aim of dealing with whiplash claims.”
That must be right. We are talking about people who are in a vulnerable condition, having suffered personal injury. As has been said, the inequality of arms is apparent not just in the courtroom but in the background to the case, particularly in the case of employees who take on their employers. That is often done with the assistance of a trade union, lawyers and other advisers. We should not replace that tried and trusted system with McKenzie Friends—whether unpaid or unpaid— who often do more damage than good to the clients they intend to represent. I urge the Minister, even at this stage, to listen not only to Opposition Members but to some Government Members and particularly to the Justice Committee.
I went through the painful experience of the stages of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, and I have therefore heard many of the arguments trotted out before. We went from a situation whereby legal aid was available for personal injury to no win, no fee cases, and now to qualified one way costs shifting—QOWCS. It is increasingly difficult even for those with the most meritorious cases to get representation. There is not the same availability of representation as there was.
The review of the law post-LASPO is due to report shortly. It will cover not only part 1 but part 2 of LASPO, and if we had waited, we could have seen the effect of the reform to civil litigation, but no, the Government wish to take a sledgehammer to crack a nut. The overwhelming majority—estimates are around 90% of road traffic claims—of cases will be taken out of a costs regime. That means that all those people have to sink or swim on their own. No one, not just the lawyers here, truly believes that it is easy for many people who have suffered accident and injury to navigate through the court system, particularly when they are opposed by an insurance company, with all the resources that it has.
The Bill will not benefit the motorist or the interests of justice. Above all, it will not benefit people who, through no fault of their own, have suffered often serious injuries. It is disgraceful that the Government are legislating once again in the sectional interests of the insurance industry and against those who have suffered injury.
Mr Simon Clarke (Middlesbrough South and East Cleveland) (Con)
I rise to support the Bill and speak against new clauses 1 and 2 because, whether through ending rip-off energy bills, freezing fuel duty or increasing the personal allowance for income tax, the Government’s constant focus has been to make sure that the consumer is at the heart of their work and to reduce the cost of living for millions of people.
I am therefore pleased that Ministers have identified another area in which the cost of living is artificially and unfairly inflated. At a time when our cars and roads are safer than ever, one would expect the price of motor insurance to come down. Instead, the opposite has happened. Since 2010, there has been an almost 50% increase in the cost of comprehensive insurance premiums, and a near 80% increase in the cost of third-party fire and theft insurance premiums.
Ruth George
Does not the hon. Gentleman agree that the rise in the cost of insurance is, as we have heard in the debate, down to insurance companies not tackling possibly fraudulent claims, thereby creating the problem and making huge additional profits? Does he accept that consumers are also victims of accidents and will be severely affected by the Bill?
Mr Clarke
The hon. Lady is right to say that insurance companies have a duty to tackle fraudulent claims—that is certainly the message that the Government would send out and that I endorse—but the proportion of such claims is relatively small. We need to get the incentives in the system right so that the most serious cases receive the compensation and the attention that they deserve in the legal system and that the less serious cases receive a proportionate response. Whiplash is a horrible injury, which can be very severe, but we must ensure that the incentives in the system are not so skewed as to push all cases into the most extreme bracket. That simply does not reflect the nature of the injuries that are being suffered and it is not in the country’s public policy interest to have insurance rendered hugely more expensive, which the current system does.
Ruth George
Is the hon. Gentleman saying that the tariff for compensation for injuries, which judges currently use, is unfair and overcompensates people with more minor injuries? It covers a range of injuries, not just whiplash.
Mr Clarke
I am saying that there is a need for a proportionate system for compensation. The number of road traffic accident-related personal injury claims has increased by 200,000 since 2006—a rise of approximately 40%. That suggests to me that the incentives in the system are skewed. Insurers predict that, without reform, motor premiums could continue to rise at a rate of about 10% annually. That constitutes a significant burden on the cost of living for millions of us who are dependent on our cars for daily travel, especially in rural communities.
Jo Stevens
Does the hon. Gentleman not think that the UK’s leading insurers paying out £2 billion to their shareholders in 2016 might have something to do with the rising cost of insurance premiums?
Mr Clarke
The Bill is designed to make sure there is a closer connection between whiplash claims and medical evidence by introducing a ban on seeking or offering to settle whiplash claims without the appropriate medical evidence. That will discourage fraudulent claims, encourage insurers to investigate claims properly and protect genuine claimants from accepting a settlement without knowing the full extent of their injury.
Bambos Charalambous
Madam Deputy Speaker, is it appropriate for me to speak to new clause 2?
Madam Deputy Speaker (Dame Eleanor Laing)
For the sake of clarity, yes, you may speak to new clause 2.
Bambos Charalambous
I support new clause 2, which is in my name and in the name of other hon. Members. I am concerned that the Bill takes away the protection for children and protected parties such as people with a mental capacity disability.
Under the current civil procedure rules, children and protected parties are required to have legal representation in court when there is a settlement following a civil claim. Children and protected parties are not excluded from the Bill as vulnerable road users. Prior to introducing the Bill, the Government gave exemptions to a small category of vulnerable road users, including cyclists and horse riders, but no such exemption was given to children or protected parties despite their being protected under rule 21 of the civil procedure rules.
The Government should exempt children and protected parties in accordance with rule 21, and the Minister’s own Department, the Ministry of Justice, is responsible for setting these rules. I raised this issue with him when the Bill was in Committee and, being a man of his word, he duly got back to me, but his response was disappointing. Part 21 of the civil procedure rules states that for a child or protected party settlement to be made it has to be with the approval of the court. The settlement has to go before a court; there is no issue of it going to a portal. For court approval, children and protected parties need legal representation.
The Minister’s response to me suggested that the insurance industry would provide legal representation and that this would solve the problem. Except there would be a clear conflict of interest if the same party were paying for the legal representation of both sides. When choosing a litigation friend for a child or protected party, one of the criteria, under paragraph 3.3 of practice direction 21, is that the party seeking to represent the child or protected party as a litigation friend should have
“no interest adverse to that of the child or protected party”.
Clearly someone who is being paid by the insurance industry against the child’s claim cannot say that they have no adverse interest.
Sometimes children will be suing their parents in a road traffic accident personal injury case, meaning that the parents will have an adverse interest and cannot act for or represent their children. By not excluding children and protected parties from this Bill, the Minister is making a mockery of the current rules that govern personal injury in England and Wales.
Why should a child be able to access legal representation in a case where they have been injured at, say, an amusement park but not when they suffer the same injuries in a road accident? As things stand, the child or protected party would still have to get a legal opinion before the court makes a settlement, but the cost of the advice would not be recoverable from the negligent defendant, or their insurer, in cases subject to the small claims tariff. Why does the Minister want to take money away from children and protected parties in order to benefit insurers?
There are complexities in these cases, and legal representation is needed more than ever in matters involving children and protected parties. I cannot understand the Government’s logic or rationale in excluding horse riders and cyclists from this Bill but not children or protected parties. Are they saying that injuries suffered by children and protected parties through no fault of their own should be treated less seriously than injuries suffered by cyclists or horse riders? This goes to the heart of the Bill, which is ill-conceived and drafted solely from the point of view of the insurance industry and not of innocent victims who make a claim.
It is shameful that the Government are willing to sacrifice the interests of innocent injured children, and to take away the protection they currently have, enshrined in law, to give the multi-billion pound insurance industry an even bigger advantage in court.
Ruth George
I rise to speak to amendment 1. This Bill was drafted at the behest of the insurance industry, as is clear from every speech in favour of it.
Madam Deputy Speaker (Dame Eleanor Laing)
I think the hon. Lady is speaking to new clause 1, rather than amendment 1. We would not want people to be confused.
Ruth George
I beg your pardon, Madam Deputy Speaker.
New clause 1 would amend some of the worst failings of the Bill, which has been drafted at the behest of the insurance industry over several years. The industry has failed to tackle fraudulent claims. We have heard from hon. Members on both sides of the House this afternoon that the industry, which is responsible for so many of the claims management companies and for passing information on to them, is producing the problems that the Government are now seeking to address by further victimising the victims of accidents.
The insurance industry is making billions of pounds of profit and will make a further £1.3 billion from this Bill through the reduction in claims. Victims of accidents are not the people who tend to go to court. Those who lose will be denied access to justice, as both the impact assessment and the excellent report from the Justice Committee make clear.
It is a huge undertaking for a layperson to take a case to court. Most would not even dream of it, especially a case against their employer, who will be armed with their own lawyers and often with an insurance company, which will also be armed with its own lawyers. Unison, the public sector union, surveyed its members 60% and said they would not have taken a case against their employer to get the compensation they deserved for their injury at work if they had to take the case on their own without the support of a lawyer.
It is extremely difficult to determine liability in the case of many accidents at work, especially in instances like those I saw when I worked for the Union of Shop, Distributive and Allied Workers. Deliveries are made to stores by a third party and there are incidents in warehouses that may be the fault of one party, the fault of another company or the fault of the employee. Those arguments are exceedingly difficult to pin down, especially for an individual claimant, and they require the assistance of a lawyer.
The Government assure us there will be an easy online portal for claimants to register a claim. I am sorry, but I am a member of the Select Committee on Work and Pensions and we were told that there would be an online portal for universal credit, yet 47% of claimants are unable to access the portal. An online portal is, of itself, not an easy thing to access, particularly for people for whom IT is not their natural sphere. I ask the Minister to commit the Government not to roll out these changes to the small claims limit until the portal has been demonstrated to be easily usable by at least 95% of those who seek to use it. I hope that that commitment will be made during the passage of this Bill because, as we have heard, the portal is nowhere near ready and even the pilots have been found by firms of lawyers to be difficult to access.
The arguments made in favour of the Bill have been about the cost of insurance but, as we have heard, that cost has been rising at the same time as insurance companies’ profits have been rising. It is not the cost of personal injury claims that has increased insurance; those bodily injury claims have actually reduced by £850 million since 2013. A large degree of the cost rises has been due to the costs of vehicle damage, which have become far higher in the last five years—nearly £700 a year more—because cars are more complicated.
The Bill has been introduced, it is claimed, to crack down on whiplash claims, but it covers far more than simply whiplash. The definition of whiplash itself has been extended far beyond a medical definition, to include all injuries to necks and backs that relate to rupture or strain of muscles, tendons or ligaments lasting up to two years. I hope that no one on either side of the House would feel that such injuries are minor. The Bill also deals with accidents at work, public liability claims and medical negligence. USDAW has estimated that five times as many cases would be caught by this small claims limit as are caught currently. According to the TUC, only one in seven workers make a claim against their employer for an accident at work. So we can see that this move will have a severe impact on the number of claims being made.
Jo Stevens
Does my hon. Friend agree that the Bill will make workplaces more dangerous? I know from experience that, if employers are litigated against as a result of accidents in the workplace, they review their safety policies and make workplaces safer. This Bill will have the opposite effect.
Ruth George
I absolutely concur with my hon. Friend’s point, which I raised with the Health and Safety Executive, whose laboratory is in my constituency. It concurred that one of its major concerns is that without claims being made against employers they will cease to militate against risk in the workplace. That is just one of the many problems the Bill will cause, both for victims of accidents and for all other employees in the workplace.
The Minister has heard many examples this afternoon of how the Government could crack down on fraud and on the costs of insurance without cracking down on innocent victims of accidents. The requirement in the Bill for medical reports prior to offers being made is an important one, which all sides are supporting. We hope that the Government would seek to assess the impact of that change before impacting on victims. We have also heard many calls from Members on both sides of the House for claims management companies to be acted against because they are obviously playing the system and we need to make sure that that cannot continue.
This Bill is seeking to make the innocent victims of accidents pay for the fact that insurance companies are not prepared to crack down on fraud and so have come to this Government seeking their help. We have no guarantee that insurance costs will fall, but we do know that insurance companies will make £1.3 billion more a year out of this legislation and that innocent victims of accidents will suffer. I very much hope that the Minister has listened to the arguments being made on both sides of the House today and will accept the new clause.
The Minister of State, Ministry of Justice (Rory Stewart)
Let me begin by paying tribute to the high quality of debate today from hon. and right hon. Members on all sides of the House. This has been a serious business. The consultation on the issue began in 2012 and the detailed measures we are debating today were announced in the Budget in autumn 2015. There are disagreements on every side of the House, which are expressed in new clauses 1 and 2, but, more generally, I hope that everybody in the House will recognise that the Bill has been adapted as we have listened a great deal to suggestions made by the Opposition and others. I pay tribute to the hon. and right hon. Members on all sides who pushed for the changes we have introduced on vulnerable road users, on the new role of the consultation with the Lord Chief Justice and on definitions, particularly in respect of whiplash. I also pay tribute to what happened in the other House, where this legislation was considerably revised and improved by efforts from Cross-Bench peers, as well as Labour, Lib Dem and Conservative peers.
Alex Chalk (Cheltenham) (Con)
Does my hon. Friend agree that it is important that claims against employers above £2,000 are taken outside the scope of this? It is right in those circumstances, where it can be difficult to make the claim stick, that people should be entitled to recover their costs in the event of a successful claim. Does he agree that making that change was a critical improvement to this Bill?
Rory Stewart
My hon. Friend makes a powerful point, which should, to some extent, reassure the hon. Member for High Peak, some of whose arguments rested on damages in the workplace. The rise to £5,000 does not relate to damages in the workplace. As has been pointed out, it relates only to whiplash injuries suffered in a vehicle.
Robert Neill
I am grateful to the Minister for giving way. I take on board his point that the appropriate test for a small claims regime is complexity or otherwise, but will he recognise that there is a risk that perceived complexity might make claimants vulnerable to the operations of claims management companies, which do not have the high standards and good regulation of personal injury lawyers, as he rightly recognises? What safeguards do the Government intend to put in place beyond this Bill and more generally to make sure that we do not have a displacement effect from well-regulated personal injuries lawyers to unregulated, unscrupulous claims managers of the kind to which my hon. Friend the Member for Croydon South (Chris Philp) and others referred? What more can we do to safeguard against that unintended consequence?
Rory Stewart
This is an issue on which my hon. Friend has been very thoughtful in his role as Chair of the Justice Committee. There are obviously three things that we are endeavouring to do and we are open to more ideas. One of them, of course, is that, through this package of measures, we disincentivise claims management companies from having a significant financial interest in pursuing this type of case. The second, as my hon. Friend pointed out, is the setting up of an online portal to reassure individuals that they will have a more predictable, more transparent and more straightforward system for pursuing their claims in person. Finally, through consultation with the judiciary, we are looking at the issue of paid McKenzie friends. We are waiting for the judiciary to report back so that we can take action on that issue.
Ruth George
The Minister claimed that raising the limit for workplace accidents to £2,000 would allay my fears, but given that USDAW and other unions have said that this will actually increase the numbers needing to go to the small claims court by five times, it certainly does not. There are still wide concerns around taking cases against employers, as he will know. Will he make any assurance that the portal will be tested, and that it will be ensured that an ordinary layperson can use it before any claims are implemented?
Rory Stewart
Clearly two different cases are being made here. On the question of the online portal, a very serious group of people, which includes insurers and lawyers, is testing it. One of the concessions that was made in the House of Lords—I think it is a good one—is to extend the time before this is rolled out by 12 months so that we have more time to make sure that the testing is done and that the portal operates properly. That is a good challenge.
The point about injuries in the workplace is that that, I am afraid, is outside the scope of the Bill, which is very narrowly defined to deal with whiplash injuries. Indeed, new clause 1 is also very narrowly defined as it deals with only the question of a “relevant injury”, which, in this case, is a whiplash injury. Therefore, while arguments about other forms of injury and employment are very interesting, they are not relevant to the debate on new clauses 1 or 2.
Moving on to the next question about simplicity and inflation, I just wish to point out that the previous Labour Government accepted the principle that inflation was not the only determinant of the levels that the small claims court should meet, because, of course, the small claims limit was raised from £1,000 in 1991 to £3,000 in 1996, and then to £5,000 in 1999 under the Labour Government before it was raised to £10,000 in 2013. Quite clearly those rises were well in advance of inflation and were driven, as indeed was the case for European small claims, by the notion of the simplicity of claims, not a change in either the CPI or the RPI.
Even if one were to accept that there should be a relationship to inflation, the mechanism proposed in new clause 1 seems to be a recipe for falling behind inflation. In effect, the proposal is that an increase should only take place if there had been a rise of at least £500, and should then be limited to £500. It would not take many years of slightly higher inflation than we have now to end up in a situation where, over a five and 10-year period, the increase would be considerably in excess of £1,000, which would then allow for a rise, but we would then find a syncopated system that, very rapidly, would be falling behind inflation.
The more fundamental point is a constitutional one. This is not an issue that is traditionally dealt with through primary legislation, and it is not an issue that is dealt with in the Bill. That is because increases to the small claims limit are properly an issue for the Civil Procedure Rules Committee, on which the Master of the Rolls, district judges, senior judges, personal injury lawyers—barristers and solicitors, including the president of the Association of Personal Injury Lawyers—and representatives for consumer bodies such as Which? sit. That is a better way of looking at the proper limits than trying take forward primary legislation on the Floor of the House. Technically, there is also another issue with the new clause, which is that subsection (4) should include paragraphs (a), (b) and (c).
That brings me to new clause 2. The hon. Member for Enfield, Southgate (Bambos Charalambous) quite rightly drew our attention to potentially vulnerable litigants, such as infants, children and other protected parties. He argues—on this we absolutely agree—that they suffer the same forms of injuries as any other human, and are entitled to fair compensation and the same degree of representation that would be afforded to any adult. At the moment, that is, of course, provided by the allocation of a litigation partner by the judge concerned.
The hon. Gentleman and the hon. Member for Ashfield asked what happens if that does not work and whether an increase in the number of cases would undermine that system. We have looked at this carefully, because the hon. Gentleman raised the matter in Committee. Our conclusion, having consulted a wide range of individuals, is that we do not believe that that would occur, but a number of safeguards are in place in the worst-case scenario. In most cases, an individual who is in that situation, such as an infant, would be represented by their parents. In a situation in which they were suing their parents, because the parents were, for example, driving the car, a litigation friend would be appointed by the court. In the case that they would be unable to find a competent adult who met all the criteria stated by the hon. Gentleman, including there not being a conflict of interest from that individual, it would be possible to appoint the official solicitor. In a case in which that, too, failed, judicial discretion remains to move the case of the infant out of the small claims track into the fast track, where the legal costs would be recoverable. Of course, judges would still have a very serious role to play in approving any settlement made to an infant or any protected party. That was why Lord Justice Patten made this ruling in the case of Dockerill v. Tullet:
“I can see no reason in principle why a small damages claim made by an infant should be taken out of the small claims track merely because of the age of the claimant. It is also clear that the premise on which CPR 45.7 operates is that the normal track for damages by infants will be the small claims track.”
That brings me to my conclusion. This very impressive piece of legislation has involved the upper House, the Opposition and civil society members throughout its Committee stages. The Government have made a number of very serious concessions to make the process more workable. I pay particular tribute to the Justice Committee for the pressure that it has put on us in relation to a very large number of issues, ranging from the online portal to paid McKenzie friends and vulnerable road users. We have now ended up with a Bill that does not do everything that was set out when the Lord Chancellor initially announced it in autumn 2015. Instead, with a series of realistic, focused and pragmatic compromises, we have struck the right balance between the protection of genuine claimants who have suffered genuine injuries, and the protection of different forms of public interest—in particular, the public interest of people, especially in rural areas, who need to be able to afford their motor insurance in order to move around. This Bill will remove unnecessary complexity, unnecessary costs and, in particular, the moral damage and hazard that currently exist in the form of claims management companies and a few unscrupulous individuals.
As Lord Brown of Eaton-under-Heywood—the previous president of the Supreme Court—pointed out in the upper House, this country is now known throughout the world as a haven for unnecessary whiplash claims. Despite a significant reduction in the number of car accidents and an increase in vehicle safety measures over the past 15 years, if not over the last three, we have seen a significant increase in the number of whiplash claims, which can be accounted for only on the basis of fraudulent and exaggerated claims.
Question put, That the clause be read a Second time.
Gloria De Piero
I beg to move amendment 2, page 3, line 14, leave out clauses 3 to 5.
This amendment would remove the creation of tariffs for whiplash injuries and retain the existing system where judges decide compensation levels with reference to Judicial College Guidelines.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss Government amendment 1.
Gloria De Piero
Amendment 2 gets to the heart of our issues with the Bill and would remove the whiplash compensation tariff system altogether. We are dealing with human beings who experience pain differently, who have different lives and who will all be affected by a similar injury in a slightly different way. We would not accept a pricing of insurance premiums that did not take account of whether we drove a Mini or a Maserati, and we would not accept a standard payment for damage to a car, regardless of its state after an accident. Where is the justification for using such a blunt instrument as a tariff to calculate pain?
We all want to stamp out false whiplash claims, but why should HGV drivers, firefighters or parents driving their kids to school be treated like fraudsters claiming falsely for whiplash, left with tariff compensation and no legal help? As Lord Woolf, the eminent former Law Lord who carried out a review of civil justice after being commissioned by a previous Conservative Government, pointed out in the Lords:
“The effect of whiplash injuries, with which we are concerned, can vary substantially according to the physical and mental sturdiness of the victim. This means that the appropriate amount of damages for a whiplash injury can vary substantially... I suggest that they are not suited to a fixed cap, as proposed by the Government.”
He went on to say that a tariff
“offends an important principle of justice, because it reduces the damages that will be received by an honest litigant because of the activities of dishonest litigants.”
The Government’s proposals will punish the honest based on the behaviour of the dishonest, but how big is that dishonest group? The ABI said in 2017 that insurers paid out in 99% of all cases and that fraud was proven in only 0.22% of cases. Woolf decried the Government’s move to
“interfere with the Judicial College guidelines by substituting tariffs or a cap, which lack the flexibility of the guidelines.”
He went on in speaking against the proposed dismissal of a tried and tested system of justice to say that the Lord Chancellor
“is motivated, at least in part, not by the normal principles of justice as I understand them but by saving insurers money, in the belief that this will result in a reduction in premiums for motorists who are insured when they come to pay for their insurance.”
Later, he put it as strongly as simply saying:
“There is no precedent for this intervention in the assessment of damages in civil proceedings.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1593-1595.]
He went on to quote Sir Rupert Jackson, who said:
“It is the function of judges (not Parliament) to set the tariffs for pain, suffering and loss of amenities in respect of different categories of personal injuries”.
Lawyers who deal with such issues all the time have pointed out how people who are already suffering, and perhaps unable to earn a living due to their injury, will be worse off under the proposed tariff. They include experienced legal practitioners from the Tory Back Benches, such as Baroness Berridge, who said:
“I have met many a claimant for whom the difference in damages now proposed by the introduction of the tariff, taking some damages from four figures—£1,200 or £1,400—down to the likes of £470 is a significant matter for many peoples’ incomes up and down this country. I cannot have it portrayed that this might not make a great deal of difference to many ordinary people in the country.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1611.]
That is from a Government Back Bencher.
Alex Chalk
The hon. Lady is making fair points, but it is important to take into account that the claim may consist partly of a general damages component and also a special damages component. Does she agree that if the individual had, for example, been required to take time off work and had incurred costs—or losses—in the process, he would still be able to litigate and seek to recover those damages?
Gloria De Piero
The tariff system would mean that somebody who today was entitled to £1,200 or £1,400 would be compensated with far less. I am quoting Baroness Berridge.
Alex Chalk
We have to be really careful in this debate to draw a distinction between general damages, which are for pain, suffering and loss of amenity, as with whiplash, and special damages, such as the cost of taxis or lost employment. Does the hon. Lady agree that special damages will still be recoverable in the normal way and that we should not be confusing the two?
Gloria De Piero
I am choosing to focus on the injuries incurred. For a soft tissue injury lasting six months, an individual would today get between £2,150 and £3,810 but, if the Bill passes, they would get £805. I am choosing to focus my speech on those huge differences. That is the practical reality of what this tariff system will mean.
There is another important principle. It is a significant step to mess with the proud tradition of an independent judiciary in this country, and the Government should not take that lightly. The Justice Committee, too, could not have been clearer in its criticism of how the tariff system will harm access to justice. We hope the Government will listen to the Justice Committee and eminent judges—and, yes, us—and accept this amendment to remove the tariff system.
Mr Simon Clarke
It is a pleasure both to speak in support of the Bill and, unfortunately, against the amendment put forward by the hon. Member for Ashfield (Gloria De Piero). It is really important that the Bill is proportionate in achieving the outcomes we want of ensuring that the public get the protection they need from injuries that can be so devastating, while at the same time compensating them in such a way that we do not burden the wider consumer with unsupportable bills. Earlier, I spoke about the fact that premiums need to remain affordable.
Amendment 2 would remove the ability to set a fixed tariff for whiplash compensation in regulations. As I mentioned earlier, the tariff system will ensure that claimants receive a proportionate level of compensation. This will significantly reduce and control the spiralling cost of whiplash claims and disincentivise unmeritorious claims. As with any such tariff system, I can understand the concern that it may not provide the flexibility necessary to ensure that compensation accurately reflects the true nature of someone’s injuries.
However, the Government have taken a number of important steps to ensure that such flexibility still exists. First, the tariff would not be flat for all cases, but staggered, depending on the severity of injury. Secondly, in addition to a tariff payment, all claimants will continue to receive special damages covering compensation for any actual financial losses suffered as a result of their accident. Finally, clause 5 gives the court discretion to deviate from the tariff in exceptional circumstances and when it is clear that a higher level of compensation would be appropriate.
This therefore seems to me to be exactly the type of Bill we should be bringing forward. It is sensible, and it does indeed allow us to provide the protection that people need, without the risk of putting up premiums. I do not believe that amendment 2 would achieve very much, other than wrecking the central point of the Bill, which as I say is to achieve such an upsurge in affordability.
Robert Neill
My hon. Friend makes a fair point. Opposition Members have referred to the Justice Committee’s report, but has he noted that although the noble Lord Woolf was indeed critical of the changes in the terms that have been quoted today, the noble Lord Brown of Eaton-under-Heywood, a former justice of the Supreme Court, did not have an in-principle objection to the tariff system? Does he agree that the devil in the detail is what will be in the regulations on the exceptional circumstances uplift and how that will apply? Is he, like me, pleased to see that there is a commitment to consult the Lord Chief Justice on those regulations, and does he agree that it is important that that consultation is real, thorough and detailed?
Mr Clarke
My hon. Friend speaks with the authority of not just a Select Committee Chair but someone who thinks deeply about these issues. There are safeguards built into the Bill, precisely to ensure that we achieve the robust, balanced and responsive framework that good legislation should aim for. I noted earlier that the Lord Chancellor will have a duty to keep all the relevant legislation under review on a triennial basis, so there will be checks to ensure that compensation thresholds do not become wildly out of kilter. Indeed, part of the reason why the Bill is necessary is that the thresholds have been allowed to drift for a very long time without being amended. That has led to a more dramatic uplift than is customary or than I would ever hope to see in future. We want to ensure that we always have a rolling programme rather than dramatic changes, which unfortunately affect more people than a more staged mechanism would. However, that does not mean that there is not a case for acting, so unfortunately I cannot support amendment 2.
Andy Slaughter
I will speak only briefly, because a number of the points to be made in this debate are the same ones that we made in the previous debate. There is no logic or sense to the Government’s rationale; they simply want to minimise the damages paid to litigants who have legitimate and in some cases serious injuries.
The noble Lord Woolf has been quoted several times. The Woolf report led to progressive and now legendary reform of the civil justice system, so he very much knows what he is talking about on this issue as on so many others. He said that the tariff
“results in injustice and it is known to result in injustice. Indeed, no one can deny that it results in injustice. There has never been a case where legislation deliberately introduces injustice into our law. It may be that it is only in regard to small claims, but surely it is important that we pause before we do that.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1620.]
I agree that the Government should pause, and I would say that there is an objection in principle to the tariff in this case. No good reason has been given why this should not be a judicial process rather than an administrative or politically affected process.
There is also an issue of quantum to consider. The proposed sums in the tariff are derisory for what are often quite serious injuries lasting for periods up to 24 months. An injury that lasts for two years is likely to be serious and is certainly a persistent one that will cause a lot of pain and suffering. It has been pointed out that at the lower end of the spectrum—nought to three months, which still includes cases of pain and discomfort lasting a significant time—the proposed sum is £235. The Law Society’s briefing compares that with the amount of compensation that somebody might get for a flight that has been delayed for three hours, which could be considerably in excess of that amount. As well as the matter of principle, there is the point that the actual financial compensation is being minimised for no good reason.
Kevin Hollinrake (Thirsk and Malton) (Con)
The hon. Gentleman talks about injustice. Is it not an injustice that many motorists are paying inflated insurance premiums because some people are getting an unreasonable level of compensation for their injuries? Is that not what the Bill is intended to prevent?
Andy Slaughter
It is not, because I do not know what the hon. Gentleman means by an unreasonable level of compensation—
Andy Slaughter
Please give me a moment to answer the first point, then I will willingly give way.
I do not know whether the hon. Gentleman is saying that it is unreasonable because these injuries are exaggerated or fraudulent, or that people should not be compensated according to accepted judicial tariffs. Nobody has ever said—that I know of—that the levels of compensation that are awarded under the Judicial Studies Board guidelines are over-generous in this country. What we are doing is simply taking those realistic—some would say, rather parsimonious—levels and reducing them by a substantial degree, so I think the point is nonsense, frankly. However, I give way to the hon. Member for Taunton Deane (Rebecca Pow), who will make a much more sensible point, I am sure.
Rebecca Pow
On that point, from the general public’s point of view, there is a consensus that people are taken for a ride over all these claims. Many of them are encouraged to go into this system of claiming when perhaps they do not necessarily have a great case. A great deal of money is made through the legal system, and people want to see fairness. My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) is absolutely right: most people’s motor insurance is going up and up to compensate. Does the hon. Member for Hammersmith (Andy Slaughter) agree that that is not fair? What we are trying to do with the Bill is to introduce fairness to a system that frankly—many people would say—has got out of control.
Andy Slaughter
I congratulate the hon. Lady on getting a helter skelter of nonsense into one intervention, with every prejudice and false statement that has been made in the tabloid press about these matters for about the last 10 years—well done on that. I could make a long speech dealing with the specific issues of—[Hon. Members: “Go on!] We have got time, haven’t we? No, I will not. I could go into detail about some of the myths about whiplash and soft tissue injuries and what is actually happening in relation to accidents, the insurance industry and premiums, because I have been an observer of that for a long time. However, let me limit myself to a fairly narrow point.
I have listened to the arguments from Government Members, and they are just non-sequiturs, frankly. We have heard that insurance premiums are the issue. Let us imagine that we give the benefit of the doubt there, which I certainly do not, and say that premiums are likely to fall significantly and that that is a factor relating to claims rather than to insurance companies’ profits, the other activities that they indulge in and the way that their businesses are run. I do not accept that, but let us assume that we do for a moment.
The hon. Member for Cheltenham (Alex Chalk) is no longer in his place, but he made a surprisingly illogical—for him—intervention. He said, “Look, people will still get special damages.” Of course they will get special damages, but special damages are what the name suggests—they are to compensate for specific items of loss. Why should the fact that someone still gets compensation for their loss of earnings or their medical bills, or something of that nature, mean that it is right to diminish their compensation for pain and suffering and loss of amenity? These are all non-sequiturs. The worst calumny of all is to say, “We are reducing the level of damages from slightly mean levels to absolutely parsimonious levels because of fraud”, which is exactly what we heard in relation to the small claims limit. So many members of the senior judiciary and indeed, of Select Committees, including not just the Justice Committee, but the Transport Committee, have said that it is plain wrong to say that because there may be instances of fraud, of which very few are identified, all litigants should suffer by having their damages reduced.
Victoria Prentis (Banbury) (Con)
I understand what the hon. Gentleman is saying about quantum, but I would be interested to know, theoretically, whether he objects to the idea of tariffs being appropriate for this sort of compensation. I remind him that Lord Brown said
“I am in broad agreement with the whole idea of tariffs for injuries, certainly for lesser injuries, and indeed even of reducing awards in respect of a number of these lesser injuries.”—[Official Report, House of Lords, 10 May 2018; Vol. 791, c. 306.]
Does the hon. Gentleman agree that tariffs can be appropriate with, for example, criminal injuries compensation?
Andy Slaughter
There is an element of semantics going on here. We have guidelines at the moment. Judges do not pluck figures out of thin air. They look at the guidelines and hear submissions, or they would have heard submissions when representation was available—it seems it no longer will be—and they make a decision, but they have discretion around the individual circumstances of the case. That is a basic and fundamental principle of law, but one that we are deviating from. I cannot say strongly enough that that is wrong.
To add insult to injury—if I may put it that way—rather than taking the average in the guidelines and having a rough rule of thumb that someone will get a bit more or a bit less than their individual case deserves, or going for an average and calling that a tariff, we are saying that a tariff should be a tiny percentage of the current award. This is nothing but an attempt to say, “We do not wish to pay out money in this way. We wish to diminish both the ability to make a claim and the compensation paid.” Whatever one’s view on fraud, the massive majority of cases will be meritorious and honest cases in which people have genuinely suffered injury.
I will conclude with the words of the former Lord Chief Justice of England and Wales, Lord Judge, on Report in the other place:
“What I cannot accept is a solution which means that a dishonest claim is handled in exactly the same way as an honest one. We cannot have dishonesty informing the way in which those who have suffered genuine injuries are dealt with. That is simply not justice. There should not be any idea that an honest claim for a whiplash injury made by the victim of a car accident should be less well compensated than an identical injury suffered by someone at work.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1600.]
That is what the Government are doing in the Bill and what is so inherently unfair, and they are doing it at the behest of special interests. They may genuinely believe that there is a problem to be resolved with whiplash. I could dispute that—we could go on for a lot longer than we are today—but even if they are right, there are other, better and fairer ways to tackle that issue.
Bambos Charalambous
Is my hon. Friend aware that under the criminal injuries compensation scheme someone gets £1,000 for a whiplash injury lasting six to 13 weeks but that under this tariff scheme the proposal is for £470 for three to six months?
Andy Slaughter
My hon. Friend, who knows far more about these matters than I do—and more, I suspect, than many on the Government Front Bench—is quite right. He draws attention to the fact that there is no logic in the system.
I feel a bit sorry for the Minister as he has to push these proposals forward; he is normally a very logical and fair man. It is difficult to speak at the Dispatch Box having been given a brief of this quality. When parliamentarians of his stature and of the stature of the hon. Member for Cheltenham, with his spurious points about special damages, are reduced to this level, and when Government Back-Bench Members are hauled in here, as we saw in the previous debate, to make speeches only to be told to stop making them because they are talking such arrant nonsense, one does despair. I hope even at the 11th hour that the Government might take pity on us, listen to the wise voices in the other place and support us on these amendments.
Kwasi Kwarteng (Spelthorne) (Con)
A number of the things that the hon. Member for Hammersmith (Andy Slaughter) suggested as being completely outrageous many of his constituents and certainly a lot of mine would completely agree with.
The Transport Committee, of which I was a member for three years, looked at this issue, and it was apparent even then that whiplash was a peculiarly British phenomenon. On the continent, particularly Germany, they do not have nearly as many whiplash injuries. I suggested at a previous stage of the Bill that this had nothing to do with the physiognomy of Germans as against that of British people. I made the point very clearly that I did not believe that their necks were more robust than good old-fashioned British necks. It was a flippant way of making a salient point: this is a national issue. In Britain, we seem to suffer from these injuries a lot more than people in other countries.
Rebecca Pow
My hon. Friend has made an amusing start to his speech. Is it not strange that while the number of traffic accidents has gone down, the proportion of whiplash claims has gone up? Is it that our necks have become flimsier? What does he put this down to? Do we not need to seriously address this issue, as we are doing in the Bill?
Kwasi Kwarteng
I am not an anatomist. I am not a biological specialist. I cannot give any scientific explanations for why our necks have become flimsier, or less sturdy, over the last 10 years. It may be related to obesity; I do not know.
This is, however, a serious issue, which has come up again and again over the last 15 years. As my hon. Friends have suggested, the number of claims has risen while the traffic accident rate has gone down. It is entirely legitimate for a Government, and, indeed, parliamentarians to ask what is going on. Something is not quite right. It is apparent that many people are making claims, which may or not be fraudulent—let us give them the benefit of the doubt—and clearly it often makes sense to an insurer to do a deal, as it were, and pay the money before the veracity or otherwise of the claim has been established, simply because the legal process would take too long.
Bambos Charalambous
Does the hon. Gentleman agree that by paying early, insurance companies are encouraging people to make these allegedly fraudulent claims?
Kwasi Kwarteng
The hon. Gentleman cannot have it both ways. It may well be the case that the companies are paying early, and clearly if they are paying early, people will be incentivised to make claims. The hon. Gentleman’s colleagues, however, are suggesting that no fraudulent claims are ever made, or that only a tiny proportion of claims are fraudulent. Logically, the more that insurers pay early, the more incentive there is to make a fraudulent claim. That is pure logic, and no great subtlety is required to appreciate it.
We have a problem. I think it entirely legitimate for insurers to pay out in order to forgo expensive legal costs. They have to manage their books and their businesses on a daily basis, and they will take a hit—if that is the right way to describe it—in order to facilitate business and manage cash flow. As we have heard throughout the debate, they are quite likely to make early payments, and as the hon. Gentleman has suggested, the more an insurer pays early, the greater incentive that gives someone to make a fraudulent or insubstantial claim.
Bambos Charalambous
Surely the answer is to fight those claims so that they do not succeed, and send the message that insurers will fight them and there will be no easy money for allegedly fraudulent claims.
Kwasi Kwarteng
If the hon. Gentleman were an insurer, managing a business on a daily basis, he would have to make a call every single day on which claims to fight and which not to fight. Often, for reasons of cost, the insurer will simply pay the money, without regard to the veracity or otherwise of the claim.
Rory Stewart
Does my hon. Friend accept that there is also the serious issue of asymmetry of information? In the case of injuries lasting less than six months, it is very difficult to prove through any medical means whether or not the injuries occurred, and therefore very difficult to defend against the claim.
Kwasi Kwarteng
In his usual philosophical way, the Minister has made an observation that goes to the heart of the problem. I opened my remarks by suggesting that insurers were very likely to pay out on claims early. He has made the point that even if it were possible to test the veracity or otherwise, it would be very difficult. Given the nature of evidence and the question of how it can be proved that an injury has actually been sustained, this will often resolve itself into an issue of one person’s word against another’s. The Minister has backed up my initial argument in his characteristically pithy way. The whole process is expensive, and for an insurer managing a business and managing a book, it is much easier and, I think, much more tempting to come up with an easy, quick-fix settlement or payment.
As the hon. Member for Enfield, Southgate (Bambos Charalambous) suggested, that in itself will incentivise and motivate claims that may be frivolous, which is a problem. He has eloquently described the circumstances in which fraudulent claims can be made, yet other Opposition Members are saying that such fraudulent claims are rarely if ever made. They are suggesting that all the claims are true and that somehow grave injustices would be perpetrated if, as often occurs across the judicial system, we were to set a tariff in this particular case.
Robert Neill
My hon. Friend is making some fair points. He says that this is not necessarily a role for judges, but would he conclude that while it may well be, as Lord Brown said in the other place, appropriate for Government to legislate for tariff-isation as a matter of policy, the views of the judges must be fully taken into account by way of consultation in setting what the level or quantum of that tariff should be and how it should operate and what practical impacts it should have?
Kwasi Kwarteng
My understanding given the nature of the Bill is that there is ample scope for a dialogue or conversation between judges—the judiciary—and the Government. However, what I am reluctant to see, and what I think many of our constituents and voters would be reluctant to see, is the power exclusively residing in the hands of judges. The Government have a duty of care to the taxpayers and to people who have insurance to try to keep these costs low. It is very funny to see Opposition Members frowning when I suggest the Government have a role to play. They are on the side of the political argument that believes in wholescale nationalisation; they want the Government to control everything. Yet in this particular instance they are expressing surprise and bewilderment, and I suggest that is completely spurious and fake.
Robert Neill
Does my hon. Friend agree that the logic of his position, which I understand, is that if we are to have credibility in taking this policy decision, those savings must actually be passed on to motorists? Does he recognise that there has been some cynicism about that in the past? We need to have mechanisms to measure very carefully that the insurance industry comes up to the mark, because it has not always had a terribly good track record in the past on that?
Kwasi Kwarteng
I agree with my hon. Friend. He is right that the insurance companies have in the past—I stress in the past—had a questionable record on some of these issues, but I repeat what I said on Second Reading: it is entirely unhelpful to bash the insurance industry or denounce it as a bunch of shysters who are ripping the public off. As I said in that debate, the insurance industry is one of our world-leading industries. We should celebrate it and be grateful for it: our insurance industry is a world-beating industry. There are not that many industries left in Britain that we can call truly world class, but the insurance industry happens to be one that is. It was nauseating and disconcerting on Second Reading—it has not happened so much today—to hear speaker after speaker on the Opposition Benches denouncing the insurance industry. They were scandalised that, God forbid, the industry should make profits, as though making a profit were in itself a moral crime. We have to try to shift the nature of the debate. The insurance industry is a world-beating industry. As my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) has suggested, we need to have some oversight to ensure that savings are passed through to the customers, our constituents.
Mrs Kemi Badenoch (Saffron Walden) (Con)
Is my hon. Friend aware that, according to statistics from the ABI, the myth about profit-making by insurance companies is a little bit overstated, and that motor insurers are actually not making a profit? The figures are being conflated with those of other parts of the insurance industry.
Kwasi Kwarteng
My hon. Friend makes an excellent point. As any student of basic economics will know, in a highly competitive industry the ability to make extraordinary profits is severely reduced. There are hundreds, if not thousands, of insurers in our highly developed, highly sophisticated market. As I have said, we are a world beater in this area, and that means that we have lots of diversity in the insurance market. Lots of insurers are going bust, but many are making money because they are well managed. That is exactly what we would expect in a competitive industry that has reached a high degree of maturity, as the insurance industry has in this country.
Going back to the provisions in the Bill, I believe that the Government are trying to do a very measured and reasonable thing. We are trying to limit the fraud—or the escalation of whiplash claims to the point that they drive up pricing in insurance. We are also saying that we will engage with the courts, as my hon. Friend the Member for Bromley and Chislehurst suggested. There is a role for the judiciary to play in this debate and in the management and setting of tariffs. Also, I would expect Opposition Members to be more enthusiastic about the fact that there is a role for the Government and the Lord Chancellor in ensuring that insurance premiums do not become excessive. There is absolutely a role for political engagement in the ability to cap a tariff, to ensure that premiums are low. This makes for a very reasonable and equitable set of demands, which is to be welcomed, and I hope that the Bill proceeds on its serene course through our Parliament.
Huw Merriman
It is a pleasure to contribute to the debate, and I am proud to follow my hon. Friend the Member for Spelthorne (Kwasi Kwarteng). I freely admit that having a tariff system in place could well result in some people receiving less compensation, but that is exactly why I support the Bill. At its heart lies an acknowledgement by those on this side of the House that insurance premiums have got too expensive and that we have to look at measures to try to reduce them.
Let us look at the logic of the position. Cars now have much safer designs and there are fewer claims overall, yet we are seeing an extra 200,000 category claims, 85% of which relate to whiplash compensation. It strikes me as completely illogical to state that there is not an issue here, when the statistics are so counter-intuitive. Something very strange is going on. The analysis shows that it is impossible to ascertain whether these extra claims are genuine, because the nature of the legal system means that it is much cheaper to settle a case and never even consider any medical evidence or reports on whether there has been an injury. To a certain extent, we could say that that is no skin off the bone for the insurers, because the cost is always paid on to the consumer. I am surprised at the Opposition’s attitude in that regard because this is one of the principles that benefits the many—those who have to pay the insurance, which is mandatory—versus the few who abuse the system. I believe that the Bill is needed.
Kwasi Kwarteng
I know that my hon. Friend has a financial background. Does he accept that, if he were managing an insurance book, it would be very tempting—indeed, almost obligatory—to reach a settlement and to make the payments? Insurers are not being vicious or in some way prejudicial if they just pay the settlement. That is how a business is managed—it just has to cut its losses at some point.
Huw Merriman
My hon. Friend is spot on. In the seven years before I came to this place, I managed the legal team that was unwinding the Lehman Brothers estate. In many instances, we looked to sue, but of course, we considered the cost of the claim and then worked out whether settlement was a better option. Settlement should always be a better option. For someone running a business, it will always be the better option if it is cheaper to settle than to pursue. All businesses operate in that manner.
It is all well and good for the hon. Member for Enfield, Southgate (Bambos Charalambous), who is no longer in his place, to say that there should be a duty on insurers to take those cases forward, but they will not because it is not cost-effective. In addition, it is difficult to disprove those particular injuries.
Victoria Prentis
Does my hon. Friend accept that there is an emotional gain from settlement? Even those of us who are lawyers and enjoy the cut and thrust of the legal process know that bringing cases forward is a stressful experience for all claimants. It is important that we put energy and effort into making claims settlable at an early stage.
Huw Merriman
My hon. Friend is right. When I was running the legal team, it always distressed me when we settled because, as a lawyer, I found the whole court process incredibly interesting, but those on the financial side insisted that we settle because that was the better business decision to make. However, my hon. Friend is right about the distress of individuals going through the process. Of course, insurers have to focus not just on the money, but on the valuable human resource implication—the manpower it takes to fight the claims.
That comes back to my point that it is not an issue for insurers if ultimately their costs are covered because the price of premium for everybody else goes up. It is no skin off the bone for them to settle, and that is what occurs. For change, Government action is required. Although I readily accept that a tariff situation is genuinely not to be found in common law, the position that we have got ourselves into means that we need to look at the system akin to the way that we consider the Criminal Injuries Compensation Authority, which fixes the tariff in the same way. That is not unusual if we look at our European friends such as Italy, France and Spain, where similar systems are in place.
I represent a largely rural constituency of 200 square miles. I have many younger constituents who find the price of insurance too great. Studies show that, for those aged between 18 and 21, 10% of their wage will be taken just to cover their insurance. In a rural constituency, there is no choice. If people do not have a car, they find it very difficult to travel. The bus services are not as they were and, without a car, people cannot get from A to B or go to work. That has a knock-on effect because 28% of my constituents are over 65—the national average is 17%—so I have a lot of older constituents who need looking after. We have high social care bills. If we lose our younger people to the cities because they cannot afford to travel around a rural constituency, the balance goes completely.
Kevin Hollinrake
Thirsk and Malton also has high social care bills, so I understand exactly what my hon. Friend says. His point about reducing the cost of premiums is very important but, fundamentally, the Bill’s provisions were set out in our 2017 manifesto. The measure is a manifesto promise, and amendment 2 simply wrecks a key premise of the Bill. That is contrary to what most people would expect when we have made a promise in our manifesto.
Huw Merriman
My hon. Friend is absolutely right. The amendment drives a coach and horses through the Bill. Yes, of course it is right to clamp down on those who claim fraudulently, and the Bill will act as an incentive for people not to do so, but the ultimate gain is that the money saved will go back into the pockets of those consumers who are currently being overcharged because of fraudulent claims. Like him, I intend that we legislate on all our manifesto commitments, this being one of them, which is why I support the Bill.
Sir Desmond Swayne (New Forest West) (Con)
What strikes me as perverse is that the original impetus for the initiative on which we are now legislating came from Labour Members. I remember Jack Straw waxing lyrical about the need to deliver what we are delivering now, and we are right to do so.
Huw Merriman
I lack my right hon. Friend’s longevity in this place to make such historical references, but it would strike anyone as common sense to look after the bulk of our constituents—our voters—by making sure they have more money in their pocket. We should all subscribe to that.
Kwasi Kwarteng
Does my hon. Friend agree that the insurance industry in Britain is something we should broadly celebrate? This idea that anyone is in cahoots with the industry, and that the industry is trying to rip off the public, needs to be addressed squarely and rejected.
Huw Merriman
My hon. Friend is right. Britain is the leading country in the European Union when it comes to insurance. The top 10 insurers are based in London, and I celebrate this international market.
Of course, the insurance industry is very critical of the Conservative party for introducing and increasing the insurance premium tax, so any suggestion that this party does everything the insurance industry would like us to do is not backed up by our decisions.
It is undoubtedly the case that our cars are now much safer and that design and technology mean that injuries should not be as prevalent as we are seeing. We have also seen the growth of claims management companies, which have driven and fuelled claims. Sometimes we see such industries moving on from one sector to take advantage of another—holiday insurance is a good example; the claims management companies have already moved into that sphere. Equally, I would like to see more done with technology to address the ability of such companies to contact me and my constituents directly. People register with BT in order not to receive unsolicited calls, yet such calls still come through regularly. I hope that the technology will eventually keep pace and close down such calls.
I have made my points more than once, and I absolutely support the Bill. Although I can see that the Opposition’s intentions are good, if the amendment were accepted, it would drive a coach and horses through the very intention of this Bill, which is to reduce premiums for all our constituents and to make it easier for them to manage and live their lives.
Mike Wood (Dudley South) (Con)
Although I originally studied law and was called to the Bar, I never practised, so I hope I may speak in the debate without being tied to any particular interest. This debate is increasingly showing a division between those on the side of personal injury practitioners, and those on the side of the overwhelming majority of our constituents who face the costs arising from an ever-escalating number of claims, of escalating value, for relatively minor injuries. My right hon. Friend the Member for New Forest West (Sir Desmond Swayne) was right to draw the House’s attention to the remarks of the former Lord Chancellor, Jack Straw. If my memory serves correctly, he told The Law Society Gazette that he was in favour of banning compensation for soft tissue injury altogether. Clearly the Bill does not go anywhere near as far as that.
Kwasi Kwarteng
So a former Labour Lord Chancellor suggested that he would ban this compensation entirely. What on earth possessed him to suggest that as a policy?
Mike Wood
Reading through The Law Society Gazette, I see that Jack Straw’s actual comment was:
“Whiplash is an innovation of fertile legal minds which has no real foundation in medical knowledge. Everybody knows the vast majority of whiplash claims are completely unjustified. I support any measures to eliminate soft-tissue injuries.”
I understand that he was referring to compensation for soft tissue injuries, rather than eliminating the injuries altogether.
Hon. Members have spoken about the apparent paradox when we have the long-term reduction in the number of road traffic accidents, the increasing safety of more of the cars on the road and the long-term reduction in the number of deaths and serious injuries as a result of road traffic accidents, and yet the number of personal injury claims for whiplash and other minor injuries having increased significantly—it has gone up by 30% in 12 years. That enormous statistical increase cannot be dismissed as coincidental.
It has been suggested that the idea of a compensation culture is more about perception than reality, but how many of us have not had regular phone calls inviting us to claim for an accident that we have not had, encouraging us with the idea that a fortune was surely around the corner if only we referred the case to the firm that was ringing us up. I have no problem with solicitors—some of my best friends are solicitors, as they say. Indeed, many years ago my wife worked with one of the country’s leading personal injury solicitors’ firms, mostly doing administration on road traffic accident claims. But we need to look at the state we are now in. All the empirical evidence suggests that the initial intentions behind addressing no-win, no-fee claims for personal injuries have generated a spiralling increase in claims that are not the result of pecuniary loss—they are about not loss of earnings or quantifiable losses, but a figure being placed on pain, suffering and loss of amenity.
Previous studies have suggested that, contrary to what others have been saying, the amounts awarded by courts in England and Wales are significantly higher than those awarded in most other European jurisdictions for personal injury claims. When there is a serious injury, especially if the effects are permanent or long-lasting, or even if it results in disability, clearly no one disputes that it is right that there is compensation, especially for the loss of opportunity and amenity caused by that injury. However, shorter-term soft-tissue injuries do not really fall within that category. That is why it is proportionate for the Bill to introduce a tariff that sets out the amounts payable for certain categories of minor, non-permanent injuries.
Bambos Charalambous
Is the hon. Gentleman aware that, under the criminal injuries compensation scheme—one of the Government’s own schemes—a person can get £1,000 for a criminal injury of whiplash? Under these tariffs, however, someone would get £470 for the same injury, except it would not have been the result of a criminal event.
Rory Stewart
Does my hon. Friend agree that these discrepancies already exist, because the criminal injuries compensation scheme is, in fact, already an example of a tariff-based system? As those discrepancies have existed since 1962, nothing in the Bill changes their basic nature.
Mike Wood
The Minister, as ever, speaks straight to the point that bringing this system in line with the criminal injuries compensation scheme is actually making parallel systems more consistent, and it is entirely logical that they should operate on similar tariff-based systems. One of the flaws in the current system is that, as the Judicial College is setting its guidelines, the awards it uses for deciding the amounts in the guidelines are not the overall amounts that are payable in the event of a road traffic accident leading to personal injury, but are based on the awards made by the court in the relatively small proportion of claims that proceed to trial and are then adjudicated by a judge. The system does not consider the very large number of claims that are settled at an earlier date when the figure would tend to be lower.
Clearly, cases that proceed to full trial are more likely to be the more complex ones. This has the effect of institutionalising an inflationary element within the guidelines as they are reviewed, because the review is only ever based on those types of claim that actually end up being the higher awards anyway. It can only ever lead to an increasing amount. The impact of that falls clearly on our constituents. We rightly insist on mandatory motor insurance. As hon. Members have said, motor insurance premiums increase rapidly. One reason why they increase rapidly is that there has recently been a large increase in the average amounts paid out for personal injury claims. If we fail to take this sensible action, those amounts can only increase, and we can expect premiums to continue to increase at around 10% annually, quickly putting them out of reach.
Kwasi Kwarteng
I am delighted that my hon. Friend is making this point. What is his view on whether the Lord Chancellor should be setting the tariff? Does that not bolster what my hon. Friend suggests—that there is a role for the Government in trying to keep insurance premium costs low?
Mike Wood
Absolutely. Although I tend to argue for a slightly slimmer role for the Government, I do think that there is a place for them in this regard. When we insist on mandatory motor insurance, there is a clear role for the Government in ensuring that pressures on the price of that mandatory insurance are kept under control as much as possible. Having the Lord Chancellor’s oversight of the tariffs is one way in which we can ensure that the people who are already struggling with the escalating costs of motor insurance do not see them taken even further out of reach.
There is a clear risk of a serious moral hazard when it comes to escalating motor insurance. The more that premiums increase, the greater the risk—the greater the temptation, we might say—for some people to take the chance illegally to fail to take out motor insurance and to drive on our roads uninsured, with everything that that implies for safety and for coverage of third parties. Given the current high levels of motor insurance premiums, research suggests that around a quarter of 18 to 24-year-olds have been tempted to try to make savings by not taking out or not renewing their motor insurance policy—driving without insurance. Surely that number can only increase if the cost of motor insurance becomes ever more expensive and increases by far more than inflation or incomes.
As the real cost of motor insurance spirals, more people will be tempted to take the risk of driving without insurance, and young people are more vulnerable to this by far because their premiums are already so much higher. Such behaviour puts other people’s safety at risk and leaves them in an even more difficult situation in the event that they need to make a claim. The number of claims against uninsured drivers increased significantly last year.
The measures in the Bill are designed to keep insurance premiums under control, which is essential if we are to have a functioning motor insurance system. That is why I am not able to support the amendment, why I shall be supporting the Bill, and why I believe that the tariff system for minor injuries is absolutely necessary and must be retained in this legislation.
Alex Chalk
It is a pleasure to follow my hon. Friend the Member for Dudley South (Mike Wood).
Whether we sit on the Government Benches or the Opposition Benches, the first thing that hon. Members have to recognise is that we do have a problem in this country; of that there can be no doubt. Other hon. Members have mentioned the statistics, but they bear repeating. In 2005-2006, there were 460,000 or so road traffic accident-related personal injury claims. Just a decade later, that number had soared by 40-odd per cent. to 650,000. There must be concern that the circumstances exist in our country to create an unnecessarily fertile ground for spurious and unfounded claims. What are those circumstances? They include the fact that instead of challenging whether a whiplash claim is dishonest or otherwise unfounded, insurers will take a commercial decision to pay out, because that will be in their interest. As other Members have indicated, the effect of that is that ordinary people living on modest incomes are finding themselves having to pay more for their car insurance than would otherwise be the case.
It is a great mistake to say, as some do, that a car is a luxury—to say, “You don’t need your car; alternative transport methods should be satisfactory.” For plenty of my constituents, that simply is not the case. We currently have a big issue in Cheltenham with the closure of Boots Corner, a key arterial route through the town. One argument made by those who favour closing off the road is that people can get around on bikes. That might be okay for some people, but for plenty of my constituents—including nurses, people ferrying around their children, and people with disabilities—it is not. We have a duty in this House, wherever we stand, to drive down the costs of living for hard-working people and their families.
We have to be clear on what the legislation is not about. A lot of the points made by Opposition Members are motivated by the best of intentions. I have served on the Justice Committee with several Opposition Members, and they have shown great distinction—if I may be so bold—and argued vigorously and passionately for the principle of access to justice and on employment tribunal fees, to which the hon. Member for Lewisham West and Penge (Ellie Reeves) referred. But that is not what this legislation is about. It is important not to set up straw men to knock down. Were this debate about LASPO, access to justice and ensuring that people could get early legal advice and assistance, I would have an awful lot more sympathy, but in fact is far more restricted, calibrated and proportionate.
First, this debate and the provisions in the Bill are not about people who sustain whiplash injuries and whose pain, suffering and loss of amenity last beyond two years. If they do last for longer than two years, the case of course falls outwith the tariff system. Secondly, this debate is not about special damages. Let us consider a run-of-the-mill case in which somebody is involved in an accident, makes a whiplash claim because they have a sore neck, spends time off work and incurs taxi fees going to and from the doctor and various other fees. Such special damages would not be subject to any kind of tariff and could be claimed in the normal way. In other words, if someone was off work for, say, nine months, the mere fact that their general damages for pain, suffering and loss of amenity had been capped would not in any way preclude them from seeking the full extent of their special damages. That is why it is important to draw a distinction.
Andy Slaughter
I should say that I have secured a three-hour Westminster Hall debate on the LASPO review, access to justice and all such matters on 1 November. I look forward to having the hon. Gentleman join us and to his being fully supportive of my speech.
On this issue, the hon. Gentleman may want to address specifically the issue of the level of the tariff. I hear what he is saying, but what about the level of damages, which cannot in any way compensate for what are in many cases real injuries?
Alex Chalk
I am grateful to the hon. Gentleman for making that point about LASPO, because if I may say so he is on stronger ground on that territory and I look forward to attending his debate and making some observations. That debate truly is about a cardinal principle that we in this Chamber should all share: whatever a person’s circumstances, they should be entitled to access to justice. It would be quite wrong, though, to conflate that debate with the one we are having.
On the tariffs, I do not suggest that this is the case for the hon. Gentleman, but there cannot be synthetic outrage. If someone has suffered pain, suffering and loss of amenity to the extent that their symptoms endure beyond two years, they are entitled to get whatever the judge thinks appropriate. We are dealing with claims that, although not insignificant, are towards the lower end of the spectrum. That needs to be borne in mind.
Ellie Reeves
The hon. Gentleman is right in saying that special damages are not included in the tariff. However, the point that needs to be made is that under the tariff system someone could, as he rightly points out, be off work for a very, very long time, but because of the way that the tariffs are set, their claim would fall into the small claims track, meaning that they would not be able to have their legal costs covered, so would be unlikely to get representation for their claim. That is likely to mean that they could have a big special damages claim that is never recoverable because they will be unable to afford to pursue their claim. Does he agree?
Alex Chalk
No, I do not. First, in any event, as the hon. Lady knows, if the person’s claim extends beyond £5,000, it will go on to the fast track, so they will be entitled to get that cost. Secondly, the concern that a number of solicitors raise about this is to say, “The really difficult thing that you need to claim—the thing that is hard sometimes to prove—is the general damages element.” That is why they have become so indignant about it. In fact, the special damages claim is rather easier to quantify, and I do not think that people would, in effect, be frozen out of justice. Thirdly—if this aspect of the Bill had not been changed, I think I would be opposing it—for the really difficult claims where, for example, somebody has been injured at work and faces, as I accept entirely, the added burden of having to take on their employer, the threshold does not apply in the same way. It is absolutely right that the Government have moved on that to ensure that anything above £2,000 means that people go on to the fast track.
On the hon. Lady’s specific point about the tariff, is it right to say that this is an egregious departure from anything that we have known before in English law? That is putting it far too high. My hon. Friend the Minister has already indicated that the Criminal Injuries Compensation Authority sets that principle in any event. Furthermore, it is a principle adopted in plenty of other countries that are signatories to the European convention on human rights, Italy for one.
It is also worth stepping back to consider the criminal law. Before the Sentencing Guidelines Council, as it was then called, started to set its guidelines in terms of tariffs for criminal penalties, there was a concern that it would be intruding on the discretion of the courts, but in fact it has worked very well. Defendants, lawyers and judges have really welcomed the guidelines, which set clearer tariffs, because that provides a degree of clarity. Of course, it is not a direct equivalent because judges still retain some discretion within the guidelines, but it does make the point that completely open-ended discretion does not exist everywhere throughout the legal system.
There are other mitigating factors that allow me, and people like me, to conclude that these are fair and proportionate proposals. First and most important is the exceptional circumstances uplift. Clause 5(1) says:
“Regulations made by the Lord Chancellor may provide for a court—
(a) to determine that the amount of damages payable for pain, suffering and loss of amenity in respect of one or more whiplash injuries is an amount greater than the tariff amount relating to that injury”.
In other words, there is a safety net in circumstances where the law would otherwise do an injustice. That is really important and ought to give a lot of comfort to Opposition Members who might otherwise be concerned. The second reason I feel comforted is that the tariffs are clearly going to have the engagement and input of the judges. That is why Lord Brown concluded that there was nothing wrong in principle with a tariff system.
There are of course things that have to be got right. It is critically important that any savings that are derived from this are truly passed on to motorists. I want to ensure that constituents in Cheltenham receive the benefits. We need to ensure that young people who are setting out on their careers and need their car for work, for whom every last £10 is critically important, will be receiving these benefits. If they do, then my clear view is that these principles are sensible, proportionate and calibrated, and have a safety net. Even though—I probably ought to have declared this at the beginning, Madam Deputy Speaker—my wife is a personal injury lawyer, I feel confident that I can take on the domestic dispute just as I have taken on Opposition Members in this House.
Jack Brereton (Stoke-on-Trent South) (Con)
It is a pleasure to follow my hon. Friend the Member for Cheltenham (Alex Chalk) and to speak in the debate, to oppose amendment 2, tabled by those on the Labour Front Bench. I will add to the remarks that I made on Second Reading and in the Public Bill Committee.
This is a very important piece of legislation for the insurance industry and, more importantly, for customers of the insurance industry—our constituents up and down the country—who will benefit from it. As I found in my Westminster Hall debate on road safety last week, which I was pleased to secure, there is great interest from Members right across the House in matters relating to traffic accidents and the causes and mitigation of crashes. It is not a surprise to me that this legislation regarding appropriate compensation for certain collisions has attracted a great deal of interest and scrutiny.
Our debate in Westminster Hall attracted a range of thoughtful and personal contributions about specific cases in Members’ constituencies. That is relevant to this amendment, because many Members raised the importance of addressing this not just through legislation but, importantly, through action on the entire road network. I was pleased to see the report by the Parliamentary Advisory Council for Transport Safety, in association with Ageas Insurance, which looks at a systemic approach to improving road safety, so that we can reduce the number of whiplash claims and, most importantly, the number of people seriously injured or killed on our road network.
I am grateful to the Minister for the clarity that he brought to aspects of the Bill in Committee. Although I thought the Committee was dealt with very efficiently and we got through it pretty quickly, we had a great number of interesting contributions from Members across the Committee. I am sure the Minister’s remarks will be similarly informative and comprehensive today.
I want to move on to safer vehicles, particularly in relation to whiplash. One notable feature of any debate on road safety and traffic collisions is the focus on how much safer our cars, vans and lorries are today than they were only a decade ago. They are safer by design, and the advances in building motor vehicles that cause much fewer more serious injuries on impact are hugely welcome. Indeed, the number of accidents has fallen by almost a third since 2005.
As the Minister noted in Committee, the percentage of cars with safety features specifically designed to reduce whiplash has increased from only 15% in 2005 to nearly 85% now—that is to say, the position is completely reversed. Whereas only 15% of cars used to have anti-whiplash safety features, now only 15% do not have them. That is still too high a percentage, but vast progress has been made. Despite the 30% reduction in road traffic accidents, the number of whiplash claims has increased remarkably, by 40%. Something does not add up, and the Bill seeks to address concerns that certain claims are either exaggerated or unfounded, forcing up insurance premiums at an alarming rate.
I have something of an interest to declare. As I said on Second Reading, as a young driver I will be particularly advantaged by this legislation. I have been hit by higher insurance rates, which are adding significant costs for people of my generation and for our constituents right across the country. I am reassured that there has been meaningful engagement with the insurance industry by the Government throughout the process of the Bill, with both Government and industry working to get the legislation right for consumers and focusing on how we can ensure that insurance premiums do come down.
As I have said before, Ageas Insurance, which is one of the largest insurance providers in the UK, employs more than 400 people in my constituency. It has very much given me the assurance that it absolutely persists in its support for the changes proposed, which will entirely benefit its policy holders and our constituents. Those policy holders have faced massive increases in bills, but they should now at last see some respite and reductions.
The insurance industry’s support for the legislation is shared by the vast majority of the public. This is not just about the insurance industry pushing an issue; it is about the majority of the public pushing for what they believe is the right thing to do. We are fair-minded people in this country and, particularly in Stoke-on-Trent, we are not comfortable with the idea of a compensation culture. While resolutely recognising that, where there is clear medical evidence, liability must of course mean consequences for those at fault, that should not apply to those who seek to abuse the system.
What will the Bill do? It will reduce insurance premiums for hard-pressed motorists by adjusting how the personal injury discount rate is set. It is not about stopping those who genuinely deserve compensation from getting the settlement they justly deserve. It is of course a matter of justice that we have a system of rules under which everyone plays by those rules, without allowing them to play the system.
It is very welcome that the Government are introducing a new tariff specifically to target the exaggerated and fraudulent whiplash claims that have driven up insurance premiums. The creation of a new fixed compensation level for whiplash injuries is exactly the right thing to do to address the general and obvious anomaly that the number of accidents is going down but the number of claims for whiplash is going up. Equally, it is the right thing to do to ensure that there are provisions to increase compensation in exceptional circumstances. That stands in stark contrast with the current situation, where financial compensation figures are negotiated by the force of will and expertise in the opaque language or legalese of the interested parties.
I stress that these changes are not about denying genuine claims, but about discouraging speculative or exaggerated claims and claims with no just foundation. Such claims have the unjust consequence of forcing up insurance premiums to pay claims-chasing lawyers. I am glad that the Government have been so clear in attempting to get the balance right. As the Minister said in Committee, the Lord Chief Justice should be consulted on the levels of tariffs, as well as on the percentage uplift for judicial discretion. It is right that this should be done in an accountable, responsible, transparent and predictable fashion. I am sure the Lord Chancellor will be in no doubt about the feeling of this House that that should be done. He is accountable to this House, of course, and it should be reassuring to Members that his Ministry has modelled its approach to setting the tariff on that used in other countries, such as France and Italy.
It should be remembered that the bone of contention is not damages paid out for serious, long-lasting cases of whiplash but the anomalous prevalence of minor claims. The Bill addresses that by ensuring that when someone makes a claim for whiplash injuries, it is backed up by medical evidence and the damages are proportionate to the injury suffered. It will also ensure that those who have suffered life-changing injuries continue to receive 100% compensation—that is a key principle of the Bill.
Clearly the current balance is not right, with ordinary motorists being unfairly penalised through needlessly over-inflated premiums. That does not seem the best value for taxpayers’ money. Without reform, motor premiums could continue to rise by about 10% a year, which is shockingly high and unsustainable for working families and, especially, younger motorists. The Government argue that the whiplash reforms in the Bill will restore a sense of balance to the insurance and claims system, delivering about £1.1 billion of consumer savings every year. That could mean motorists’ insurance premiums falling by an average of £35 a year, with the high level of competition that is currently prevalent in the industry ensuring that it is the customers—our constituents—who benefit by far the most. This cannot and will not, of course, be a straight switch from a money grab by lawyers to a money grab by insurers.
I want to go through some of the key things that the Bill will achieve in this area. About 650,000 road traffic accident-related personal injury claims were made in 2017-18—nearly 200,000 more than in 2005-06. The Government estimate that about 85% of them were for whiplash-related injuries. Those figures remain high despite a reduction in the number of road traffic accidents reported to the police and improved vehicle safety. The continuing high number and cost of claims increases the cost of motor insurance premiums to ordinary customers and consumers, which was why, as has been said today, the 2017 manifesto included a commitment to reduce insurance costs for ordinary motorists by tackling fraudulent and exaggerated whiplash claims. That is a key commitment for the Conservative Government.
The introduction of a tariff will both simplify the process for genuinely injured whiplash claimants and ensure that they receive proportionate compensation. In addition to a tariff payment, all claimants will continue to receive special damages covering compensation for any actual financial losses suffered as a result of their accident. The new measures will reduce and control the cost of whiplash claims and disincentivise unmeritorious claims. A tariff system is consistent with other schemes, such as the criminal injuries compensation scheme, which other countries right across the world use.
Having introduced a tariff system, it is essential that we provide that the Lord Chancellor must regularly review the level of the tariff, as clause 4 provides for. However, the Government recognise that there may be exceptional circumstances in which higher levels of compensation are needed, and I very much welcome that. For that reason, clause 4 also allows a judge to determine a higher level of damages. It is right that that remains part of the Bill.
Mrs Badenoch
I rise to speak in support of the Bill and to oppose amendment 2. First, however, I will remind the House why we need the Bill; we have heard it over and over again in the debate. I know that other Members have had similar experiences of nuisance calls from ambulance-chasing companies, and many of my constituents certainly have. As of this week, I am still receiving calls from companies telling me that they had heard I had been in a car accident that was not my fault—this must have been the 10th time that I received such a call this year. Needless to say, I have not been involved in any car accident then or since.
However, this debate is not about nuisance calls, but about the incentives behind them, which are to encourage unnecessary and, in many cases, fraudulent insurance claims that are difficult, if not impossible, to prove. If we remove the incentive for claims companies to act in this way, we will get rid of the ones encouraging fraud and probably the nuisance calls as well. So many would welcome this. Because of the actions of these companies, insurance premiums for honest, safe and sensible drivers reached a record high of £493 at the end of 2017. As other Members have mentioned, young drivers in particular already pay over double the average premium.
For so many of us, motor insurance premiums are one of the highest bills we pay. The Government have repeatedly expressed that their mission is to get a country that works for everyone, and reducing costs for the “just about managing” is one way to do that. It has also been said several times in the debate that these measures, alongside the secondary legislation, will reduce the cost of motor insurance premiums on average by around £35 a year. I know that many of my constituents would appreciate much lower motor insurance premiums.
I also echo the points made by my hon. Friend the Member for Bexhill and Battle (Huw Merriman) about the strain on public services. At present, with a discount rate of minus 0.75%, the NHS is overpaying on claims for clinical negligence, which is adding to pressure on the public purse. In 2017-18, around £400 million in additional funds had to be provided to the NHS as a consequence of the change in the discount rate. In 2016-17, the NHS spent £1.7 billion on clinical negligence cases. The annual cost has almost doubled since 2010, with an average 13.5% increase every year. Like everyone in this House, I am looking forward to the end of austerity, and perhaps this Bill can help us to get there.
Huw Merriman
My hon. Friend is making an excellent speech. She brought up the discount rate and I could not resist the temptation to intervene. I absolutely welcome changes to the discount rate, but would she like to see a future in which, rather than one lump sum being paid out for compensation for the rest of someone’s life, we look more at doing this on an annual basis? That may make the overall costs more reasonable and make it less likely that investments will go wrong.
Mrs Badenoch
I thank my hon. Friend for making that very good point. This argument was made during the Justice Committee’s evidence sessions, and I am in two minds about it. There are good reasons to have both. An annual payment can help to reduce strain in the long term, but for some people, the constant payments would be a reminder of a particularly traumatic accident. Perhaps we need a flexible system that can accommodate both, depending on a claimant’s particular circumstances, but I thank him for raising that point.
I do not believe we need amendment 2. The purpose of the tariff as set out in clause 3 is to simplify the process for those who have been injured while ensuring they receive compensation that is proportionate. Not only that, but claimants will continue to receive special damages for any financial losses they suffer as a result. Similar systems are in use in countries such as Italy and Spain, which have already seen positive impacts on both the number of claims and the cost of premiums.
The Opposition are concerned that the tariff cannot be varied according to individual circumstances, but this is not the case. As my hon. Friend the Member for Middlesbrough South and East Cleveland (Mr Clarke) has already noted, the tariff is staggered to account for the duration of the injury, whether that be between four and six months or, at the highest end of the spectrum, 19 and 24 months. Furthermore, clause 5 allows judges the discretion to make awards above the tariff level when the individual circumstances merit it. Amendment 2 seeks to remove this clause, as well as clause 4, under which the Lord Chancellor can regularly review the tariff. That would not be right.
The Government have noted that about 650,000 road traffic accident personal injury claims were made in 2017-18. An estimated 85% of those claims were for whiplash-related injuries. That is over 550,000 whiplash claims. As many Members have said, however, there has simultaneously been a reduction in the number of road traffic accidents reported to the police, while improvements continue to be made in vehicle safety. This is leading to increasing premiums for my constituents, and that cannot be right.
It seems to me, from listening to this debate, that Parliament is caught in a technical argument between the insurance lobbyists and the legal services lobbyists. I speak here on behalf on my constituents. I am keen to hear from the Minister how the Government can ensure that cost savings reach the consumer and are not negated by future policy proposals. Having said that, the Bill is an opportunity for the Government to bring down premiums and let people keep more of their own money in their pockets. That is a principled and Conservative ideal. Removing clauses 3, 4 and 5 would go against all efforts to help them and the taxpayer.
Huw Merriman
Would my hon. Friend also recognise that we have a good track record on this? A few years ago, when the Government made changes to the civil litigation procedure, an average of £50 was knocked off insurance premiums as a result.
Mrs Badenoch
I thank my hon. Friend for making that point. It is something I would have liked to say earlier, and I am glad he was able to make it for me.
In conclusion, the Bill fulfils a manifesto commitment by my party and should make it easier for genuine whiplash claimants. I will be supporting it tonight, but not, I am afraid, Opposition amendment 2.
Mary Robinson (Cheadle) (Con)
It is a pleasure to follow my hon. Friend the Member for Saffron Walden (Mrs Badenoch). As we have heard, the Bill makes important changes to our personal injury compensation system, and although I broadly support its aims and measures, I would like to put on the record a few of my concerns and those raised with me by lawyers and constituents.
The Bill is long overdue. The last increase to the small claims limit was made in 1991. As we have heard, data from the Department for Work and Pensions reveal that about 650,000 road traffic accident-related personal injury claims were made in 2017-18 and that about 85% of these were for whiplash-related injuries—a higher rate than in any other European country. Department for Transport figures, however, show that from 2007 to 2017 reported RTAs fell by 30%.
Clause 3 introduces a tariff for compensation in whiplash claims. Lawyers who have contacted me and met to discuss this have supported the arguments made by the Access to Justice Foundation, which has estimated that the proposed new tariff would deny 600,000 people injured on our roads each year the right to legal advice when seeking compensation.
The question I have asked is: how does this value equality and fairness in comparing types of injury under the compensation regime? For instance, under the proposed tariff, if I experienced an injury in a road traffic accident that lasted up to three months—as I have in the past—I would receive £235 in compensation. Compensation varies across many sectors. If my train journey from London to Stockport, a route on which I travel every week, were delayed by two hours, I could receive up to £338. Under these proposals, the same injury would attract less compensation simply because it was sustained in a road traffic accident rather than in another way.
Rory Stewart
I am interested by my hon. Friend’s speech. She said that she would be entitled to compensation amounting to £338 for a two-hour delay. Is that compensation for the ticket that was purchased? What is the nature of the compensation?
Mary Robinson
I am talking about the compensation that would normally be paid by train operators.
It is important that we tackle whiplash fraud, but it is hard to explain to those who are injured that the same injuries sustained in different circumstances—for example, a comparable injury at work—should be compensated differently. Under the reform proposals, someone who had been involved in a road accident would be entitled to £3,910 for a whiplash injury lasting up to two years, but would be unable to recover the cost of paying a lawyer to assert their rights. Someone who suffered an identical injury at work would be entitled to £6,500, and would be able to recover costs. For many people, it goes to the heart of ensuring fairness that comparable injuries should attract comparable awards—if awards are indeed to be given—whether those injuries were sustained in a road traffic accident or incurred at a place of work.
If, as is hoped and predicted, these changes result in savings to the insurance industry, it is important for members of the public to see that the savings are passed on via reduced premiums. Concerns were raised about that in Committee, and I am encouraged that the Government accepted amendments that will hold insurers to account. As amended, the Bill places a statutory requirement on insurers to provide the Financial Conduct Authority with certain information to enable Treasury Ministers to report to Parliament on whether the insurers have upheld their public commitments by passing on savings. The Government have estimated that these measures would lead to a reduction in motor insurance premiums of approximately £40 per customer per year. I expect the industry to demonstrate that savings are being appropriately passed on, so that consumers can see fairness in the insurance system.
Craig Tracey
Is my hon. Friend aware of the support for the Bill in its current form? A survey conducted by Consumer Intelligence showed that the most important factor in a low-value personal injury claim was a simple claims process, and the least important factor was the ability to claim back their legal costs.
Mary Robinson
It is absolutely right that people support reform of the system, and I support the Government’s action in doing so. I am keen to ensure that we can secure fairness for everyone through the Bill.
According to the recent AA British insurance premium index, these reforms have already triggered a fall in premiums owing to the expectation that claim costs will fall, and only yesterday it was reported that motor premiums had fallen for the first time in years: last month they were almost 10% lower than they had been in the same month in 2017. That means that the average driver is £45 better off as a result. Consumers will be pleased with lower premiums, but they must be convinced that that is worth any detriment that they may experience should they become victims of traffic accidents.
We might not be having this debate at all were it not for fraudulent claims. I can almost guarantee that, at some point in the past year, every Member—including, perhaps, the Minister—will have been contacted by a claims management company, usually wrongly asserting that they have been involved in a car accident recently, and can lodge a claim. That seriously concerns and aggravates many people. A 2017 YouGov report shows that more than two thirds of people are in favour of a ban on cold calling for personal injury claims. Cold calling is a particular issue for the vulnerable and the elderly, who may be talked into making fake or exaggerated claims. A Justice Committee report earlier this year stated that the recent restrictions on cold calling by claims companies
“do not go far enough and that an outright ban should be introduced.”
Stephen Kerr (Stirling) (Con)
My hon. Friend will know that I introduced a ten-minute rule Bill on nuisance calls. This Bill goes some way towards addressing the issue—there is no denying that—but does she believe that we could go further and hold the directors of companies who are responsible for cold calling directly responsible for any fines that arise from their activities?
Mary Robinson
I am grateful to my hon. Friend for making that point. That should be explored and people would welcome it because they would see that we were being positive in addressing this.
Throughout the Bill’s passage, I have met regularly in my weekly surgeries with solicitors and law firms that have been engaged in this process. They have impressed me, and impressed upon me their pursuit to help the vulnerable who are injured and to ensure that we have a justice system that works, is fair and protects people.
I thank the Minister for his continued engagement and openness with me and colleagues as the Bill has progressed through both Houses. He has been open to all my questions and I am grateful for the way he has dealt with them. I look forward to this Bill progressing. I know that there will be a spirit of openness and transparency as it does.
Rory Stewart
I again thank all Members who have participated.
Amendment 2 relates centrally to the core of this Bill, which is about the question of the setting of tariffs. We have discussed this with great verve and vigour from many different sides. The first debate that has taken place in the last hour and a half has been about the purpose of these tariffs: why we are introducing them in the first place. The reason why comes out of a perception of an anomaly. That anomaly can be seen either, as my hon. Friend the Member for Bexhill and Battle (Huw Merriman) pointed out, in terms of the fact that the number of car crashes is coming down and cars are getting safer, but at the same time the number of whiplash claims over the same period has increased dramatically; or, as my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) pointed out, in terms of national differences. There are many more whiplash claims from Britain per head of population compared with Germany or France, leading to my hon. Friend speculating on biological differences.
The second debate has been about proportionality. That argument was made by, for example, my hon. Friend the Member for Middlesbrough South and East Cleveland (Mr Clarke). He was essentially arguing, along with the former president of the Supreme Court, Lord Brown, that there needs to be a closer relationship between the amount of compensation paid and the nature of the injury suffered. As Lord Brown said in the House of Lords:
“lesser injuries were altogether too generously compensated, certainly in comparison to the graver injuries”.—[Official Report, House of Lords, 10 May 2018; Vol. 791, c. 306.]
The idea of proportional compensation for a type of injury was central to the argument of my hon. Friend the Member for Middlesbrough South and East Cleveland.
My hon. Friend the Member for Dudley South (Mike Wood) reminded us that the former Labour Lord Chancellor, Jack Straw, had serious concerns about compensation for soft tissue injury and that this form of car insurance is mandatory, putting a particular obligation on the House of Commons when it considers it. But, characteristically, the most “sensible, proportionate and calibrated” speech came from my hon. Friend the Member for Cheltenham (Alex Chalk), who, by using those three adjectives to define the nature of the tariffs, brought us, in a huge move, from jurisprudential reflections on the nature of tariff systems to a disquisition on rural transport in Cheltenham. My hon. Friend the Member for Stoke-on-Trent South (Jack Brereton) brought it down to earth with a good focus on safety in vehicles.
Robert Neill
I cannot let the Minister move on from the important and significant points of my hon. Friend the Member for Cheltenham (Alex Chalk) without observing that he emphasised the role of the Lord Chancellor in consulting with the Lord Chief Justice in the setting of the tariffs. That is an important safeguard. Can the Minister tell us a little more about how it is envisaged that that will work?
Rory Stewart
Absolutely. This is a concession that we have inserted into the Bill partly due to pressure from my hon. Friend, the Chairman of the Justice Committee, and from other Members, including my hon. Friend the Member for Cheadle (Mary Robinson). It means that the Lord Chancellor, when reflecting on the nature of the tariff in a judicial capacity, will consult the Lord Chief Justice. That concession in the Bill, combined with the strong emphasis on judicial discretion allowing the tariffs to be uplifted, will be central to our attempt to reconcile a tariff-based system with the tradition of English common law. Through it, we hope to address some of the concerns raised by Lord Woolf.
We have discussed the purpose of the Bill, and the way in which getting rid of the tariffs as suggested in amendment 2 would undermine the central purpose of getting a more affordable system into place. We have made a number of concessions in order to meet concerns raised by many distinguished colleagues around the House, including individuals with experience of personal injury law and those with experience as constituency MPs of the honourable and serious work done by personal injury lawyers. I shall show respect to the House and touch on some of those concessions.
In the initial proposals put forward by the Chancellor of the Exchequer in the autumn of 2015, the suggestion was that there would be no general damages payable at all. That was roughly the argument made by the former Labour Lord Chancellor, Jack Straw. We have moved away from that position and accepted that general damages should be paid, but we have suggested that there should be a tariff for those damages. As my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) has said, we will consult the Lord Chief Justice on that tariff and there will be judicial discretion. There is a precedent on tariffs—they exist in Italy and Spain—and there is even a precedent in English common law in the criminal injuries compensation scheme.
The benefits that we believe a tariff system will deliver include a reduction in the cost of this form of transaction and, hopefully, through that, a reduction in the number of potentially exaggerated or fraudulent claims. That would have an advantage for general public policy in that people would not be encouraged to make fraudulent claims. We believe that the system will also provide certainty and predictability to claimants, especially when they are connected to an online portal that will ensure that they follow a particular sequence. They will proceed to the online portal, then, for the first time, they will be required to go to a medical practitioner specialising in whiplash claims who would give them a prognosis of, for example, six months, 12 months or 24 months. On the basis of that prognosis, through the portal, a fixed tariff would then tell them exactly how much they would be given. This should mean that in the overwhelming majority of cases there would be absolutely no requirement to proceed to court. In any cases where we did proceed to court, we would rely on the small claims process in order to settle the claim, using the tariffs to reinforce the process.
The speeches so far have not touched on Government amendment 1, which I hope all Members, including Opposition Members, will be happy to accept. Clause 5(7)(a) states that the term “tariff amount” means
“in relation to one or more whiplash injuries, the amount specified in respect of the injury by regulations under section 3(2)”.
Clause 3(2) refers to the
“amount of damages for pain, suffering and loss of amenity payable in respect of the whiplash injury or injuries”.
In other words, clause 3 refers to “injury or injuries”, whereas clause 5 refers simply to “the injury”. The proposal in Government amendment 1, recommended by parliamentary counsel, is that we deal with the discrepancy by inserting “or injuries” after “the injury” in clause 5(7)(a). I hope that the Opposition will be happy to accept that suggestion.
That brings us back to the central issue of the way in which tariffs are set. The hon. Member for Hammersmith (Andy Slaughter) focused a great deal on the notion that the tariffs were somehow inequitable in terms of the damage that individuals have suffered. The hon. Member for High Peak (Ruth George) said several times that we should not refer to these types of injuries as minor. I want to emphasise that the phrase “minor injuries” is derived from Judicial College guidelines, not from the Government or any political party. It is simply a long-standing convention to refer to injuries of under two years’ duration as minor injuries, and that relates to Sentencing Council guidelines for injuries of under two years’ duration.[Official Report, 3 December 2018, Vol. 650, c. 6MC.]
As hon. Members have pointed out, people who suffer, particularly from whiplash injuries of longer duration, might also lose earnings, have considerable medical costs, have to go to a physiotherapist and so on. Although those arguments were well made, for example by the hon. Member for Bridgend (Mrs Moon) on Second Reading, they overlook the central fact that the tariffs will apply only to general damages. An individual who has suffered loss of earnings or who needs extra care costs can apply for special damages in the normal way. The Government propose no change to special damages.
On the arguments of the hon. Member for Hammersmith about the levels of the tariffs, we have attempted to achieve a reduction in the tariff at the lower end. For example, an individual who suffers an injury of under three months’ duration could receive damages considerably less than those in the current guidelines, but I hope that the hon. Gentleman accepts that, as we approach a duration of two years, the compensation offered begins to merge much more closely with the existing guidelines at a level of £3,600.[Official Report, 3 December 2018, Vol. 650, c. 6MC.]
In addition, as the Chairman of the Justice Committee pointed out, the levels of the tariffs are currently proposals about which the Lord Chancellor will consult the Lord Chief Justice. He will do that not just once but regularly, on a three-yearly basis, to ensure that our calculations on pain, suffering and loss of amenity reflect judges’ views.
It must be remembered that, ultimately, judgments on pain, suffering and loss of amenity are difficult. As my hon. Friend the Member for Cheltenham (Alex Chalk) pointed out, the question of how much compensation somebody receives for a loss of earnings is relatively easy to calculate, because the figure can be derived from the earnings. The amount of money to which someone is entitled for medical costs is, of course, directly derived from the cost of medical care provided. However, in the case of general damages, a judge must attempt to decide the subjective impact of pain on the individual and assign a financial cost to it. That cannot be anything other than a subjective judgment. There is no objective scientific formula for comparing pain with cash, because the cash is designed not to eliminate that pain, but in some way to acknowledge it. Whether we are talking about the criminal injuries compensation scheme, under which our constituents frequently come forward with examples of what they rightly and subjectively experience as a huge discrepancy between the depth of horror they have suffered at the hands of criminals and the amount of compensation offered, or the tariffs for pain, suffering and loss of amenity under the Bill, in the end the compensation provided cannot constitute anything other than a symbolic judgment, with the court or the Government acknowledging that no amount of money can remove the pain, but with the amount designed to be a public recognition that that pain exists.
The former Justice of the Supreme Court, Lord Brown, is an important guide, and his statements in the House of Lords give us all a sense of reassurance on a tricky bit of law. He feels that two important principles are at stake. The first is that there is a moral hazard and societal issue taking place, in that both the incidence of car crashes and, on a national comparison with Germany and France, the disproportionate number of whiplash claims compared with what would be expected both in terms of automobile design and the biology of the human body, need to be addressed—in other words, fraud needs to be addressed. The second is that there has been an anomaly in law whereby some of the graver injustices, and graver injuries and suffering, have been proportionally undercompensated compared with cases of suffering minor whiplash injuries—the majority of cases before the courts—which involve a duration of only three or six months.
Mr Deputy Speaker (Sir Lindsay Hoyle)
I ask the Serjeant at Arms to investigate the delay in the No Lobby.
Mr Deputy Speaker (Sir Lindsay Hoyle)
I will now suspend the House for no more than five minutes in order to make a decision about certification. The Division bells will be rung two minutes before the House resumes. Following certification, the Government will table the appropriate consent motions, copies of which will be made available in the Vote Office and distributed by the Doorkeepers.
Mr Deputy Speaker (Sir Lindsay Hoyle)
I can now inform the House that I have completed certification of the Bill, as required by the Standing Order. I have confirmed the view expressed in the Speaker’s provisional certificate issued yesterday. Copies of the final certificate will be made available in the Vote Office and on the parliamentary website. Under Standing Order No. 83M, a consent motion is therefore required for the Bill to proceed. Copies of the motion are available in the Vote Office and on the parliamentary website, and have been made available to Members in the Chamber. Does the Minister intend to move the consent motion?
Rory Stewart
indicated assent.
The House forthwith resolved itself into the Legislative Grand Committee (England and Wales) (Standing Order No. 83M).
[Sir Lindsay Hoyle in the Chair]
The Chairman of Ways and Means (Sir Lindsay Hoyle)
I remind hon. Members that, if there is a Division, only Members representing constituencies in England and Wales may vote.
Motion made, and Question proposed,
That the Committee consents to the Civil Liability Bill [Lords].—(Rory Stewart.)
Pete Wishart (Perth and North Perthshire) (SNP)
It is always a pleasure to serve under your chairmanship, Sir Lindsay, especially when we are in such privileged surroundings as the de facto English Parliament. As you know, I always think that it is important that we mark and commemorate these auspicious occasions when English Members of Parliament get the opportunity to express their true English political values and to get to their feet, en masse, to discuss and debate these critical English-only issues. I also like to make a contribution in these events, as you know, Sir Lindsay. I have the proud record of having taken every single opportunity to speak when the English Parliament has met. In fact I have got the record—I have taken up something like 80% of the time in the English Parliament.
What surprises me is that when this opportunity is available to English Members, they cannot seem to bring themselves to actually consider and debate these critically important issues. There are important issues in this Bill that are English-only. In fact, the whole Bill is English-only, which rather prompts the question of why on earth we are doing this. I know that the Serjeant at Arms needs a bit of exercise, and it is quite an onerous responsibility to take the Mace down and then put it back up. We obviously need an opportunity to see if the Division bells are still working, so the bells will go on and off, but then nothing ever happens. What is the point of this ludicrous session that we go through every time that a Bill has been certified in this way?
Patrick Grady (Glasgow North) (SNP)
My hon. Friend is absolutely right to ask what is the point because under the Government’s position, this English Parliament passes a legislative consent motion, but the experience of the Scottish Parliament is that legislative consent motions are worthless, and that the Government do not need legislative consent motions from the constituent parts of the United Kingdom to pass their legislation.
Pete Wishart
My hon. Friend makes a good and valid point, because legislative consent does seem to mean different things in different Parliaments. Here, for example, we have the Legislative Grand Committee: an innovation of this Parliament to allow English Members the opportunity to put forward their own particular English-only issues and amendments. In Scotland, of course, we have legislative consent motions that require our Scottish Parliament to agree, on its own behalf, to legislation passed in this House. There seems to be a particular problem with this. We have our own Parliament that is responsible for legislative consent motions, which are now more or less ignored by this Parliament. Here we have the English Legislative Grand Committee squatting in the UK Parliament. This is the Parliament of the United Kingdom of Great Britain and Northern Ireland, but somehow it still operates as a de facto English Parliament and as the venue for this Legislative Grand Committee.
It strikes me that that might be a bit odd. I have a little solution that I have presented to this House before, thus far without any great success and without anybody really paying attention to what was suggested, so I will make one more attempt: how about English Members getting their own Parliament? Then there will be a Scottish Parliament, a Welsh Assembly, a Northern Ireland Assembly and an English Parliament. Then, instead of having all these Legislative Grand Committees, we can all come together in a United Kingdom Parliament that is responsible for particular, defined issues, instead of having this ridiculous notion where English colleagues seem almost to squat in this place in order attend a debate that nobody takes part in.
Pete Wishart
I give way to the Minister first, because I am particularly interested in his views about this.
Rory Stewart
I would be grateful to know how Union issues of foreign affairs and defence, which the people of Scotland voted in a referendum should continue to be dealt with by the United Kingdom, would be covered by the hon. Gentleman’s proposal.
Pete Wishart
I only have a few seconds left. I am surprised at the Minister, because he is an erudite chap who understands constitutional issues and the history of this nation. Quite succinctly, I will tell him what it is called. It is called federalism, which is where there are constituent Assemblies that have equal power and authority, and there is then another stratum of government, which would be the UK Parliament—
The Chairman
Order. You did better than normal, Mr Wishart.
Debate interrupted (Programme Order, 4 September).
The Chair put forthwith the Question already proposed from the Chair (Standing Order No. 83M(5)),
That the Committee consents to the Civil Liability Bill [Lords].
Question agreed to.
The occupant of the Chair left the Chair to report the decision of the Committee (Standing Order No. 83M(6)).
The Deputy Speaker resumed the Chair; decision reported.
Third Reading
Rory Stewart
I beg to move, That the Bill be now read the Third time.
It is with great pleasure that I rise to speak on Third Reading. This Bill has been a long time coming. The first suggestions of the Bill’s introduction date back to 2012, six years ago, and the precise measures in the Bill were proposed by the Chancellor in an autumn statement in 2015, more than three years ago. Since then, there has been a series of detailed consultations. I would like to pay tribute to the Justice Committee for its prelegislative scrutiny, particularly on the issue of discount rates. Perhaps the biggest tribute must be paid to all Members of the other House, who undertook a very serious series of debates, which led to a number of significant changes to the Bill that I hope all Members of the House agree are significant improvements.
Perhaps the most dramatic improvement is the Government amendment that ensures insurers pass on savings to their customers. A number of learned, hon. and right hon. Friends have expressed concerns that were we to achieve a situation in which the insurance companies paid out less to claimants, that would simply go into the insurance companies’ bottom line. We have therefore introduced through an amendment perhaps the most detailed and unprecedented reporting requirements incumbent on the insurance companies to the Treasury and the Financial Conduct Authority.
Rory Stewart
I will give way in one moment. To clarify, the intention is that the companies not just may but will pass this information to the Treasury and the Financial Conduct Authority, and the Treasury and the Financial Conduct Authority not just may but will request that information, so that we can accurately explain to Parliament and the people how much money the insurance companies are making from their premiums, how much they are paying out to claimants, how much savings they are making and how much of those savings they are passing on to their customers.
Julian Knight
Will the Minister confirm that this is an unprecedented level of oversight, in terms of what the Government are challenging the insurance industry to perform for its customers?
Rory Stewart
Absolutely. It is an unprecedented move. The fundamental idea is that the insurance companies are operating in a competitive market, so this is not simply a question of how much money they take in premiums or how much money they pay out; it is also about attracting customers, and in order to attract customers, they need to compete with one another on price. If they were not to do so, they would in effect be running a cartel, and the information they give to the Treasury and the Financial Conduct Authority would provide exactly the evidence to display that kind of unfair practice. We are therefore guaranteeing that the commitment made by 85% of the insurance industry to pass on these savings to customers will be upheld. I give way to the hon. Member for Belfast South (Emma Little Pengelly). [Interruption.] Oh, no, she was not intervening on me. I apologise.
Simon Hoare
I must say that I have been confused with many things, but to be confused with an hon. Lady from the DUP is a first.
My hon. Friend the Minister, perfectly properly and quite rightly, is placing very important obligations on the insurance industry. The FCA has a raft of things of which it has oversight. How is he proposing, alongside the Treasury, to communicate to the FCA that this House has the legitimate expectation that the FCA should be robust in seeking that information from the insurers?
Rory Stewart
This is a very good challenge, and we will reinforce that duty on the FCA through both the legislation and the statements within the amendment proposed by the Government. We will also reinforce it through this statement from the Dispatch Box: we will require the insurers to pass this information on and we will require the Treasury and the FCA to request it. The purpose of requesting that information is rigorously to hold the insurance industry to account and ensure that the savings are passed on to customers.
I want to take this opportunity to pay tribute to the personal injury lawyers. One of the problems in this debate has been the suggestion that it is a black-and-white, sometimes Manichean dispute, with the press and civil society sometimes unfairly implying that the personal injury lawyers are somehow to blame. We must put on the record very clearly our respect for the personal injury lawyers and the work they do.
In addition, we must send a very strong message of respect towards people who are genuine victims of whiplash injuries, or indeed of any other form of personal injury. They are entitled to a fair level of compensation and to an adequate level of representation. We believe very strongly that the measures in the Bill strike a proportionate and reasonable balance between fair compensation, reasonable representation and the costs imposed on the rest of society.
Kevin Hollinrake
My hon. Friend makes a very good point about the personal injury lawyers. One of the provisions in the Bill—I think it is clause 8—states that claims management companies will be regulated by the FCA. We already regulate the insurance industry, so how do we make sure there is no conflict of interest in the regulation of both those parties, which often have competing interests?
Rory Stewart
This is a very interesting point, and I am very happy to follow up on it in more detail. The nature of the regulation in each case is quite distinct. In relation to the insurance industry, the regulation proposed is to ensure that we have the financial information to prove that the savings the insurance industry has derived from these reforms are passed on to customers. In the case of the claims management companies, the regulation is to ensure that they comply with the law, particularly the legal changes introduced by previous legislation. In accordance with the suggestions from the Justice Committee, we are also looking at the advice forthcoming from the judiciary to ensure that we can deal with other issues involving claims management companies.
If I may, I will come back to the core of the Bill. We are dealing with a perfect storm of three things. First, at the minor end of whiplash injuries—the three-to-six-month end—this is a condition that, in effect, is unverifiable and difficult to disprove. The polite way of expressing this is to say that there is an asymmetry of information. Somebody suffering a whiplash injury will experience genuine and sincere pain, but that pain cannot be detected at the minor end through any medical instruments. That is the first challenge involved in this type of injury.
The second challenge is of course the level of payments offered to individuals suffering these injuries. The third is the level of recoverable costs which meant, in effect, that a no win, no fee process was operating in which people could apply to a lawyer to represent them and be confident that the legal costs would be recoverable from the defendant. When that is connected to the fact that for all the reasons I have given—particularly the first, asymmetry of information—the insurance companies are not contesting claims, we end up with a discrepancy rapidly emerging between the number of motor vehicle accidents and the number of claims, and between the number of claims made in the United Kingdom and the number made in other jurisdictions.
Lord Brown of Eaton-under-Heywood, a former justice of the Supreme Court, stated that he was
“reluctantly persuaded that this provision is justified: it is surely intolerable that we are known as the whiplash capital of the world, so I have concluded that it is open to government, as a matter of policy, to seek to deter dishonest claims in this way.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1603.]
Kwasi Kwarteng
Does my hon. Friend have any idea why the situation has developed in which we are the whiplash capital of the world, as the noble Lord put it?
Rory Stewart
It is a sensitive issue, because of course many individuals who have even quite a minor road accident experience a whiplash injury and have significant pain, particularly in the soft tissue of the neck and shoulders, which can last three to six months in the majority of cases or longer in a minority of cases. However, the New England Journal of Medicine, which conducted a significant study across various countries, concluded that the prognosis for a whiplash injury was significantly worse in countries in which compensation existed. In other words, there appears to be some form of medical relationship between the compensation offered and the prognosis for the whiplash injury.
How that relationship operates is a matter of speculation, but the following things may explain it. First, compensation payments and the encouragement provided by claims management companies, particularly on the telephone—we have heard a great deal of anecdotal evidence about that today—could encourage individuals to make claims that they may not themselves feel are as justified as the claims management companies imply. That leads to serious problems, the first of which is moral. It is a problem of dishonesty. In effect, it appears that some people—we do not know how many, but certainly a significant minority—are being encouraged to make dishonest insurance claims. As hon. Members have pointed out, that is potentially morally corrosive to our society. We do not want to encourage a system in which people feel that they can make such claims.
The second problem is that the situation has had a disproportionate impact on court time. Lord Faulks has said:
“If there was to be a reduction for really serious injuries, I can imagine why noble Lords would baulk at the imposition of a tariff. However, we are for the most part talking about pain and discomfort of a relatively transient nature…So these reforms—quite modest though they are—are a proper response to what I would describe as a racket.”—[Official Report, House of Lords, 12 June 2018; Vol. 791, c. 1607.]
The cost to society imposed by this compensation is disproportionate to the severity of injury.
Eddie Hughes
This might sound like an unrelated point, but surely the best way to deal with whiplash is to prevent it from happening in the first place. I believe that in 2015, the Government committed to spending £1.5 billion on 10 smart motorway schemes, the idea of which is to keep traffic flowing at a constant speed. If people are stopping and starting all the time, they lose concentration and are more likely to drive into the car in front of them, resulting in a possible claim for whiplash. The Government are dealing not just with the problem itself but with the root cause.
Rory Stewart
That is a very good point. Fundamentally, our prime obligation must be to improve road safety. Both the Labour Government and our own Government have made progress in that regard. In fact, over the past 15 years we have seen a 35% reduction in road traffic accidents, and, as we have heard, the safety equipment in vehicles has improved dramatically. Whereas 15 years ago only 15% of vehicles were fitted with equipment that can protect someone from whiplash, 85% now are, so people are safer in their car and less likely to have an accident. However, my hon. Friend’s central point is absolutely right. Very tragically—I have experience of this through my constituents, as will other hon. and right hon. Members—if someone who was killed in a motor car did not have a dependant, their family would be entitled to almost no compensation at all. Our obligation must be to prevent the accident from happening in the first place.
John Howell
Earlier this afternoon, the Minister will have heard my hon. Friend the Member for Croydon South (Chris Philp) give an example of how he was approached—hassled, in fact—by a claims management company. I, too, have been in that situation for a fictitious accident and I still get calls about that. Is dealing with this not one of the real ways that we will be able to prevent our being the whiplash capital?
Rory Stewart
My hon. Friend makes a very good point, which has been made by the shadow Front-Bench team and others: dealing with claims management companies is going to be a central part of this. Consultation has taken place on this, and measures have been taken against claims management companies. A significant issue remains, which we are consulting on and trying to resolve—to be honest with the House, it is the fact that many of these calls come from foreign jurisdictions, so the challenge is trying to work out the best way to deal with that.[Official Report, 3 December 2018, Vol. 650, c. 7MC.] On my way into the Second Reading debate, I received exactly that kind of call, encouraging me to make a whiplash claim for a car accident that I had suffered. For a moment, I wondered whether somebody had not put somebody else up to calling me in this fashion and whether this was not some kind of fuss. Sure enough, however, this is continuing to happen.
Julian Knight
Perhaps the company in question knew that the Minister was in for a bruising time in that debate. The absolute key to this whole debate is that this is about confidence in our legal system and in justice in compensation. The reality is that these phone calls and companies, which try to encourage people to make claims for any particular reason, are destroying confidence in that system. That is why the Bill is so necessary.
Rory Stewart
This is a really important point. At the core of our legal system there needs to be public trust and confidence in that system, and having an honest, proportionate, credible and calibrated system is absolutely central to the public continuing to have confidence.
With your permission, Mr Deputy Speaker, I want to make one slightly technical point relating to the Bill, and in particular to the injuries mentioned in clause 1(2) and (3). Subsection (2) states:
“An injury falls within this subsection if it is—
(a) a sprain, strain, tear, rupture or lesser damage of a muscle, tendon or ligament in the neck, back or shoulder, or
(b) an injury of soft tissue associated with a muscle, tendon or ligament in the neck, back or shoulder.”
Subsection (3) states:
“An injury is excepted by this subsection if—
(a) it is an injury of soft tissue which is a part of or connected to another injury”.
I wish to pause on that point for a second, because we wish to make it clear, as the Government, that when we refer to the question of something being “connected”, we are not referring to it being connected simply by virtue of it taking place within the same accident.
I have the following on a formal piece of paper here, so that I can make my Pepper v. Hart statement to make sure that this is clear for the judiciary. In subsection (3), therefore, we have excluded those soft tissue injuries in the neck, back or shoulder which are part of or connected to another injury, so long as the other injury is not covered by subsection (2). The effect of subsection (3) would be to exclude, for example, damage to soft tissue which results only from the fracture of an adjoining bone or the tearing of muscles arising from a penetrating injury, which would otherwise fall within subsection (2). It has been suggested that the words “connected to another injury” in subsection (3)(a) could mean an injury resulting from the same accident. There is therefore a concern that a number of soft tissue injuries that would otherwise fall under the definition of whiplash injury will be excluded, and so not subject to the tariff of damages, simply by reason of being suffered on the same occasion as a whiplash injury.[Official Report, 3 December 2018, Vol. 650, c. 8MC.]
This is absolutely not the intention behind subsection (3). Nor is it an interpretation that stands scrutiny. The effect of that interpretation would be to significantly limit the scope of clause 1, in a quite arbitrary way, based on whether a person happened to have incurred any other injury in the same road traffic accident. That is not the intended effect, and nor do we believe that the clause will be interpreted by the courts in this way, as it would not be the normal meaning of the word “connected” in this context. To clarify then: the words “connected to” do not, and are not intended to, extend to situations where two or more injuries are connected solely by their cause—for example, a road traffic accident.
Stephen Kerr
Since the Minister was taking interventions, I thought I would chance my arm and intervene to ask, as a Scottish Member, what discussions he has had with his Scottish counterpart. The Scottish Government committed to introducing draft legislation mirroring this Bill, which is for England and Wales only. Where is that Bill? I understand that it has not even begun to make progress in the Scottish Parliament. What has the conversation been like with the Scottish Minister?
Mr Deputy Speaker (Sir Lindsay Hoyle)
Order. That is not the issue before us.
Rory Stewart
Unfortunately, tempted though I am to respond, as you point out, Mr Deputy Speaker, I am not entitled, particularly following some of the comic interventions from the hon. Member for Perth and North Perthshire (Pete Wishart), to speculate on what the Scottish Government think they are doing. My hon. Friend is absolutely correct, however, that they chose to withdraw from this Bill.
We have talked a great deal about whiplash injuries and how we have attempted to address them, and I am happy for others to return to that question in interventions if they wish to do so, but we have perhaps had less time to address another central issue, which is the second part of the Bill, on the discount rate.
Robert Neill
I am pleased the Minister is mentioning that, because although we have concentrated on some controversial areas, putting the discount rate on a more modern footing is important and largely welcome, as is of course the prohibition on settlement without medical reports, which again has not been touched on but is very significant and an advance.
I want to use this opportunity to thank the Minister for what he said about the Justice Committee and the way he engaged with us and me personally. We have raised caveats with some of the objectives, and he has met us on a number of issues, if not all of them, which has enabled those of us who want to keep an eye on this and hold the Government and the industry’s feet to the fire to adopt Lord Brown of, um, Eaton, um—
Robert Neill
That one. I ought to know him, as a fellow bencher of Middle Temple, and to get his title right. The noble Lord Brown has said that with some reluctance—because it is a balancing act—he can accept the Government’s intentions in this regard. The way the Minister has handled this difficult balancing act in the Bill has made it much easier for a number of hon. Members to do the same.
Rory Stewart
I am tempted to reflect on the question from my hon. Friend the Chair of the Justice Committee. There is a central issue and challenge at the heart of the Bill. Dealing with this perfect storm of problems—unprovable conditions, high payments, recoverable costs and the actions of the insurance industry—is not easily done through primary legislation, so I pay tribute to right hon. and hon. Members on both sides for their focus on not just the primary legislation but elements of secondary legislation and some of the requirements around it.
The only way this reform will work—the only way to prevent excessive whiplash claims—is by being very nimble in anticipating exactly how claims management companies will operate and predicting how this phenomenon could change in the future. As my hon. Friend has pointed out, that means putting in place an absolute insistence that someone must have a medical examination. At the moment, many of these claims are settled without anybody having any medical examination at all. There must be a medical examination, and it must be conducted by a qualified GP, who is currently allocated through the portal in a random fashion so that people are not in a position to be able to conspire in any way as a result of the kind of doctor whom they are given. An approved GP with the right kind of training, or a medical specialist of another sort, will then give a prognosis that will allow them to proceed in a much more straightforward way.
That brings us to the second aspect, which, again, is not primarily a question of primary legislation. I refer to the design of the online portal. It is important to ensure that, as cases move to the small claims court, people have a straightforward, intuitive way of logging claims. One of the things that we will be doing over the next year is testing and retesting the portal in as many ways as we can to ensure that it actually works.
John Howell
I thank my hon. Friend for giving way again. He is being most generous.
I have been a great champion of the online work that is being done in the judiciary. I have spoken to Lord Briggs, and in my time in the courts, sitting with judges, I have championed it there. Does my hon. Friend agree that a very important element of the online system is the dramatic improvement in access to justice for people who are making claims? I know that a great deal of testing is involved, but does he also agree that the delay in its introduction is regrettable because it deprives people of that access to justice?
Rory Stewart
My hon. Friend has made a good point, but there is, of course, a delicate balance to be achieved. It is absolutely true that really good online systems can transform people’s lives and make access to justice much easier for them, but, equally, the Government do not always have an unblemished record when it comes to the delivery of IT systems. It is important to ensure that the system really works and that we have tested it again and again before rolling it out, because otherwise a system designed to increase access to justice may inadvertently decrease that access through the malfunctioning of the online portal.
Robert Neill
I am very grateful for my hon. Friend’s generosity.
Some of the powerful evidence given to the Justice Committee came from two members of the judiciary who spoke about the potential unintended consequences and adverse impacts on the courts of the inability of an increasing number of litigants in person to work their way through the portal. Will my hon. Friend undertake to ensure that throughout the ongoing work on its design, the issues raised by members of the judiciary will remain central to the discussions, and that they will have a full role in the testing and roll-out?
Rory Stewart
The answer to both those questions is yes. An important concession was made in the House of Lords to extend the amount of time for testing, so that there is more time in which to make sure that the portal has been properly tested by, among others, the judiciary.
Part 2 of the Bill relates to the discount rate, and results from a very sudden change in the way in which compensation was paid to catastrophically injured victims. After 16 years in which the discount rate was set at a positive 2.5%, the last Lord Chancellor but one decided to reduce it to minus 0.75%, which radically changed what happens when someone is allocated a lump sum.
Let me remind the House of the formula that is applied. If, Mr Deputy Speaker, you were attempting to receive compensation for a projected 10 years of life, you were seeking £100,000 of care costs for each of those years, and inflation was, for the sake of argument, zero, you would receive only £1 million to cover you for your 10 years of projected life. Obviously, if inflation was higher, the real-terms increase in your care costs would mean that you would have to be afforded more, and the calculation that would need to be made in the awarding of the money would be how much of a return you could reasonably expect to receive for your money. If you could reasonably expect to receive a higher return for your £1 million, it might be possible to cover you for more years, and vice versa: fewer years would mean a lower return. The discount rate has been applied since the 1970s by the judiciary, and since 2001 by the Lord Chancellor, to enable the courts to calculate the fair rate to apply to a lump sum in the case of catastrophic injury. That sudden change from 2.5% to minus 0.75% meant that in the single year 2017-18 the NHS faced £404 million of costs. Projected forward at that rate, there are potentially not just hundreds of millions, but billions, of pounds of costs attached to the public Exchequer and through insurance premiums on the public themselves. Therefore, through the pre-legislative scrutiny conducted by the Justice Committee and the Government Actuary’s Department we have attempted to strike a proportional balance between the interests of often very vulnerable, catastrophically injured victims and those of society as a whole.
Julian Knight
Is it not the case that the mechanics of the discount rate as it was constituted by the Lord Chancellor before the previous one effectively mean that claimants are estimated to be receiving substantially more than 100% entitlement, and that is not what the system is about? We need a system that reflects current investment strategies and current investment returns.
Rory Stewart
This is a serious issue. The intention of the award made by the court is to provide 100% compensation. In other words, the intent of the court is to make sure that catastrophically injured victims receive the sum of money required to cover their lifetime care costs or loss of earnings. The best way of doing this is through a periodic payment order, which is why we have asked the Master of the Rolls and his committee to look at the use of PPOs. Under such orders, the real costs of people’s care year on year to the moment of their death will be covered; that is how the PPO operates. There is no need to give people a lump sum and speculate somehow on how long they are going to live.
In all cases we would encourage people to make much more use of PPOs. It is true that victims often do not want to accept PPOs. They would rather accept a lump sum either because they believe they can invest it and potentially generate more money or because they feel that were they to die prematurely they could pass on that lump sum to their relatives, but that is not the intention of the award. The award is designed to produce 100% compensation for their care costs.
Mary Robinson
We must get this right for people who have had those catastrophic injuries; their lives are changed forever. Getting this discount rate right is also important because it will affect how they will invest. What more can we do to ensure that they are not forced into, or tempted to, make riskier investments over the course of their lifetime, which will affect their care?
Rory Stewart
That is absolutely right. First, we must bear it in mind that when looking at compensation for somebody in terms of their lifetime care costs, there are a number of uncertainties. First, the court has to make a judgment as to how long they believe that catastrophically injured victim will live, which is very difficult. Secondly, they have to make some kind of judgment of the future performance of the financial markets in order to work out what a reasonable rate of return would be to cover those lifetime care costs. For that reason, the PPO is a much more reliable mechanism. However, in relation to the question of the risks taken by the individual, we have made it clear both in the Bill and subsequent statements what we intend in the decision of the Lord Chancellor. This will be a decision of the Lord Chancellor acting in a quasi-judicial role; this is not the Lord Chancellor acting on behalf of the Treasury, which is why the Lord Chancellor before the previous one ended up at a minus 0.75% rate, which would not have been the preferred Treasury rate. The Lord Chancellor is to make that decision on the basis that the individual concerned is a low-risk investor, and we would expect that individual to be taking less risk than would be taken by a traditional widows and orphans fund. In other words, because of the vulnerability of the investor and the importance of the return in covering things such as their lifetime care costs, we would be conservative in setting this rate.
We are confident that the rate that would be set would be better than the current rate, which imagines simply a gilt return, which does not reflect the actual nature of investing or of returns.
We are also clear that we are aiming for 100% compensation. We are not chasing a median compensation in which 50% would be under-compensated and 50% over-compensated. In fact, the Lord Chancellor would retain the discretion, on the advice of the expert committee and the Government Actuary’s Department, to be able to vary that rate. The judiciary would have the possibility of varying the rate in exceptional circumstances. Let us be in no doubt that we have an obligation to the public purse, to the NHS and to the public as a whole to control the costs. We have a moral responsibility to ensure that the compensation paid is 100% and not 125%, but we also have a moral obligation to ensure that vulnerable individuals who have suffered catastrophic injuries are properly compensated.
The Bill contains measures to reform whiplash claims and the discount rate, and it is the result of an admirable exercise in serious discussion in the upper House, in Committee, with the Justice Committee and through engagement with civil society since 2012. It contains a pragmatic, nuanced and calibrated set of measures that will deal with the excessive costs of whiplash and ensure that the discount rate is set in a way that balances the needs of our most vulnerable victims with the needs of the public purse. On the basis of that, and with great thanks to right hon. and hon. Members, I commend the Bill to the House.
Richard Burgon (Leeds East) (Lab)
It is regrettable that we are here for the Third Reading of yet another Conservative Bill that unleashes a Tory attack on the rights of victims and undermines access to justice. When the record of this Conservative Government is written—probably sooner rather than later, if the media reports are to be believed—the way in which they have entrenched a two-tier justice system will be writ large on the political epitaph of the Prime Minister and this Government. The cruelty of the Conservatives’ cuts to legal aid will be one example of that. Their wilful policy of making it harder for people to take on dodgy landlords or to challenge a flawed benefits decision or cruel immigration decision will be another, at a time when people need that kind of support more than ever. The Conservatives’ record on employment tribunal fees will also be something that we in this country will look back on shame. It is not only unlawful, as the Supreme Court decided, but immoral.
Richard Burgon
I will not.
The Government’s intent was clear for all to see. They are making it harder for workers to take on unscrupulous bosses—[Interruption.] If the hon. Member for Thirsk and Malton (Kevin Hollinrake) wishes to speak for the insurance industry, he can do so. Step up!
Kevin Hollinrake
I thank the hon. Gentleman for giving way. I was not going to speak for the insurance companies. I was going to ask whether he welcomed the fact that the Bill will lower the price of insurance for consumers. Does he not welcome that?
Richard Burgon
There is absolutely no guarantee of that happening as a result of the Bill. That is not its real purpose. It actually undermines access to justice. As I said on Second Reading, this is yet another attack by the Government on our justice system and on the vulnerable. It is an attack that will, in practice, enrich the Conservatives’ friends in the insurance industry—[Interruption.] As we can hear, Conservative Members do not like that allegation, and they did not like it when I made it on Second Reading. Maybe it touches a nerve. The Government had a chance to disprove it by their actions, by backing amendments that would have ensured that the Bill would not simply line the pockets of the insurers, but they did not do that.
In their media briefing, the Government claim that the Bill is about cutting the number of fraudulent whiplash claims. Of course, no one would disagree with doing that, and had the Government taken measures that did that in reality and simply stopped there, they would undoubtedly have built a broad consensus and the Bill would have been uncontentious. They did not do that, however. Instead, they pressed on with measures that will penalise the many. That, alongside their dire record on access to justice, is why we still believe that these reforms are a smokescreen. I know that there are many Conservative Members who pride themselves on defending our justice system, on upholding the rule of law and on promoting access to justice. Today is the day for those Members to show that they put their commitment to those important principles above narrow party interest by rejecting the unjust proposals.
The Bill started in the Lords, where it faced substantial opposition, not only from Labour Members or Members representing other political parties, but pre-eminent legal experts, including former Lord Chief Justices, who expressed their concerns about the Bill’s impact on access to justice and the independence of the judiciary. The Government only narrowly defeated amendments—similar to those we have discussed today—that would have fundamentally altered the Bill for the better. Since then, they have not taken the opportunity to listen, not even to those pre-eminent legal experts. They have not tried to negotiate or to remove the barriers to justice that define the Bill. For those reasons and others that I will set out, Labour Members will vote against it.
Before addressing the Bill’s provisions, I wish to place on record other elements of the package of reforms that are intended to be passed through statutory instruments. Through that route, the Government want to increase the small claims limit from £1,000 to £2,000 in all cases and from £1,000 to £5,000 in road traffic accident cases. That will make it much harder for workers to get compensation for workplace injuries, and for genuinely injured people to get a fair settlement. A significantly greater number of claims will be dealt with through the small claims procedure, whereby no legal costs are usually awarded, even in successful claims.
When legal fees are not covered, tens of thousands of working people will simply be priced out of obtaining legal assistance, resulting in many pulling, dropping or not pursuing their cases. Of course, others, determined to secure justice, will fight on, but by representing themselves, at a massive disadvantage. An insurance company will be served by a legal expert fighting their case. The victim will be left to try to navigate a complicated legal procedure, placing greater pressure on our already overstrained courts. Some will choose to pay their legal fees out of their compensation, but then, in practice, they will be compensated less than a court found appropriate. As always, the wealthy will be able to afford the best legal advice and the rest will have to suffer.
Justice for the many, not the few is mere rhetoric for the Government. In reality, it is justice for the few, not the many. Is that why the Government are trying to sneak measures through the back door rather than putting them in the Bill so that they could be debated and amended? That is a cowardly attack on workers’ rights, pushed through without real debate or scrutiny. That just about sums the Government up.
I want to give some real-life examples of people affected by the reforms because far too often their voices are not heard in this place.
Mr Speaker
Order. I gently say to the shadow Secretary of State, who has come on later than he might have expected to speak—the Minister was within his rights to speak for an unusually long time for Third Reading—that the hon. Member for Belfast South (Emma Little Pengelly) indicated to me several hours ago that she wished to contribute on Third Reading. It would be most unfortunate if there were not an opportunity for Back-Bench Members to speak. I am not blaming the hon. Gentleman, but I ask him whether he might take account of the interest on both sides of the House.
Richard Burgon
Thank you very much, Mr Speaker.
Those people include a driver, working to take disabled people to and from a day centre, who, because he had not been properly trained, fell off the vehicle while assisting a wheelchair user and suffered a back injury. They include a cleaner in a hospital who, while mopping the floor, went to pick up some papers and pricked her finger on an unsafely discarded needle. She suffered a psychological and physical injury. Just imagine the fear she must have felt as she waited for the test results. Those are examples of cases that have been sent to my office, and of real people who would be penalised by the new system. Those are the people whose voices the Government are content to drown out with their rhetoric that labels people fraudsters and says that they are on the make when they are anything but.
When we consider the Bill, we should not forget that there was a 90% drop-off in employment tribunal claims when employments tribunal fees came into effect. Something similar could happen again with personal injury cases, with genuine victims priced out of justice and deterred from pursuing a claim for an injury that was not their fault.
It is not only Labour who oppose this Conservative attack on access to justice. The Justice Committee has explained that
“increasing the small claims limit for personal injury creates significant access to justice concerns.”
We agree with the Justice Committee and the recommendation of the Lord Justice Jackson review that the small claims limit should be increased in line with inflation, which would mean a rise to £1,500, not the £2,000 currently proposed. We have repeatedly tabled amendments to the Bill, and it is a shame that the Government have not listened. We have also made clear our position on tariffs, and it is a shame that the Government have not responded in a meaningful way to those amendments.
I am conscious that Mr Speaker has asked that I shortly draw my remarks to a conclusion, but I urge every Member of this House to look at the chart produced by the House of Commons Library at page 30 of the briefing and ask themselves whether this is just. What does the chart show? It shows that compensation for an injury lasting up to six months will fall to a fixed £470, down from the current average of £2,150—down by three quarters. Compensation for an injury lasting 10 to 12 months will be £1,250, down from the current average of £3,100—down 60%. Compensation for an injury lasting 16 to 18 months will be £2,790, down from £3,950—down by 30%. Is that what the Conservatives mean by justice?
Injured people who have done nothing wrong are losing out and being placed at a huge disadvantage. If Conservative Members do not want to take Labour’s word for it, they should at least think very carefully about what was said in the House of Lords. The point has already been made that this Bill undermines the independence of the judiciary with the tariff system. We have commented on the definition of whiplash and on the fact that the Government are making out that fraud is taking place on an industrial scale. Do something about cold calling from claims management companies; do not target injured people.
Why not exempt children? People outside this place will not believe that the Government did not concede on our common-sense amendment and have refused to budge on the discount rate.
The central purpose of the Bill is to tip the scales of justice against injured people and in favour of insurance companies’ profits. The Conservatives have shown that this is about lining the pockets of insurance companies by refusing to vote for Labour’s considered amendments, which would have protected vulnerable people and safeguarded fair treatment for victims. This attack on justice is not the first by this Government since 2010—after legal aid and employment tribunal fees—and I fear it will not be the last Tory attack on access to justice.
The wider measures that the Conservatives plan to introduce alongside the Bill will leave tens of thousands of people unable to enforce their legal rights. The Bill may well turn out to be the thin end of the wedge for yet more restrictions on justice in all personal injury cases. If it passes, it will be celebrated as a great victory by the insurance companies in whose interests it has been conceived and drafted, and it will be ordinary people, whose rights are gradually chipped away, who pay the price. That is why Labour will be voting against Third Reading tonight.
Eddie Hughes
It is a privilege to follow the hon. Member for Leeds East (Richard Burgon), although I was slightly concerned that, as he reached his peroration, a sudden stop in his speaking might have caused some whiplash to himself, but he seems to have escaped from the Dispatch Box unaffected.
The Joseph Malins poem “The Ambulance down in the Valley” tells the story of a village on a cliff edge and, instead of putting up a fence around the cliff edge, the residents decide to put an ambulance down in the valley to treat people when they fall and are injured at the bottom, but that is not this Conservative Government’s approach.
The Government announced in 2015 that they were investing £1.5 billion in smart motorways to help to alleviate the stop-start traffic that is so often the cause of collisions that result in whiplash. Although I am sure you and I are not prone to this, Mr Speaker, lesser mortals than us occasionally use their mobile phone while driving, and this terrible distraction can also lead to accidents that cause whiplash. So what have this Government done about it? In 2017 they increased the penalty for those caught using a mobile phone while driving to six points and a fine of £200. For those caught a second time, the penalty rises to 12 points, a possible ban and a possible £1,000 fine. So it is important that we do not just talk about dealing with the problem of whiplash—how about we try to alleviate it or remove it in the first place? That is what this Government are doing.
This Government are also making sure that we look after the just about managing. In my constituency, which I understand is the most deprived one represented by a Conservative MP, every pound these people have matters to them; it is incredibly important. So if this Bill can go some way to reducing insurance premiums, surely that is to be valued. I have heard the figure of £35 mentioned. Some people might consider that to be insignificant, but when someone is on a low salary, as people in my constituency are, of course every pound matters.
That is not the only thing we have done. When I think about my constituents tuning into Parliament TV, as I am sure they often do at 10 to 7 on a Tuesday evening, I often think they will be considering the debate in isolation. So my job, as their MP, is to try to bring some context to the discussion. They will think, “This is good. I am glad we are introducing this policy that might help to reduce my insurance premium. But what else are you doing on our behalf, Eddie?” I would say, “Well, I am part of the Government that increased the tax-free allowance to £11,850 last year.” To people in my constituency on an average salary of £27,000 that is a hugely significant difference. What else did we do? We increased the minimum wage to £7.83, which has helped 2 million workers. Therefore, we need to consider this in context.
It is so important that we have the injury tariff in this Bill, because that will give us the opportunity to streamline claims and lower premiums, with the hope that that will then be passed on to my constituents. There are a number of things to be valued in the Bill, all of them good Conservative principles. They are just one part of a theme that runs through this Parliament, which is about looking after all the people of the United Kingdom.
Emma Little Pengelly (Belfast South) (DUP)
Thank you for the opportunity to speak in the debate, Mr Speaker. I will try to be as brief as possible. Of course, all the Bill’s clauses refer and apply only to England and Wales, so I thank the Minister for his engagement with me about them, many of which will be of benefit, including those on access to justice at the lower end in relation to the whiplash issues and on the adjustment of the discount rate. I want to raise a particular issue on which I have engaged with the Minister on an ongoing basis: the discount rate situation in Northern Ireland.
As a result of the stagnant and stalled political solution in Northern Ireland, we have not been able to address the unfair discount rate of 2.5%. Let me put that into context. Under that discount rate, an 18-year-old with £100,000 per annum of requirements will get about £5 million to £6 million, whereas under the changed UK rate, that sum would be £9 million. We are therefore talking about a hugely significant difference, particularly for those who have suffered catastrophic injuries through no fault of their own, and it needs to be addressed urgently. Yes, the adjustment of the discount rate under this Bill will narrow the gap, but that gap will still be significant. I have asked the Minister to consider extending the Bill to cover Northern Ireland. I know the legislation will head back to the House of Lords and I understand fully the challenges in introducing this issue, but it is now clear that it could be extended. This is a non-controversial issue. There are people in need and an unfairness in place, so I ask the Minister seriously to consider extending the provision to address this injustice in Northern Ireland.
I beg your indulgence, Mr Speaker, in my putting on record the fact that today is the 25th anniversary of the Shankill bomb. That IRA bomb killed nine innocent civilians, including two children—13-year-old Leanne and seven-year-old Michelle. I just want to pay a tribute, because this Bill is about access to justice. The person who was convicted of that bombing served just seven years and was released under the terms of the Belfast agreement in 2007—that was seven years for nine innocent lives taken by that bomb. I do want to say on record that my thoughts are with the families at this very difficult time. Thank you, Mr Speaker.
Kevin Hollinrake
May I concur with the comments of the hon. Member for Belfast South (Emma Little Pengelly) about that terrible tragedy, and also the terrible injustice that followed in the process of the prosecution of that crime? Our thoughts are with all the families at this moment in time.
The Bill is surely about fairness—making sure that we look after the interests of consumers. I echo the comments of my hon. Friend the Member for Walsall North (Eddie Hughes) when he said that this Government are championing the cause of the consumer and making sure that we drive down the costs of living. There have been many examples of where we have been able to do that over recent months, such as the cap on energy costs, of course, and the Tenant Fees Bill, which is, as you know, Mr Speaker, something that is very close to my heart as it is related to my previous profession. I say that despite the significant hit to our business—Members can check my entry in the Register of Members’ Financial Interests—because it is absolutely the right thing to do. We should look after the interests of consumers and make sure that their interests are fairly represented.
There are other areas in which we seek to legislate, such as leasehold reform to make sure that people do not find that they are paying unfair charges for leasehold properties. That is another instance of how we are trying to drive down the costs of living for our consumers.
The hon. Member for Ealing North (Stephen Pound) indicated from a sedentary position that he questioned the relevance of my hon. Friend’s points about the fact that we are trying to drive up the standard of living and reduce the costs of living, but it was absolutely relevant, as this is a key strategy of the Government. We want to make sure that we reduce the cost of living and increase the standard of living.
The Bill also, of course, fulfils a manifesto commitment. We were clear in our 2017 manifesto that we would deliver on the promise to reduce insurance costs, and that is what this is all about. We are still making sure that people get fair compensation, but we are reducing car insurance costs for the majority. That, along with simplifying the system, is the principle of this Bill.
It is very disturbing to hear my hon. Friend’s comment that this country is the whiplash capital of the world. It is therefore only right that we take action in this area and try to reduce the excessive costs of whiplash compensation, which do, of course, affect us all. This is not about saying that we will not give people fair and appropriate compensation when accidents happen, but it is about clamping down on the worst excesses. With a 40% increase in the number of claims since 2005-06, it is only right, when our roads are actually safer, that we make sure that any compensation paid for accidents on the road is commensurate with the injury itself.
It is absolutely right that we stand up for genuine claimants, but we must provide fair compensation for those claimants. The Opposition’s amendment 2 was simply a wrecking amendment. It is clear what this Bill is about, and that amendment would have hit right at its heart. Without being able to control the tariffs for compensation, the Bill would have been pointless. I guess that it will not be the last wrecking amendment that we will see in this place over the next few months, but it is absolutely right that this Bill, which implements a manifesto commitment, passes through the House.
It is also right that we try to make sure that insurers pass on the savings from which they will benefit as a result of the Bill. It is right, too, that there is clear supervision of the rules to make sure that those savings are passed on to the consumer.
Let me briefly touch on claims management companies. As my hon. Friend pointed out, despite the fact that many have a bad reputation, they do a very good job in making sure that, when compensation is due, that compensation is paid. I have slight concerns that these claims management companies will now come under the auspices of the Financial Conduct Authority. Hon. Members will recognise that much of the work that I have done in this place has had the aim of trying to hold the banks to account for some of their worst excesses, particularly against small businesses, following the financial crash in 2008, but the regulator has seemed incapable of doing that in many cases. Many people think that the regulator is too close to the banking sector, and I am slightly concerned that it is regulating both ends of the process.
Civil Liability Bill [HL]
Tuesday 20th November 2018
(6 years, 1 month ago)
Lords ChamberRead Full debate Civil Liability Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 23 October 2018 - (23 Oct 2018)
Lord Keen of Elie
That this House do agree with the Commons in their Amendments 1 to 6.
“( ) The Lord Chancellor must consult the Lord Chief Justice before making regulations under this section.”
“Report on effect of Parts 1 and 2
(1) Regulations made by the Treasury may require an insurer to provide information to the FCA about the effect of Parts 1 and 2 of this Act on individuals who hold policies of insurance with the insurer.
(2) The regulations may provide that an insurer is required to provide information only if it has issued third party personal injury policies of insurance on or after 1 April 2020 to individuals domiciled in England and Wales.
(3) The regulations may—
(a) specify the information or descriptions of information to be provided;
(b) specify how information is to be provided;
(c) specify when information is to be provided;
(d) require that information or specified descriptions of information be audited by a qualified auditor before being provided;
(e) make provision about the audit;
(f) require that details of the auditor be provided to the FCA.
(4) Regulations under subsection (3)(a) may in particular require an insurer to provide information, by reference to each of the report years, about—
(a) the amount paid by the insurer during the report period under its relevant third party personal injury policies of insurance in respect of personal injuries sustained by third parties, where the amount of damages for the injury is governed by the law of England and Wales;
(b) the amount that the insurer might reasonably have been expected to pay in respect of those injuries if this Act had not been passed;
(c) the mean of the amounts paid during the report period under those policies in respect of those injuries;
(d) what might reasonably have been expected to be the mean of the amounts paid in respect of those injuries if this Act had not been passed;
(e) the amounts described in paragraphs (a) to (d), determined by reference only to cases where—
(i) the amount paid by an insurer under a policy, or
(ii) the amount that an insurer might reasonably have been expected to pay under a policy, falls within one of the bands specified in the regulations;
(f) the amount charged by the insurer by way of premiums for relevant third party personal injury policies of insurance where the cover starts in the report period;
(g) the amount that the insurer might reasonably have been expected to charge by way of premiums for those policies if this Act had not been passed;
(h) the mean of the premiums charged for those policies;
(i) what might reasonably have been expected to be the mean of the premiums charged for those policies if this Act had not been passed;
(j) the amounts described in paragraphs (f) to (i), determined as if the references to a premium charged for a relevant third party personal injury policy of insurance were references to so much of the premium as is charged in order to cover the risk of causing a third party to sustain personal injury;
(k) if any reduction in the amounts referred to in paragraph (a) has been used to confer benefits other than reduced premiums on individuals, those benefits.
(5) The regulations may make provision about the methods to be used in determining the amounts described in subsection (4)(b), (d), (g) and (i), including provision about factors to be taken into account.
(6) The regulations may provide for exceptions, including but not limited to—
(a) exceptions relating to policies of insurance obtained wholly or partly for purposes relating to a business, trade or profession;
(b) exceptions relating to policies of insurance of a specified description,
(c) exceptions for cases where the value or number of policies of insurance issued by an insurer is below a level specified by or determined in accordance with the regulations, and
(d) exceptions relating to insurers who, during the report period, issue policies of insurance only within a period that does not exceed a specified duration.
(7) Before the end of a period of one year beginning with 1 April 2024, the Treasury must prepare and lay before Parliament a report that—
(a) summarises the information provided about the effect of Parts 1 and 2 of this Act, and
(b) gives a view on whether and how individuals who are policy holders have benefited from any reductions in costs for insurers.
(8) If insurers provide additional information to the FCA about the effect of Parts 1 and 2 of this Act, the report may relate also to that information.
(9) The FCA must assist the Treasury in the preparation of the report.
(10) In the Financial Services and Markets Act 2000—
(a) in section 1A (functions of the Financial Conduct Authority), in subsection (6), after paragraph (cza) insert—
“(czb) the Civil Liability Act 2018,”;
(b) in section 204A (meaning of “relevant requirement” and “appropriate regulator”)—
(i) in subsection (2), after paragraph (a) insert—
“(aa) by regulations under section (Report on effect of Parts 1 and 2) of the Civil Liability Act 2018,”;
(ii) in subsection (6), after paragraph (a) insert—
“(aa) by regulations under section (Report on effect of Parts 1 and 2) of the Civil Liability Act 2018;”.
(11) A statutory instrument containing regulations under this section is subject to affirmative resolution procedure.
(12) In this section—
“the FCA” means the Financial Conduct Authority;
“insurer” means an institution which is authorised under the Financial Services and Markets Act 2000 to carry on the regulated activity of—
(a) effecting or carrying out contracts of insurance as principal, or
(b) managing the underwriting capacity of a Lloyd’s syndicate as a managing agent at Lloyd’s;
“qualified auditor” means a person who is eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006;
“relevant third party personal injury policy of insurance” means a third party personal injury policy of insurance issued by an insurer to an individual domiciled in England and Wales;
“report period” means the period of three years beginning with 1 April 2020;
“report year” means a year beginning with 1 April 2020, 2021 or 2022; “third party personal injury policy of insurance” means a policy of insurance issued by an insurer which provides cover against the risk, or risks that include the risk, of causing a third party to sustain personal injury.”
“( ) This Act extends to England and Wales only, subject to the following subsections.”
The Advocate-General for Scotland (Lord Keen of Elie) (Con)
My Lords, with the leave of the House—or as the House leaves—I beg to move that the House do agree with the Commons in their Amendments 1 to 6.
The Civil Liability Bill will provide effective measures to tackle the continuing high number and cost of whiplash claims, which will lead to lower insurance premiums for ordinary motorists. It will also create a better system for setting the personal injury discount rate.
I should like to take this opportunity to thank noble Lords for their contributions and insightful scrutiny, which have already shown during previous debates how the Bill can be strengthened and improved.
The Commons amendments we are considering today were all brought forward by the Government in the other place. Amendment 1 introduces a requirement for the Lord Chancellor to consult the Lord Chief Justice before setting the tariff. This amendment was introduced to meet a commitment made to this House and, in particular, to the noble and learned Lords, Lord Judge and Lord Hope, at Report.
It remains the Government’s firm view that it is the Lord Chancellor who should set an appropriate and proportionate tariff through regulations. This enables the Government to ensure that damages remain proportionate and continue to disincentivise unmeritorious claims, but following reflection on the helpful points made by this House during debates in Committee and at Report, the Government agreed that there is merit in the Lord Chancellor seeking the input of the Lord Chief Justice before setting or amending the tariff. This will provide the judiciary with a formal route by which to comment on the level of damages for whiplash injuries. Consulting the Lord Chief Justice allows the views of the judiciary to be reflected in the setting of the tariff, as well as by way of the uplift in exceptional circumstances.
Amendment 2 corrects a drafting omission. The amendment clarifies, but does not change, our intent in regard to Clause 5. Clause 5 enables the Lord Chancellor to provide in regulations that the court may increase the amount awarded under the tariff in circumstances which it considers to be exceptional. The amendment adds the words “or injuries” to Clause 5(7)(a), and merely reflects that the amount of compensation specified in the tariff can relate to either a single injury or two or more injuries. This is consistent with the language used elsewhere in the Bill. This amendment makes no material change to the provisions of the Bill, but provides necessary clarification and consistency.
Amendments 3, 4 and 5 have arisen from previous debates, when noble Lords raised concerns about whether insurers would stand by their commitment to pass on the benefits arising from the Bill. Recognising the concerns raised by noble Lords and those in the other place, the Government amended the Bill in Committee in the other place to provide for an effective means for insurers to demonstrate that savings arising from the Bill have been passed on to consumers. This is the new Clause 11, as introduced by Amendment 3.
I am confident that Clause 11 allows the Government to hold insurers to account against their public commitment to pass on savings from the Bill in a rigorous but proportionate way, without risking anti-competitive or overly interventionist practices. The clause was developed after intensive and careful consultation with insurers, accountants, auditors and regulators.
Lord Sharkey (LD)
My Lords, I thank the Minister and his officials for their continued engagement on the Bill, which has been very helpful.
The Bill transfers over £1 billion from whiplash claimants to motor insurers. This transfer is only justifiable if the insurers do not retain this gigantic windfall—and, of course, they have promised that they will not. They have promised in writing to pass on to motorists, in the form of reduced premiums, cost savings made by the provisions in the Bill. A huge amount of money is involved, and a significant promise. Without that promise, I doubt the Bill would have been brought to the House—and without it, it would certainly not pass the House.
On Report, we set out the case for checking that insurers keep their promise. The Government accepted the need for checking the insurers’ compliance and committed to bringing forward in the Commons a mechanism for doing that. New Clause 11—Commons Amendment 3—is the proposed mechanism. I was pleased to see a mechanism in the Bill, but was surprised by its length and complexity. The new clause is very long and very complicated. The whole Bill, before this new clause, ran to only 16 pages, and the new clause by itself adds a further three pages.
When on Report we debated the issue of checking on pass-through, and when this was discussed in the Commons, there was an argument in favour of a much simpler approach. We saw the way forward as simply giving the FCA the power to demand whatever data it considered necessary for the purpose, and then to make an assessment of whether and to what extent insurance companies had in fact passed on the £1 billion to motorists via reduced premiums. I would be grateful if the Minister could explain why the complex approach taken in new Clause 11 is better than the simple approach I have just described. In particular, I would be interested in what influence any specific competition concerns may have had in producing the baroque structure of the new clause.
There are a couple more points where additional information would be helpful. The first is to do with anonymity. The Minister’s officials have confirmed that the report on compliance mentioned in new Clause 11 would reference only aggregated data. It will not name companies that have broken their promise to pass through the savings made for them by this Bill. In a written note, the Minister’s office said:
“It would be an extreme step for the Government to identify firms individually and this type of action against a particular firm—as opposed to holding the industry to account as a whole—could leave the Government open to challenge, both on the argument that the Government has facilitated anti-competitive behaviour and further on human rights grounds”.
Lord Hodgson of Astley Abbotts (Con)
I raise a narrower point than that of the noble Lord, Lord Sharkey. I refer to the Government’s Amendment 1 where, notwithstanding the heavyweight legal artillery from the noble and learned Lords, Lord Judge and Lord Hope of Craighead, I would like to probe the thinking a little further. What is proposed seems undesirable in a number of aspects, not least of which is that it may put the Lord Chief Justice into a conflicted and undesirable position.
Clause 3, to which the amendment applies, is entitled “Damages for whiplash injuries”. The House will be aware that because of the difficulty of diagnosis—as we have heard from my noble and learned friend—whiplash has provided easy pickings for the fraudulent over several years; in the vernacular of our early debates, the phrase was “cash for trash”. Millions of motorists’ insurance premiums have been unnecessarily increased. The Government—sensibly, in my view—introduced the blanket figure to cover all injuries with a duration of less than two years. That was discussed extensively and amended during the passage of the Bill here and in the other place. It was not, and is not, an uncontroversial policy decision. It remains an issue about which different parts of the House and different political parties have strong views.
Clause 3 is about money and the compensation payable under the whiplash tariff in different circumstances. I invite my noble and learned friend and the House to look at subsections (1) to (5). In each of those, the key word is “amount”—the amount of damages due and payable in different circumstances. The clause provides that these amounts are determined and laid out in regulations by the Lord Chancellor. Under this amendment, as my noble and learned friend pointed out, there would be another hoop to go through, in that the Lord Chancellor would have to consult the Lord Chief Justice before making regulations under the clause. The discussion in the House of Commons was pretty threadbare. I am concerned that the Lord Chief Justice may find himself dragged into policy areas which are not to his advantage. The clause is about money, not process. I ask my noble and learned friend to consider the options available to the Lord Chief Justice when the Lord Chancellor turns up at his office and presents the new tariff. As far as I can see, he has only two. Either he can accept without demur, or he can say that he thinks the proposed new tariff is too high or too low. If he does the latter, on what grounds would he make that judgment? What expertise does a judicial figure, the Lord Chief Justice, bring to the determination of these monetary figures? What expertise is available to him that was not available to the Lord Chancellor in making his original determination?
I make it clear that this is not an attack on the Lord Chief Justice. Indeed, it is intended to draw attention to the difficult position that future Lord Chief Justices may find themselves in as a result of this amendment. They would either have to act as a cipher and simply tick a box, or require amendments to figures that will remain politically highly charged. That runs the risk of the role becoming politically tainted, and further involving the Lord Chief Justice in the determination of matters on which the courts and justice system would later, no doubt, have to adjudicate.
It is not desirable for the Lord Chief Justice of the United Kingdom to be seen either as a cipher or as a participant in political processes. I look forward to hearing from my noble and learned friend why I have so gravely misjudged the situation.
Lord Monks (Lab)
My Lords, I declare an interest as a non-executive director of Thompsons, a leading personal injury firm. I have two or three questions for the Minister, particularly on Amendment 1. I thank him for the reply we received to the letter he referred to.
The House of Lords Regulatory Reform Committee advised that the key measures in this Bill, including the levels of compensation for claimants under the tariff scheme, should feature in primary legislation, not secondary. The Constitution Committee said that Ministers should follow this advice unless there were clear and compelling reasons not to. There seems to be a trend for the Government to seek wide delegated powers that permit the determination and implementation of policy. The Constitution Committee warned that the restraint shown by noble Lords towards secondary legislation might not be sustained—a serious warning to the Government that, if this trend continues, secondary legislation might be much more difficult to accomplish. I will be interested to hear the Minister’s comments on that.
Secondly, given that the employer liability clauses will not be dealt with through the new online portal, which is being reserved for whiplash claims, can the Minister confirm that the courts will be able to cope with what will undoubtedly be an increased number of claims without the presence of expert legal representation? It is estimated that they could increase from 5% to 30% of the total number of cases. Can the courts manage that extra responsibility?
Finally, what is meant by “in the long term”? This relates to paragraph 5.66 of the whiplash impact assessment accompanying the Bill, where the Government state that, taking into account adjustments to pre-action protocols, they consider that
“in the long term the courts would operate at cost recovery”.
I would be grateful for an explanation of what cost recovery means in this context.
The Earl of Kinnoull (CB)
My Lords, I shall speak to Commons Amendment 3 and shall make a general point about all the amendments in the round. I declare my interests as set out in the register—in particular, those in respect of the insurance industry. I would very much like to add my thanks to the Minister, the noble Baroness, Lady Vere, and the Bill team, who have been very courteous and warm as they have engaged with me, particularly on Amendment 3.
We spent a lot of time discussing the area covered by Amendment 3 in Committee and on Report, and even slightly at Third Reading. The amendments suggested in this House—there were quite a few of them—had a common theme: they were short and clear, and they instructed the FCA to act, as it were, as the scorer and to work out how it would ascertain whether insurers had in fact handed the money back to customers.
The section of the policy note, which the Minister referred to, entitled “Context and overall approach to amendment” refers to an intent to:
“Hold insurers to account in a way that is sufficiently rigorous”,
and to:
“Avoid intervening in an already competitive market or placing disproportionate burdens on insurers or regulators”.
I am very grateful to the Minister for confirming that those should be the guiding principles for the FCA as it begins to consider the best way to discharge this duty. I find the three pages of new Clause 11 pretty difficult and they are potentially extremely onerous for insurers. I note that, depending on how you construe new subsection (2), insurers might also have to report on every single comprehensive household policy they have, because injury cover is possibly included in that. I could make other points on that too.
We now know that this amendment was drafted by a committee full of highly intelligent people, including insurers, obviously very intelligent lawyers, accountants and officials. Of course, we all know that when you put a committee together, you get a camel, and I am afraid that it is a bit of a camel. However, I say again that I am very grateful to the Minister for confirming that the policy note will trump what is in the legislation, as that is important.
That leads on to my general point about the Bill. In Committee I referred to the 2016-17 annual report of NHS Resolution. It stated that moving the discount rate from +2.5% to -0.75% meant that the cost of medical negligence in the UK every year would rise by an extra £1.2 billion. That means that every day £3.3 million is not being spent on the NHS front line. If the personal injury discount rate, which is in Part 2 of the Bill, went up—perhaps not all the way up to 2.5% but maybe to 1%, which is currently the case in France—that would release around £1.75 million a day to the front line of the NHS. In a nutshell, the quicker this Bill passes, the better. My one question for the Minister is whether he agrees with that point.
Lord Hunt of Wirral (Con)
My Lords, I declare my interests, having now been chair of the British Insurance Brokers’ Association for the past five years and for the last 50 years having been a partner in the global legal firm DAC Beachcroft.
We need to remind ourselves that it is almost three years to the day that the then Chancellor of the Exchequer announced the coalition Government’s plans to reform whiplash claims. What a long journey it has been. In welcoming the amendments made in the other place, I join the noble Earl in impressing on all noble Lords the need to avoid any additional delay. The figures on the costs to the National Health Service just given by the noble Earl are stark and revealing, and we need to speed up.
I congratulate the noble Lord, Lord Sharkey, on the way in which he proposed that we should speed up the review process of looking at the discount rate, which is a vitally important part of the Bill. We also removed the prospect of any delay between Royal Assent and the start of the review timetable. I trust that my noble friend the Minister will understand when I stress again how imperative it is that we proceed to Royal Assent without any further delay. There is now no need to return this Bill to the Commons and no need to let any more time pass before Royal Assent. Further, there is no need to further delay the start of the review and the return to a more realistic, viable and normal discount rate.
I welcome the new clause on reporting, although I can understand how, as a non-lawyer, the noble Lord might think it complicated. But it covers the full picture exceedingly well. I congratulate all those both in Government and in the insurance industry who worked so hard on the wording over the summer. I know that it is not perfect, but it strikes an appropriate and judicious balance. It introduces the necessary rigour into reporting, but at the same time it is workable for those who have to provide the data.
One vital element to the industry—passing on cost savings to consumers—has been slightly forgotten in the heat of the debate at earlier stages. For insurers to be able to pass on the savings, there must first be savings. That is the primary purpose of this Bill. Only if the Bill is implemented, as it is now with a tariff of low damages for whiplash claims up to two years in duration and the other measures planned alongside this, including raising the small claims limit to £5,000, will there be any prospect at all of savings being realised and passed on to consumers. That will be in the best interests of all consumers and all citizens.
I add my praise to the Minister and the noble Baroness for their diligence and patience and for making themselves so readily available and accessible to all and any Members of this House to discuss various matters of concern. The Minister has made this a better Bill. Now let us speed it on its way.
Lord Judge (CB)
My Lords, in view of everything that has been said about the Minister, perhaps he does not need any help from me in addressing the concerns expressed by the noble Lord, Lord Hodgson, but I will offer him some comfort. Many people will want to make a contribution to the discussion with which the noble Lord, Lord Hodgson, has been concerned. They may not all have the same interest as the judiciary has in seeing that there is a fair balance between the way in which the whiplash injuries damages are to be assessed and the way that all other injuries are assessed—the process of assessing damages as it develops over the years.
I specifically asked that we should not have the concurrence of the Lord Chief Justice. We simply asked that he should be consulted. When he is consulted, like everyone else who has been consulted, he will be someone making a contribution to the final decision of the Lord Chancellor. As he will be merely consulted and not asked to concur, there is no danger that my successor many years down the line will find himself at the wrong end of a claim.
Lord Beecham (Lab)
My Lords, I refer to my interest as an unpaid consultant with my old firm. I begin somewhat unusually by congratulating the Minister on having improved a pretty flawed Bill since it left us. I assume that he has played a significant part in that. In particular, I strongly endorse the provisions of Amendment 1, which are an improvement on the original wording. However, we would still have preferred the retention of the existing system which allows judicial discretion on the level of compensation to be awarded based on judicial guidelines. To answer the noble Lord, Lord Hodgson, that is how the system operates and there seems to be no good reason why the assessment of damages for this kind of injury should be different in those terms from any other form of injury.
Of course, we also continue to be opposed to the increase in the small claims limit by an amount higher than inflation, in accordance with the review carried out by Lord Justice Jackson several years ago of civil litigation costs. In fact, the increase is something like 100%, although I take the noble and learned Lord’s point that that is not strictly within the scope of this Bill.
The Justice Select Committee warned that,
“increasing the small claims limit for PI creates significant access to justice concerns”.
The Government’s plans to increase the small claims limit will mean that more cases are allocated to the small claims track. That will leave tens of thousands of working people priced out of getting proper legal representation. These measures are a further gift to insurance companies which are already experiencing increased profits at the expense of people injured through no fault of their own.
What assessment have the Government made of the impact of the changes to the operation of the courts, given that increasingly claimants will be unrepresented? Within the last fortnight, the Permanent Secretary at the Ministry of Justice has told the Justice Select Committee that two of the main spending assumptions were fundamentally “unrealistic” and that even the Treasury recognised that the department was under “considerable strain”. In these circumstances, how confident is the Minister about the ability of the courts to deal with an increase in unrepresented claimants from 5% to 30%, as predicted in the whiplash impact assessment? That of course relates only to that particular area; there will be another shortfall in relation to other claims. How long do they anticipate will be the “long term” envisaged before the courts operate at cost recovery level, as suggested in the whiplash impact assessment? To be clear, whiplash impact for this purpose is on the system, not on the unfortunate claimant.
It is estimated that insurers will gain £1.3 billion a year. I hope that the noble and learned Lord’s confidence that the industry will ensure that those savings are passed on to policyholders will be proved correct. Why will it be six years before the Treasury reports to Parliament on the savings accrued to policyholders, as apparently will be the case? It seems an inordinately long time to assess the impact of this provision. Further, is it not ironic that the Government, who make so much of the need to protect policyholders from the impact of exaggerated or fraudulent claims, have themselves increased insurance premium tax four times in eight years, thereby currently collecting £2.6 billion a year more from the people they purport to be helping through this Bill?
While the commitment given at Third Reading in the Commons that vulnerable road users will be exempt from the changes is welcome, why are children and people injured at work not included in the exemption? Extending the change to those two groups would seem to be a reasonable move.
By sheer coincidence, today sees the publication of the report of the Constitution Committee. It is highly critical of the Government’s increasing reliance on secondary legislation. The committee supported the views of the Delegated Powers and Regulatory Reform Committee earlier this year that key measures should be included in the Bill and not left to secondary legislation. Also, most tellingly, it said that judges, not the Lord Chancellor, should set the new tariff and that the Lord Chancellor should not be granting powers to make provision for damages relating to minor psychological injury. This accords with amendments debated during the passage of the Bill through this House but not enacted.
I hope that a review of this measure will provide an opportunity to return to this issue and adopt that approach in due course. I repeat that the Bill comes back to us in better condition than it was, but I remain convinced that it is not in as good condition as it should be.
Lord Keen of Elie
I am obliged to the noble Lord, Lord Beecham, for acknowledging that we have at least achieved a curate’s egg, if nothing more.
The Bill makes important changes to our personal injury compensation system; it makes that system fairer, more certain and more sustainable in future for claimants, defendants, motorists and the taxpayer. That builds on our wider reforms to cut the cost of civil justice claims and strengthen the regulation of claims management companies, which play such a big part in this. The first part of the Bill will deliver a key manifesto pledge. It will support the consumer by bringing down the cost of living through a crackdown on exaggerated and fraudulent whiplash claims that lead to higher insurance costs. The second part of the Bill will provide a fairer method for setting the personal injury discount rate and reviewing it so that it does not remain at one level, as it did for 16 years.
I am grateful for noble Lords’ observations and careful scrutiny of the Bill. I want to touch on one or two of their points. The noble Lord, Lord Sharkey, commented on the complexity of the approach taken on Clause 11. That approach was carefully crafted after consultation with interested parties, including the FCA, to ensure that it is as effective as possible. At the end of the day, the Government’s approach has been determined by the need for a rigorous and proportionate regime for insurers as far as savings are concerned. We have to remember that the FCA is an independent body. Clearly, we cannot confirm exact FCA action in respect of these matters but we assure the House that it will take very seriously any case where an insurer does not treat customers fairly. That could include a public commitment not being met if that formed part of a policyholder’s or consumer’s expectations.
The Government have taken a careful and considered approach to what is sometimes termed “naming and shaming”, particularly with regard to the provisions in Article 6 of the European Convention on Human Rights. There are circumstances in which the FCA may decide publicly to censure a firm, but that would typically follow a detailed investigation. The idea of somehow naming and shaming a firm before such an investigation could raise questions about convention rights under Article 6. I suggest that we have taken a considered approach to this but, ultimately, those outliers—if I can call them that—who might seek to abuse the system will be open to censure, potentially publicly, by the FCA in due course.
In the context of the point made by the noble Lord, Lord Hodgson, I readily adopt the observations of the noble and learned Lord, Lord Judge. At the end of the day, consultation with the Lord Chief Justice will allow the judiciary some input into, or comment on, the setting of the tariff of damages against the background of its knowledge of the general level of damages awarded for personal injury in diverse cases. One would hope that this would ensure no material divergence in levels of damages as far as that is concerned.
The noble Lord, Lord Monks, raised a number of questions. Regarding Amendment 1, the primary legislation approach to setting the tariff is not considered appropriate because it should be amenable to review and flexibility. Setting it in stone would not allow for that. Regarding the question of employers’ liability and employers’ liability clauses, we consider that the courts are equipped to cope with such claims. On cost recovery, referred to in the impact assessment at paragraph 5.66, I note that the aim is ultimately to try to achieve cost neutrality so far as the court process is concerned, but I acknowledge that that is a long-term aim.
Royal Assent
Thursday 20th December 2018
(6 years ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 23 October 2018 - (23 Oct 2018)