Alternative Business Structures

Wednesday 19th June 2013 Lords Chamber

Question

15:06

Asked by

[Lord Hodgson of Astley Abbotts]

To ask Her Majesty’s Government whether they propose to take action to prevent the re-emergence of the payment of referral fees through the use of alternative business structures.

[The Minister of State, Ministry of Justice (Lord McNally)]

My Lords, alternative business structures allow for increased competition and the provision of more cutting-edge services, helping to lower costs while maintaining high standards. However, they are required to comply with the rules of their licensing authority and the law in respect of the ban on referral fees.

[Lord Hodgson of Astley Abbotts]

My Lords, I am grateful to my noble friend for that Answer. In doing so, I congratulate the Government on the progress made in banning referral fees, which has led to a 5% reduction in motor insurance costs with a planned reduction of as much as 15%—an achievement in no way to be sniffed at. Is the Minister aware of the extent of the current challenge to this new plan of the Government, which may undermine all the good work so far? For example, is he aware that Tesco, through its insurance company Fortis, has set up a new joint venture with a company called New Law, a personal injury claims specialist based in Cardiff? Will my noble friend accept that it is not doing this for its health? Will he have a word with the Legal Services Board and the Solicitors Regulation Authority, the body that authorises new firms, to see what their view is of new firms being established, apparently with the sole purpose of frustrating the will of Parliament?

[Lord McNally]

My Lords, if they are established with the sole purpose of frustrating the will of Parliament, they will break the law. I will certainly take up my noble friend’s suggestion and talk to the Legal Services Board and the Solicitors Regulation Authority. We have had experience before of putting a law in place and some clever person trying to get around it, but we will take a close look and if they are trying to get around it, we will stop it.

[Baroness Deech]

Does the Minister agree that referral fees are a bad thing in all areas of the law, not just personal injury? They mean that professionals buy in services that they would not otherwise have and the consumer is deprived of choice. Will the Minister lend his support to the regulators, who are trying hard to maintain a broad ban on referral fees? I declare an interest as a regulator of the Bar.

[Lord McNally]

My Lords, referral fees are viewed with a certain suspicion, particularly when, as in the case of motor insurance, they were rising to about £800 a pop. That obviously fed into the cost of the insurance. After the first look, it was decided that the greatest abuse took place in motor insurance, and so we concentrated on that area. However, we will consult the regulators and consumer groups to see whether our experience of the ban should be extended to other areas.

[Lord Marks of Henley-on-Thames]

My Lords, the Solicitors Regulation Authority has approved licences for a number of alternative business structures, where claims management companies and even legal expenses insurers have joined forces with solicitors’ firms. In this way, solicitors effectively get personal injury cases in return for a commercial benefit—precisely what LASPO sought to avoid. Will the Minister make it clear to the SRA and the profession that if ABSs clearly undermine the referral fee ban, further legislation is an option?

[Lord McNally]

My Lords, more than that, LASPO already allows us to extend the powers, if necessary. We therefore want to see the evidence that is emerging. If these groupings of separate facilities and companies seem to be using means to bypass the ban on referral fees, we will revisit our powers under LASPO. I understand the concern of the House on this matter.

[Lord Beecham]

My Lords, is the Minister aware that a solicitor whose practice is a major participant in referral schemes has recently been reported as saying that if a fee is paid for indirect referrals, whereby the client is merely given the name of the solicitor but has not received the name from the referring organisation, it would be outside the scope of the scheme? Is that a correct view?

[Lord McNally]

I do not think so. However, a lot of examples have sensibly been raised in the House today, some of them hearsay and some from direct experience, which suggest that what we intended to do in LASPO may not exactly be hitting the target, or that, as a result of organisational devices used by companies, the target has been moved. I can tell the House that we will talk to the regulators and look at some of these examples. If necessary, we will look at the powers that we were given under LASPO to make sure that we do what the House intended, which was to stop the practice of referral fees, particularly in the area of motor insurance.

[Lord Faulks]

My Lords, is the Minister regularly invited, as I am, to commit fraud, by which I mean that telephone calls are made by companies inviting one to sue for accidents that did not occur? Do the Government have any plans to deal with this, and are they aware that this is a frequent problem?

[Lord McNally]

I have not had direct experience of that particular problem, but within my family I have had direct experience of just how casually the law is treated in this area and how that has had a direct impact on the cost of motor insurance. Parliament tried to address part of this problem through the ban on referral fees, but there are many murky practices around this area and the House is right to raise these issues. I will return to the MoJ with the clear message ringing in my ears that we should poke a little further into these murky businesses.