Lord Sheikh
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. I should like to declare that I am the chairman of an insurance broking and financial services organisation.
The Minister of State, Ministry of Justice (Lord McNally)
My Lords, the Government are sympathetic to the idea of a ban on referral fees and are looking at how to tackle the issue as part of our wider reforms, and at how we could do so in a way that would be effective.
Lord Sheikh
My Lords, I thank my noble friend the Minister for that reply. Lord Justice Jackson’s review of civil litigation costs prescribed a reduction in fixed costs and hourly rates for solicitors, as well as a ban on referral fees. Does the Minister agree with this position, and will he indicate whether the issue will be addressed in the Legal Aid, Sentencing and Punishment of Offenders Bill, which is currently in the House of Commons?
Lord McNally
Whether the question of referral fees will find its way into the Bill is a matter for the study that we are undertaking into ways that this could be implemented. However, we are trying to bring forward a range of the Jackson proposals in that Bill. As to referral fees, as my noble friend will be aware, the Legal Services Board and the Transport Select Committee advised a solution in terms of transparency. Lord Justice Jackson recommended a ban and, as I indicated, the Government are sympathetic to the idea of a ban.
Lord Carlile of Berriew
My Lords, in addition to that, will my noble friend confirm—as he indicated to me in a Written Answer to me on 23 June—that referral fees or kick-back fees in criminal cases are illegal, corrupt and should not be undertaken in any case by any lawyer?
Lord McNally
If that is what I said in a Written Answer it must be—[Laughter.] Even more so, it just sounds right.
Lord McFall of Alcluith
My Lords, the industry has called this its “dirty little secret”. Given that over the past 10 years personal injury claim payouts have doubled from £7 billion to £14 billion while road accidents have largely reduced over that period, is this not a clear case of market failure, and the Government should report this to the OFT to look at this issue and get this industry sorted out?
Lord McNally
Whether it is a matter for the OFT or the regulator is a balance of judgment. The noble Lord is right that the figures are showing a doubling. One of the factors that one must look at is the unbelievable increase in whiplash claims, about which I know the Association of British Insurers has held talks with my colleague Jonathan Djanogly. It is far too easy to find in even the most minor of accidents that subsequently whiplash is claimed, along with quite substantial damages. One of the weaknesses in the system is that the insurance companies find it easier to settle and pass on the costs to the customer than to fight these bogus claims in the courts.
Lord Marks of Henley-on-Thames
My Lords, does my noble friend agree that this practice of insurers charging solicitors referral fees for names is not only unethical and offensive but ensures that the claims are handled not by the most competent or well qualified solicitors but by those who are prepared to pay the most to buy the clients—thus effectively depriving their clients of their right to choose the best lawyers to handle their cases? Is that not another good reason for implementing Lord Justice Jackson’s recommendation for a ban on such fees?
Lord McNally
I agree with my noble friend. I hope that the more the public are aware of what the noble Lord described as this “dirty little secret”, the more it is in the public domain and the more that all parts of the insurance industry, including the insurance companies, solicitors and the consumers, will demand—and we will respond to that demand—to ban it.
Lord Bach
My Lords, I am now slightly confused as to the Government's position on referral fees. I note what the noble Lord said in his written response to the noble Lord, Lord Carlile of Berriew, and what he said in his reply to the noble Lord, Lord Sheikh, today. Have the Government made up their mind to ban referral fees or have they not?
Lord McNally
I am only surprised that someone with such long experience as a Minister should leap on this as if I were dodging the question.
Lord McNally
I can see a few more experienced ex-Ministers over there. The Government are sympathetic to the idea of a ban on referral fees, and are looking at how to tackle the issue as part of wider reforms—how we could do so effectively. Perhaps the Opposition have not yet got used to the fact that we are not a knee-jerk reaction Government; we are looking at the problem. The Prime Minister himself has made it very clear that we believe that Lord Justice Jackson has given us the solution to the problem. We are now looking at how to make it most effective.
Lord Strathclyde
I really do not think that the Opposition should have two goes; it is the turn of my noble friend.
Lord Phillips of Sudbury
Will my noble friend please take even more account of the fee-farming industry that has grown up in this country, which encourages indiscriminate and, I have to say, false claims because neither the fee-farming company nor the solicitor who purchases the case from the fee farmer ever sees the client? Without that, there is no constraint on dishonesty.
Lord McNally
My Lords, it is almost 15 years since I first asked a question on this. I have always had my doubts about claim management companies. There are more than 3,000 of them at the moment; 450 of them have had their authorisation cancelled by the claims management regulator, and I would like to see a lot more of them cancelled.