Grand Committee
Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2013
(11 years, 9 months ago)
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Lord Newby
That the Grand Committee do report to the House that it has considered the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2013.
Relevant document: 19th Report from the Joint Committee on Statutory Instruments.
Lord Newby
My Lords, I am pleased to introduce this instrument which was laid before the House on 30 January. I am satisfied that it is compatible with the European Convention on Human Rights. The aim of automatic enrolment was to broaden access to workplace pensions and increase savings levels, often from a very low or zero start. Our job today is to consider the figures that will apply from April. This will be the second year of live running when companies employing between 10,000 and 250 people start to go live. The automatic enrolment earnings trigger determines who can save in a workplace pension. It sets the automatic entry point. The qualifying earnings band then determines how much people save and sets employer contribution levels.
This is a balancing act. Automatic enrolment is a tailored policy. It does not force pension saving on to everyone regardless of age, earnings or individual circumstances. In setting the figures in this instrument, our overall aim is to maximise the number of people saving who can afford it, while excluding those who cannot. To do this, we need to exclude those very low earners for whom saving on top of the pension they will get from the state may not make economic sense, especially while they have other family priorities.
We also need to provide low earners access to pension saving, with an employer contribution, if saving is the right decision for them. To meet all these aims, we need to bring in employers who have never provided a workers’ pension, or never paid into one, while being realistic about the costs that they will have to bear. We need to cap minimum employer contributions for higher- paid staff and let existing arrangements cater for this market. To deliver these several objectives, we need a system that makes sense for individual workers and their employers. The way that we set these figures can help to achieve this.
I think that we all accept the powerful arguments for income smoothing. We put money aside now while we have it and while we are earning so we have it in our retirement. But of course the very lowest earners may not have the cash now to sacrifice for retirement saving. That is why we believe that the automatic enrolment trigger should exclude those people who may not be well placed to make that sacrifice unless they themselves want to save.
Saving should be an individual decision for people whose earnings hover around the tax threshold. We believe the state’s role is to provide access to saving where automatic saving is not the right approach. That is why the right to opt in, with an employer contribution, is such an important feature of these reforms.
We fully recognise that any rise in the trigger disproportionately affects women. I want to be completely clear that we are not weighing equality against cost. Gender is not the issue. We think the outcome of this review is right for people on very low incomes, regardless of gender. In particular, we do not believe that it is right automatically to enrol people who do not earn enough to pay tax.
Nevertheless, as noble Lords will know, it is possible for non-taxpayers to get tax relief on pension saving depending on the scheme. This top-up may have an impact on pension savings. We are seeing evidence that schemes designed to cater for the under-pensioned market and those targeting low to moderate earners are using, or intend to use, the relief-at-source mechanism precisely because it helps low earners.
This illustrates the point that however carefully the policy targets the right groups, the enrolment process needs to work in practice. We know that people see their employer as the first port of call for anything connected with wages or their pay slip. Automatic enrolment will work best when it is simple for employers to understand, simple to administer and when pension contributions are simple to explain. We may not be quite there yet in all respects, despite some really clever and effective work from some of the lead companies to demystify pensions in the workplace. Aligning automatic enrolment thresholds with existing recognisable payroll figures can be of considerable assistance and this was strongly recognised in the response to the consultation. This will be the second year of live running and it is likely to be a challenging year, as activity starts to ramp up. The overall message we heard is that this is not the time to change course.
The automatic enrolment trigger does not exist in isolation. It is an entry point to saving that works hand in hand with the qualifying earnings band. The band sets a minimum definition of pensionable pay. In simple terms, if you earn £9,500-odd a year, you will pay pension contributions on anything over £5,500. This point about minimum savings is important. Some schemes will have their own definition of pensionable pay, perhaps more generous than the savings band we set today. We are setting a universal minimum quality standard for pension saving, rather than an aspirational target.
We have been debating how best to set the parameters for pensionable pay for automatic enrolment since the pensions commission reported in 2004. The commission originally recommended aligning private pension saving to the national insurance threshold for the state pension—at around £5,000. That was a starting point. It established a core principle: that private pension saving should build on the foundation of the state pension. The commissioners envisaged year-on-year rises, in line with average earnings.
Perhaps I may take your Lordships back to our target market of low-to-moderate earners. This is a group whose wages are less likely to increase by average earnings, so a qualifying earnings band that rises by average earnings will have a disproportionate impact on these people. We considered a variety of other approaches but perhaps I might deal here with the two distinct ones that came out of the consultation we undertook last autumn: abolishing the lower limit or freezing the band.
Abolition would mean putting contributions on earnings from pound one. This would add around £130 million to employer costs next year. It would also hit low earners very hard indeed, to the extent that pension saving could start to look like something to be avoided rather than embraced. As to freezing this year’s figures, we come back to the practical aspects of automatic enrolment. It should work in practice and it should be easy to explain and to understand. Thresholds that bear no relation to anything else on payslips would fail all those three tests.
As noble Lords will be aware, the national insurance contributions upper limit is going down. If we continue to align with national insurance, the upper limit of the qualifying earnings band would go down too. The upper limit serves two purposes. It caps mandatory employer contributions; it also distinguishes the target group of standard-rate taxpayers from earners in a higher tax band. Higher-rate taxpayers tend to have greater access to a pension scheme offering more that the minimum. The issue is whether a reduction in the top limit of the qualifying earnings band would have a disproportionate impact on the target group. The evidence suggests that it will not. Average earnings in the UK are around £26,500 a year. Average earners would not be affected by a change in a contributions rule that bites on people earning nearly £15,000 more than they do. The evidence suggests that the practical advantages of alignment outweigh a reduction in the nominal value of contributions for a subset of higher-rate taxpayers.
I said earlier that setting these thresholds is a balancing act. There is no perfect answer, either in theory or in practice. Nevertheless, we believe that we have used the evidence to consider how we can best achieve the policy intentions and have made reasonable judgments about the various trade-offs. We believe that these proposals continue to provide broad access to pension saving and maintain contributions for the target group. I commend this instrument to the Committee.
Lord German
My Lords, I have a single question on determining the balancing act which the Minister has just talked about. However, my question is in multiple parts. No one is more enthusiastic than I about the raising of the income tax threshold. I have used it in many speeches in your Lordships’ House to illustrate how we have taken many lower earning people out of the tax bracket altogether. However, this is an area where the balancing act does not necessarily work because of the use of the income tax threshold, which has risen well beyond the level of earnings increases and well beyond that of price increases. Here there is a negative aspect to that balance. The number of people who will now be excluded from the automatic element—the “automatic” in the title of the order—is about 420,000 individuals, of whom 320,000, or 76%, are women. The question that primarily worries me and should concern the Committee is whether these are people who should be saving for the future and will be able to maintain over a lifespan the appropriate level of saving for a worthwhile pension. This is where my question splits into several parts.
Of course, people who are excluded as a result of the above earnings increase in the income tax threshold can opt into the system. But there are ways of opting in that may not be as obvious as you might think to many people. I understand that employers are required to make the offer and provide information to their employees if they are below that threshold and within that bracket. Therefore, can the Minister tell me what is the actual requirement on employers to provide information? If it is a piece of paper stuck in an envelope along with the payslip, that may not be the most appropriate information source. This is a tricky area for people to understand and the information may not be being provided in a meaningful way. It should certainly be in clear language. There is probably a whole pension industry that has developed a language of its own in explaining what are essentially straightforward implications in a way that is often impenetrable to many people.
My second question relates to when people are excluded from the automatic element, the declared intention being that it may be inappropriate for some people to save for a pension. Will the Minister explain what “inappropriate” means to lower earners? In the Explanatory Memorandum it is quite clear that people may not need to save if the state will provide. But as noble Lords will know, the pension schemes that the state provides are not static. There is progress towards a single state pension, which may make a difference to the way in which people see their pensions over a longer period of time.
I understand that if people will be low earners for the whole of their working lives it may not be appropriate because they might find that they would get a better deal from just relying on the state. But you cannot determine what the state will provide in 30 or 40 years’ time when you are entering the jobs market at the beginning of your life span. I would be grateful for an explanation of what makes these pension contributions inappropriate for some people.
The third element to the same question is about the relief at source. The Minister has already spoken about that for people who are below the income tax threshold. They can still, using the RAS scheme, benefit from having the tax contribution taken off at source. Do the Government have any intention of promoting the relief at source in order to assist people when making a decision about whether they want to opt into the system? Do they have a view about whether that is something that should be promoted? It is another useful piece of information. If you were told that it would cost you less than if you were paying tax, you would naturally look differently on any contributions that you might have to make. With those few questions rounded into one major question with many parts, I am pleased to support the order.
Lord McKenzie of Luton
My Lords, I start by thanking the noble Lord, Lord Newby, for introducing this order. I find myself on pretty much precisely the same page as the noble Lord, Lord German, concerning the points and questions that he raised. When we considered this matter in May last year, we looked forward to the introduction of auto-enrolment and acknowledged the contribution of the many people along the way who had made it happen. Indeed, we also acknowledged the role of this Government in taking it forward. Perhaps this would be an opportune moment to seek an early update on how it is all going.
As we set out last year, we see the merit of simplicity in the earnings band limits being aligned with the national insurance lower and upper earnings limits. This is notwithstanding that the raising of the former and the reduction of the latter means that the band is squeezed by some £1,100 for the upcoming year, with the Government estimating a reduction in pension savings of some £30 million. However, we welcome the fact that the broader definition of earnings, or its equivalent in other schemes, is being retained.
Our main concern, which I am sure will come as no surprise to the Minister, is the one touched upon by the noble Lord, Lord German, of raising the earnings trigger to the new personal allowance level. On the Government’s own figures, this will exclude around 420,000 individuals, 76% of whom are women. Of course, this is on top of those who have been excluded by aligning the trigger to the personal allowance threshold in the current year. We have heard some of the justification for that. It concerns simplicity and whether people are in a position to afford to save.
However, it seems that there is a breakdown in the Government’s logic. Let us say that the Government got the balance right in the current year. Looking at the current year, why should the increase in the personal allowance for other policy measures, which we may or may not agree with, by more than the rate of inflation and more than earnings cause the balance in adjustment as to what people can afford still to equate with the personal allowance threshold? I do not think there is a logical connection between the two. However, we are where we are on that.
The Government’s explanation was that persistent low earners tend to find that, through pensions and benefits, the state provides a level of income in retirement similar to that in working life. Of course, that assumes that today’s low earners will be tomorrow’s low earners. We would hope that as a matter of government policy that would not be the case. The noble Lord, Lord German, touched on the much heralded single-tier pension, which is supposed to negate the need for earnings-related support in the future. It takes us back to the big debates that we had around “pays to save”, when the whole concept of auto-enrolment was being considered and the structure was being put in place. If the single-tier pension is to be introduced and is successful, negating a whole raft of earnings-related means-tested support, that should make it easier to make the judgment about when it will pay to save.
I turn to the issue of tax relief and relief at source. If people are excluded from auto-enrolment due to the personal tax threshold, they are potentially missing out on this chunk of government support. The noble Lord, Lord German, raised absolutely the right point by asking what employers are required to do to make sure that people are aware of this potential benefit. I hope that the Minister can confirm that there is absolutely no intention of changing the structure of tax relief. I think it was confirmed last year that NEST will operate the relief-at-source system, so anyone who was going to be enrolled or who wished to opt into NEST would receive the benefit of that tax support.
I end on the same point as the noble Lord, Lord German, which is: if this is the way things are going to go and if there is to be this increasing raising of the threshold, which will really change the landscape over time if it continues, what publicity will be given to the right to opt in? That becomes ever more important if the threshold is to continue to be raised. What are the Government planning to do generally? What are the requirements on employers, so that those who miss out on auto-enrolment at least have the chance to consider the opt-in route? The key point of auto-enrolment was to deal with inertia, to get people into pension saving because they had to make a decision to opt out. Once you remove that requirement from them, inertia reverts and the onus is on individuals. I think that they have to be above the lower earnings limit to opt in. What support and encouragement will they be given? They should at least know that they have the choice. Given what is happening to the personal tax threshold, that is a key issue for us.
Lord Newby
My Lords, I thank both noble Lords who have contributed to the debate. The questions have been about not the people who will be automatically enrolled but those who might or might not.
Part of the context for this is that even with the uprating of the tax-free limit, in terms of income level we are talking about 29 hours at the minimum wage, so the vast bulk of people in the category we are discussing—people who could join if they wish but who are not automatically enrolled—are likely to be part-time workers. That comes to the final point of the noble Lord, Lord McKenzie, about what their career paths will be. I would expect quite a number of people in that category now would not necessarily be part-time workers for the rest of their lives. A lot of them will be women with children, who may go on to have a full-time job when their children are older, and we would hope that they would do so if that is appropriate. Of course if they do, they would then be automatically enrolled.
On how we make sure that people know of their rights, which is obviously important, employers must write to employees with information about rights setting out the full picture. The department has developed a language guide and template letters to help employers to communicate clearly with people new to pension saving. I must say that I have not seen that letter. I will now make it my business to read it. If it is a letter that communicates clearly on pensions, it will probably be the first one that I have seen. I am sure that the finest minds in the department have been worrying about that. It is a major problem. By and large, people are ignorant about their pension savings and pension options. It is a challenge in any scheme, but particularly here, where a lot of the people who may be in this category will never have had a pension before. I will enjoy reading that letter.
The noble Lord, Lord German, asked for a definition of “inappropriate”. It is easy to see why for a single-parent family with children, where the mother is working part-time, it is not so much inappropriate as impossible. There just is not the amount of money in the household to enable much saving to take place. Another example of where it might be inappropriate would be if a household had built up debts and had large outstanding payments due, as many people on low incomes do. It would probably be in their financial interest to try to get those debts down before undertaking any savings. I am not sure that is the complete answer but I can see circumstances where, if you were a debt adviser or financial adviser to people who had got into debt and were on low incomes, you would be advising them to pay off those debts first.
There was a question about relief-at-source schemes and how these will be made clear. I hope that the letter explaining to people what their requirements are also explains the relief-at-source mechanism, and I will be looking at that. If it is able to do that in very clear terms, that will be an even greater achievement. I have great confidence in officials at the Department for Work and Pensions being able to clarify what most people find opaque. We are still looking at how relief-at-source schemes are operating as the new system rolls forward. The evidence so far is that schemes aimed at this population are actually using relief-at-source, so at least in that respect the system is working well.
The noble Lord, Lord McKenzie, asked how many people have been auto-enrolled and how this process is going. We expect that by this April at least 1 million individuals will have been automatically enrolled. The early signs are very positive: some big employers who have gone in first are reporting very low opt-out rates. However, the department has a full evaluation programme and we will be able to produce our first reports on this in the summer.
The noble Lord, Lord McKenzie, also asked whether it was the intention to change the relief-at-source rules. This is a Treasury matter, and we are near the Budget, but I think it is fair to say—and if I am sacked for this I shall blame the noble Lord, Lord McKenzie—that I am not aware of any intention to change the relief-at-source rules. I hope I have answered the questions that noble Lords have asked me.
Lord McKenzie of Luton
If the noble Lord gets sacked for that statement, I shall campaign on his behalf. When he has got over the excitement of reading the letter that he is going to peruse, would he share it with us? That would be helpful.
Lord Newby
I will, because it deserves to have the widest possible readership. With those comments, I commend the order.
Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2013
(11 years, 9 months ago)
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The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, I beg to move that the Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2013 be considered. I shall speak also to the Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2013. I am required to confirm to the Committee that these provisions are compatible with the European Convention on Human Rights, and I am happy to so confirm.
These two regulations increase by 2.2% the lump sum amounts payable under the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 and the mesothelioma scheme set up by the Child Maintenance and Other Payments Act 2008. These increased payments will be paid to those who first satisfy all the conditions of entitlement on or after 1 April 2013.
There is no legislative requirement to review the level of payments in these two schemes as they are separate from the main social security benefits uprating provisions. However, the Government have agreed to increase the amounts payable for 2013 using the same 2.2% rate that is being applied to industrial injuries disablement benefit and other disability benefits under the main uprating provisions.
The draft pneumoconiosis regulations also remove references within the Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) Regulations 1988 that are no longer relevant. The references related to the two schemes that covered those whose industrial accident or disease was as a result of work before July 1948 and who did not qualify under the main industrial injuries disablement benefit scheme. These pre-July 1948 schemes—the so-called “old schemes”—were abolished under the Welfare Reform Act 2012, with all existing cases and new claims transferred to the industrial injuries disablement benefit scheme. No one lost out as a result of this change and, in fact, the majority of people received an increase of up to £5 per week.
The two schemes before us today are important in compensating those people who unfortunately suffer from diseases as a direct result of being exposed to asbestos or to one of the other listed causes of the diseases covered by these schemes. Because of the very long latency period—in some cases stretching back decades—between the time a person was exposed to asbestos and when the symptoms of the disease become apparent, a successful civil damages claim may be difficult to achieve.
These two compensation schemes provide payments on a no-fault basis and therefore aim to ensure that sufferers can be compensated while they are still able to benefit from it. In some cases, civil litigation may still be pursued, but these payments allow a payment to be made irrespective of the outcome of the case. I will briefly summarise the specific purpose of each of these lump-sum compensation schemes.
The Pneumoconiosis etc. (Workers’ Compensation) Act 1979—referred to as the 1979 Act—applies to those who have contracted one of the five dust-related respiratory diseases covered by the scheme through their occupation, who are unable to claim damages from employers after they have gone out of business and who have not brought any action for damages. It can be paid only if someone would have been entitled to industrial injuries disablement benefit for the disease in question. The five diseases are diffuse mesothelioma, bilateral diffuse pleural thickening, pneumoconiosis, byssinosis and primary carcinoma of the lung if accompanied by asbestosis or bilateral diffuse pleural thickening.
The 2008 mesothelioma lump-sum payments scheme was introduced to compensate those who contracted mesothelioma but were unable to claim compensation for that disease under the 1979 Act. It covers those whose exposure may have been due to environmental causes, instead of being a result of their work, and it means that sufferers can get a payment quickly to meet their needs. Under both schemes, dependants can make a claim when the sufferer died before being able to do so.
The rates of payment under the 1979 Act are based on the percentage level of the disablement assessment and the age of the sufferer at the time the disease is diagnosed for a claim to industrial injuries disablement benefit. The earlier the age of the sufferer at diagnosis and the higher the level of disability, the higher the level of payment that is made. All payments as a result of contracting mesothelioma are made at the 100% rate of disablement—the highest rate available. The 2008 mesothelioma scheme mirrors this as all payments under that scheme are made at the 100% rate of disablement, variable only by the age of the sufferer at the time of diagnosis.
Noble Lords may like to know how many claims we received and the amounts paid out under these schemes. In the last full year from April 2011 to March 2012, 2,750 people received payments under the 1979 Act at a cost of £37.7 million, and 480 people received payments under the 2008 scheme at a cost of £9.3 million. The total amount of compensation paid out under both schemes during this period amounted to £47 million.
In the current financial year from April 2012 to September 2012, 1,610 people received payments under the 1979 Act, amounting to £21.9 million, and 250 people received payments under the 2008 scheme, amounting to £4.9 million. The total compensation paid in the first six months of this year amounts to £26.8 million.
The forecast for next year is that 3,100 people will be paid under the 1979 Act, and 500 people will be paid under the 2008 scheme. The estimated amount of compensation likely to be paid is £53.7 million.
Over 60% of 1979 Act payments made are as a result of contracting mesothelioma—a terrible and fatal disease caused almost exclusively by asbestos exposure. People diagnosed with mesothelioma will usually have a short life expectancy of around nine to 13 months, and it is likely that they will become severely disabled shortly after diagnosis.
I can advise noble Lords that the number of deaths from mesothelioma in Great Britain continues to rise. In 1968, there were 153 deaths from mesothelioma. The disease has a long latency, taking decades for symptoms to become apparent. Today, more than 2,300 men and women each year are dying from the disease. The information currently available suggests that mesothelioma deaths in men will plateau at around 2,100 by 2016. Accepting that accurate predictions are difficult, the current thought is that deaths in women will peak at a later period than they do in men, but the number of deaths will be lower. The total number of deaths will likely be around 4,500 each year if we include other asbestos-related deaths such as asbestosis and lung cancer.
It is clear that the government schemes we are debating today provide valuable help for people suffering from mesothelioma. However, the Government are planning to do more to help those unfortunate people who have contracted the disease. I am able to tell the Committee that the Government are working with the Association of British Insurers and other stakeholders to develop a scheme to help mesothelioma suffers who cannot trace an employer or insurer against whom they can make a claim for damages.
My noble friend Lord Freud announced in July last year that the Government would introduce legislation when parliamentary time allowed. Until such time as the Government can introduce legislation, we are unable to provide noble Lords with specific details of the scheme. However, the Government’s intention remains that anyone diagnosed on or after 25 July 2012 who meets the eligibility requirements will be able to bring a claim against the mesothelioma support scheme.
These regulations increase the level of help provided by the Government through these compensation schemes to support those people unfortunate enough to have contracted these diseases, as well as their dependants. Of course, we are all aware that no amount of money will ever compensate individuals and families for their suffering and loss caused by these diseases, but those who are suffering rightly deserve some form of monetary compensation, and it is only right that they receive it before it is too late.
I commend to noble Lords the increase of the payment scales and ask for approval to implement them.
Lord Wigley
My Lords, I am grateful to the Minister for outlining in some considerable detail the statistics relating to these two schemes. I will come back to a question that I would have put to him had I been able to intervene earlier. The regulations under consideration today make provision, as has been outlined, for the uprating of the amount payable to sufferers of pneumoconiosis and mesothelioma in line with inflation. As the Minister reminded us, there is in fact no statutory obligation to do this. However, the previous Government did so and I am very glad that the present Government are doing likewise, so that the value at least comes somewhere close to keeping up with inflation.
A lump sum is payable under the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 for sufferers of lung diseases including, as the Minister said, byssinosis, pneumoconiosis—including asbestosis—diffuse pleural thickening, asbestos-related lung cancer and mesothelioma. When the Minister quoted figures relating to the past year, I was wondering in that context whether, under the 1979 Act payments, he can differentiate between those relating to mesothelioma and those related to the other sources of lung disease which qualify under that Act.
The 1979 Act was one in which I and my party, Plaid Cymru, had some considerable involvement, as some colleagues may recall. That was because the legislation had considerable significance for the slate-quarrying industry, as well as for some aspects of coal mining. I was also involved in issues relating to mesothelioma associated with working with asbestos, as a number of cases in the old Ferodo factory in Caernarvon were arising then. There is still a tale that leads out of that period. More recently, I have become quite alarmed by the potential number of mesothelioma sufferers from a range of industries, particularly construction industries. Even among those who have been working in schools, including teachers, some of the answers received indicate the worry that may arise in that context.
None the less, the payment is made to claimants who are awarded industrial injuries disablement benefit and is geared to the age of the claimant. If the claimant dies before submitting a claim, dependants of course receive a lower rate of payment. This can lead to increasing stress on the very individuals who are ill, who feel forced to rush through their claims to maximise the compensation available to their families. If these people are too sick to make a claim before their death, their families will be left with the lesser amount.
It is now widely accepted that the differential payments between the living claimants and the dependants of those who have died is, frankly, not fair. The annual uprating of these payments is debated each year in both Houses, and in 2010, Committees from both places agreed that this was especially pertinent to mesothelioma cases, where claimants often pass away shortly after diagnosis. I think the Minister acknowledged that in his opening speech. This means that their families will not have had sufficient time to submit a claim prior to their relative’s death. Both Houses thus decided in 2010 that the Government should reduce the difference between payments that year, with the eventual aim of eliminating the differential. Despite this commitment, since 2010 no ground has been made on ending this inconsistency, as I understand it. Bearing in mind that dependency claims represented only 8% of all claims in 2011, and only 5% of the total cost of all claims, surely the Government can see the expediency of ending this anomaly.
Ending the differential would also mean extending the upper age limit for dependency payments from 67 and over to 77 and over. This would bring payments in line with those for in-life claimants—yet another inconsistency that unfairly disadvantages the families of individuals who, for the most part, were too ill to make claims before their death. I urge the Government to commit to finally ending this anomaly. The same should apply to the scheme set up under the Child Maintenance and Other Payments Act 2008, which provides for a lump sum to be paid to mesothelioma sufferers who did not qualify for payment under the 1979 Act, due to being self-employed or having not had occupational exposure. With this scheme, too, dependants of those who died before submitting a claim are paid a lower rate.
Claimants will be at a further disadvantage due to a mistake which the Department for Work and Pensions made in 2010 in calculating the dependency payments for all ages at 50% plus disablement. As a result of this mistake, the department has overpaid since 2010 and, as I understand it, is now in the process of correcting that mistake. The result of all this is that payments have been cut from £7,915 in 2012 to £7,180 in 2013. So as well as failing to equalise the in-life and dependency payments, the Government have also reduced the amount available for dependants in mesothelioma cases because of this mistake. I understand that mistakes have to be corrected. None the less, it has that effect. Surely the Government accept that this position is not ideal.
Before concluding, I ask whether in mesothelioma cases the Government can make every effort to speed up decisions and payment, for the obvious reasons on which I do not need to expand. Perhaps I may also flag up that there is grave misgiving that using the portal process will prove to be wholly unsuitable for complex mesothelioma cases and is unlikely to speed up decisions in such cases. I would be very grateful for the Minister’s response on these important aspects of pneumoconiosis and mesothelioma issues covered by the two orders before us today.
Lord Avebury
My Lords, I echo what the noble Lord, Lord Wigley, has said about the commitments that were made two years ago and about the inconsistency of the Government’s response to the demands that were made, I think in both Houses, at that time. When the equivalent to this order was debated two years ago there was criticism by the noble Lord, Lord McKenzie, and my noble friend Lord German of the gap which had developed between payments under the Child Maintenance and Other Payments Act 2008 to living mesothelioma sufferers and to their dependants after they had died. As the noble Lord, Lord Wigley, has said, it may take some time before a claim is submitted. Very ill patients may not be capable of addressing the matter in time. Equally, it is very awkward for relatives of the sufferer or for the local Asbestos Victims Support Group to get a signature from a patient who may be in great pain and on the point of dying, so that a claim can be submitted on his behalf.
The result was that in 2011, there were 2,952 in-life claims and 270 dependency claims. The Minister gave some statistics about the payments made to these individuals but it would be useful if, when he winds up, he could say something about the rates of claims submitted and separate them into in-life and dependency for 2013 and for the years up to the plateau which he says will occur in 2016. I think that that is a year later than we had previously been told.
In 2011, the average in-life payment was £15,204, while the average dependency payment was £9,026, which is trivial enough compensation when you think about someone who has got this frightful disease and even more so for the widow who has gone through the traumatic experience of seeing her husband die in excruciating pain. Of course, these payments are intended to tide the patient or the widow over pending the settlement of a claim which may lie against the former employer in whose service the exposure to asbestos occurred. For some patients, however, as the noble Lord has explained, the discrepancy is actually widening this year. One would have no hint of this from either the order or the Explanatory Memorandum, but the widow of a mesothelioma victim aged 67 at the time of his death will get £7,180 in 2013, compared with the equivalent figure in 2012 of £7,915 and £17,799 for the in-life claimant.
As the noble Lord, Lord Wigley, said, the reason for that discrepancy, the 9% cut, was explained by the DWP by the fact that it had made a mistake in 2010 in calculating the dependency payments for all ages at 50% plus disablement, and that resulted in overpayments to the band of dependency claimants we are concerned with in 2011 and 2012. As a result of that mistake, the dependency rate moved closer to the in-life rate, which, as I said, was clearly the intention of both Houses when we debated the matter in 2011. Nothing in the Explanatory Memorandum gives a hint of that bizarre outcome. I would be grateful if the Minister could explain why it was not drawn to the attention, at least of the Asbestos Victims Support Groups Forum UK, run by Mr Tony Whitston, who discovered it only by accident.
I should also like my noble friend to explain why we have departed from the principle that used to operate. When a mistake of this nature occurred that operated to the benefit of the citizen, we used to say that public faith was thereby pledged and that the Government would stick to the errors made and pay the amounts now to be issued in recognition of the mistake. Since 2008, lump-sum payments have been recovered by the DWP claims recovery unit in cases where civil claims for compensation are successful, and £21.3 million was recovered under the scheme in 2011. The Government expect that a further £49 million will be recovered over a 10-year period through the tariff scheme funded by insurers to pay compensation in cases where it is not possible to trace employers’ liability insurance.
If the Minister could give an estimate—I do not suggest that he should immediately, but when he has had a chance to discuss it with officials—of the net cost of dependency payments over the 10 years, based on the assumption that equalisation would be achieved in a straight line over that period, that would be helpful. The calculation should assume that over the same period, the cut-off age for those payments is raised from 67 and over to 77 and over, the cut-off age for in-life payments over the same 10 years. That would be useful in assessing the likelihood of being able to equalise the payments over that 10-year period.
I recognise that we will not secure any improvement in the lump-sum payment scheme for this year, because the parliamentary process does not allow that to happen. It is a defect in our system that so much is done by secondary legislation, which cannot be amended. In cases like this, where the Government obviously know that what they are proposing is highly controversial, they should offer the stakeholders concerned the chance to put their views forward at a Select Committee-type hearing before coming to a final decision. It is surely wrong that Parliament should be confined to expressing nugatory complaints about decisions such as this which affect people with mortal illnesses.
Lord McKenzie of Luton
My Lords, I start by thanking the noble Earl, Lord Howe, for introducing the regulations. I am bound to say that we are used to seeing a DWP Minister deal with them, but we are delighted that it is the noble Earl. I do not know whether that is a passage of a change in policy; we would be interested to hear if it is.
We have made known our general position on uprating by CPI rather than RPI, and that has not changed, but we can support the thrust of the regulations and maintain consensus about these two very important schemes. We are delighted in particular that these payments have not been subjected to the 1% uprating cap.
I note that the alignment of payments between the two schemes both for claimants and dependants has been maintained, and this is obviously something that we support. It is an important matter. But both the noble Lords, Lord Wigley and Lord Avebury, raised the point about the disparity between claimants and their dependants. Certainly, it is my recollection that it was the aspiration that the gap between these amounts be closed, or at least narrowed. Perhaps the Minister can tell us when an assessment was last made of the prospect of achieving this and whether there are any plans to do so.
Both noble Lords who have spoken referred to an error in 2010 and a correction to it which seemed to slip through the Explanatory Notes that we have today. That is quite possible, but an error in 2010 would have been on our watch if it was in the early part of the year. I was trying to recall what that might be. Certainly, if the adjustments that have flowed from it have not been fully explained, that is not good practice, and we would be interested to hear from the Minister on that point.
I am aware from the Cancer Research UK website of several clinical trials being undertaken in respect of mesothelioma and I wonder whether the Minister, wearing his Department of Health hat, has anything that he wishes to impart on the subject. I was going to ask a question about projections of peak numbers, but he dealt with that in his presentation.
The Minister also dealt with the question of pre-1948 schemes saying that people previously under those schemes would be transferred to IIDB. He said that most would receive an increase of up to £5 per week and obviously that is to be welcomed. He also said that no one would lose out, but is that as a result of specific transitional arrangements and protections that are in the scheme?
The Minister pre-empted another question. He has given us an update on the amounts of compensation paid under the two schemes for the previous year and the current year. But perhaps he can also let us have the figures for compensation recovery for these same periods. Compensation recovery was meant to fund certainly the 2008 scheme and contribute to the 1979 scheme.
On the subject of compensation recovery, the tracing and availability of employer liability insurance is clearly relevant. The Minister will be aware of the consultation launched by the previous Government—indeed, he referred to it—on the Employers’ Liability Insurance Bureau as a fund of last resort when employer liability policies could not be traced. The Government's belated response to that consultation—it was slipped out on the last day of the parliamentary Session in July 2012—was a huge disappointment.
Despite what the Minister said in introducing the regulations, could we have an update on progress on this? There are concerns around the scope of the bureau, time limits for making claims and opportunities for dependants to engage. The formulation that we heard a moment ago was that these things would go forward when parliamentary time allowed. We have a week spare as a result of the extra week that we were granted just today, so I am not sure what the pressure on the parliamentary timetable is that precludes this coming forward. It has been a long-term aspiration because we know that there are difficulties in identifying employer liability insurance policies.
The Minister will also be aware of government plans to change the basis on which employees will be able to claim compensation for injury and ill-health caused by work. There is the proposition that claims in the future will have to be based on establishing negligence. What assessment have the Government made of this change, which was rejected by noble Lords in a vote just yesterday? What is the assessment of its impact on compensation recoveries generally and as a source of funding for the 1979 Act and 2008 Act schemes?
Notwithstanding those questions, these are two important schemes that bring some relief to the thousands of people who are afflicted by these terrible diseases, and we will maintain the consensus and support the regulations.
Earl Howe
My Lords, I am grateful to all noble Lords who have spoken. In answer to the noble Lord, Lord McKenzie, as to why a Health Minister is responding, I am, at least for this afternoon and for the first time, proudly wearing my DWP hat in the absence of my noble friend Lord Freud, who is unavoidably on government business abroad. I should not say abroad: he is in Scotland.
I shall begin with the statistics, which have prompted questions from a number of noble Lords. The noble Lord, Lord Wigley, asked about payments made under the 1979 Act related to mesothelioma, as opposed to other diseases. I do not have the actual figures to hand, but I can say that over 60% of payments made under the 1979 Act are in relation to mesothelioma, and the rest to other conditions. My noble friend Lord Avebury asked whether I could supply an estimate of the net cost of payments over the next 10 years, including equalisation, if that were to occur. I shall gladly write to my noble friend; it would not be right for me to come out with a figure this afternoon, because it is likely to be incorrect.
My noble friend also asked me for a forecast of payments from 2013 to 2016. We have not formally forecasted figures for these schemes, but the split for the last financial year, 2011-12, is: under the 1979 Act, 2,480 sufferers and 270 dependents claimed; and under the 2008 scheme, 450 sufferers and 30 dependents claimed.
The noble Lords, Lord Wigley and Lord McKenzie, asked me to comment on the proposal that payments to dependents and sufferers should be equalised. First, I share the concerns about the plight of dependants. I understand the difficulties that families face when their loved ones suffer illness. That is why the department is always working to improve the processes to ensure that claims are dealt with as quickly as possible: as the noble Lord rightly said, sometimes sufferers and dependants struggle to make claims before the person dies. At the same time, we need to fulfil our obligation to ensure that all claims are appropriate and legitimate. Ministers have to balance competing priorities, and because of the current financial situation, it is our duty to ensure that all available resources are well targeted. As around 85% of payments made under these schemes are paid to those who are suffering from the disease, I believe that they are currently rightly targeted on the sufferer to help them and their families to cope while living with the stress that illness inevitably brings.
The noble Lord, Lord McKenzie, asked me about the disparity of payments and when an assessment was last made. I simply say to him that we keep these schemes under review. While in the current economic situation we have no plans to make changes to the scheme at present, naturally we will revisit this issue at regular intervals.
The noble Lords, Lord Wigley and Lord McKenzie, and my noble friend Lord Avebury referred to the error that caused some people to have been overpaid lump-sum payments and they asked what the situation was regarding that overpaid amount. Before last year’s debate, officials in the department identified an error in the rate tables for a specific subset of dependants resulting in a dependant receiving a higher award than a sufferer would have received. Even though this error would apply to only very few people, it did not reflect the policy intention that available resources should be focused on the sufferers of the disease rather than dependants. Consequently, the position was rectified and the amended regulations were debated and approved last year. However, an operational error was made to the effect that the revised figures were not input into operational systems and this resulted in a number of dependants being overpaid. The department is currently considering how to deal with these cases, and I am advised that no decision has yet been taken.
I understand the point made by the noble Lord, Lord McKenzie, concerning the amount of compensation recovery that the department receives in relation to payments made under the 1979 Act and the 2008 scheme, and the suggestion that this should be used to offset the cost of increasing the number of dependant payments. The total amount of compensation recovered from civil compensation claims in respect of payments made under both schemes exceeds the cost of making the payments under the 2008 scheme. However, these recoveries are also used to offset the cost of payments made under the 1979 Act, which still results in an overall cost to the department of making these valuable lump-sum payments. I have some figures in front of me on the amounts recovered in recent years. The noble Lord may like to note that in 2010-11 the amount was £18.4 million, and in 2011-12 it was £21.3 million, which is considerably less than the overall outlay made by the department.
The noble Lord, Lord Wigley, asked about the use of a portal. I am advised that the Ministry of Justice announced on 18 December last year that it would consult on the use of a portal and other related matters, and we expect this consultation to commence this spring.
The noble Lord, Lord McKenzie, asked me about clinical trials for mesothelioma. The British Lung Foundation has undertaken work looking at mapping the genome. We continue to engage with all research organisations on this. If I have any additional information to give him on this having consulted my officials in the Department of Health, I shall be happy to send it to him. He also asked me about the pre-1948 scheme and whether it is correct that no one will lose out as part of the transition from one scheme to another. That is correct. Where any existing pre-1948 payments were lower than the IIDB payments, they were brought up to a higher level at that time.
Lord Wigley
I am very grateful to the Minister for going through these matters in such great detail. Am I not right that the pre-1948 cases could also receive lump-sum payments? He referred to £5 a week, which of course is a Revenue payment. Is there any danger of people losing out on the entitlement to lump sums?
Earl Howe
I am advised from the highest authority that the answer to that question is no. If I can supply the noble Lord with any further information, I would be happy to do so. The noble Lord, Lord McKenzie, asked me whether I could give him any further information on the progress for the new meso scheme. The Department for Work and Pensions is actively working with stakeholders, including the Asbestos Victims Support Group to develop this scheme. Unfortunately, I am not in a position to say anything ahead of the gracious Speech—but we might or might not hear something to our advantage on that occasion.
However, I can say that we fully understand that people who develop diffuse mesothelioma as a result of their negligent exposure to asbestos at work and who are unable to trace a relevant employer or their employers’ liability insurance policy to claim against would be eligible to claim from this scheme. We appreciate the urgency of the situation. As I have mentioned, eligible claimants diagnosed with diffuse mesothelioma from 25 July 2012 onwards will be able to receive a payment once the scheme commences.
I am aware that there may be one or two questions I have not been able to answer, some of which I have already referred to. However, I hope that in the main I have covered the issues raised and I commend the regulations to the Committee.
Lord McKenzie of Luton
Before the noble Earl sits down, I should like to thank him because he has gone through a lot of detail for us today. As regards the potential impact of the debate we are having generally about changes to the Health and Safety at Work etc. Act, civil liability and negligence, has there been any assessment of the relevance of that to compensation recoveries that are factored into the funding of the schemes that we are talking about today?
Earl Howe
My answer to that would be expressed in general terms. It is a longstanding principle that people should not be compensated twice. Usually, where social security benefits have been paid, they are recovered from compensation where people have been successful in a subsequent civil claim. That is the underlying thinking that is guiding us. But again, if I can enlighten the noble Lord further, I will do so in a letter.
Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2013
(11 years, 9 months ago)
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