Legal Aid, Sentencing and Punishment of Offenders Bill

Lord Beamish Excerpts

Tuesday 1st November 2011 Commons Chamber

[Mr Kevan Jones (North Durham) (Lab)]

I note what my hon. Friend is saying about the claims regulatory authority, but my experience at the tail end of the miners compensation scheme was that it was effective in driving out of the industry some of the more unscrupulous claims management companies, which were often just front companies that wound up as soon as they had passed the claims on. I caution my hon. Friend not to be too harsh on it.

[Mr Slaughter]

I am grateful for my hon. Friend’s intervention. I am sure that some companies have been driven out of business, but the everyday experience of hon. Members, and certainly of our constituents, is that the industry is not properly regulated, which is why corrective action must be taken. However, the proposals in the Government’s new clauses are, I fear, insufficient. They are riddled with inconsistencies and loopholes, which is another symptom of the haste with which they were prepared.

I will deal with the point that the Minister dealt with. New clause 19(8) states that a payment is

“to be treated as a referral fee unless”

it can be shown

“that the payment was made…as consideration for the provision of services, or…for another reason”.

The Minister’s impact assessment explains what that means. Claims management companies may adapt their business models so that they are not reliant on referral fees paid by lawyers, or they may move into alternative types of business such as marketing or advertising. That is staggering to those of us who recognise that it is precisely that marketing and advertising, whether on daytime TV adverts or via spam messages, that lead to perceptions of a compensation culture.

What is the point of the new clauses? The truth is that they are an afterthought to a package of changes in the Bill, some of which we will debate tomorrow, that have far more bite but a different purpose. The changes to conditional fee agreements mean that losing defendants—wrongdoers—and their insurers will benefit at the expense of winning claimants—victims—and that is the real objective of the Government’s legislation. Tomorrow, we will seek to overturn those provisions.

As Bob and Sally Dowler have told us; as the lawyers that brought Trafigura to justice have told us; as victims of asbestosis, who have been fighting insurers that simply do not want to pay out to hard-working and long-suffering people; as those who have been unfairly dismissed or subject to harassment in the workplace have told us; and as Christopher Jeffries, who was persecuted by the media last Christmas, as he wrote in The Guardian this very day, has told us, the changes are unacceptable. The Government’s proposed changes, which they had thought about and on which they had taken instructions from the insurance industry, are in the Bill, but very little thought has gone into the new clauses before us today, and none would have gone into them had it not been for my right hon. Friend the Member for Blackburn.

In summary, we believe that there is merit in a ban on referral fees as part of a package to stop the abuses that I have talked about. That is why I tabled amendments not just to clamp down on those fees, but to make the payment and solicitation of referral fees in road traffic accident personal injury cases a criminal offence. My right hon. Friend has tabled amendments to new clause 18, and I hope that he will press them to a vote. If he does so, I hope that hon. Members on both sides of the House will join him in the Lobby if the Government still refuse to accept the criminalisation of referral fees.

We sought to make unsolicited text messages and phone calls regarding personal injuries a criminal offence. We would have strengthened the rules against the sale of personal data. We would have restricted whiplash claims by placing a lower limit on the speed at which a vehicle must be travelling before damages may be paid. We would have outlawed third-party capture, another dirty secret of the insurance industry. I freely acknowledge that we plagiarised some of that from my right hon. Friend’s private Member’s Bill.

If the Government had had the courage of the conviction in the Minister’s speeches earlier in the year, we would have got to the heart of the perception of a compensation culture. In doing so, we would have done what the Government are now failing to do. The new clause alone will have little effect. We believe that it deserves further scrutiny, and we hope that amendments in another place will toughen it up, if that does not happen tonight. We also hope that amendments to make these practices criminal offences will be accepted. We therefore have no intention of voting against the new clauses; we simply regard them as not going far enough.

The Minister’s incompetence in getting to grips with claims farmers who engage in unscrupulous practices and his Department’s failure even to recognise the scale of their failure to regulate effectively have got us here. These are symptoms not of a litigation culture, as he would have us believe, and of the rhetoric that goes along with the cuts in legal aid to the poorest, as well the neutering of no win, no fee agreements which will affect almost everyone except the super-rich and will prevent access to justice, but of regulatory incompetence by the Minister’s Department. Indeed, he has now surrendered responsibility for that regulation.

I commend my right hon. Friend’s amendments to the House. We accept the new clauses as far as they go, but it is about time the Government stopped using their rhetoric as a mask for preventing victims from obtaining justice and used it to ensure that the abuses that we all put up with day to day from fraudulent and criminal practices are stamped out.

--- Later in debate ---

[Mr Straw]

I said earlier today outside the House that I believe the reason why the OFT has decided rather late in the day to hold an investigation into market conditions in the motor insurance industry is that it is deeply embarrassed by the position that it took in 2004. In no sense could it be said that referral fees encourage fair trading. They are essentially a fraud on the consumer. Lord Justice Jackson, in his magisterial report, completely demolished the OFT’s case in favour of referral fees.

The other body that should examine its processes is the Legal Services Board. I accept readily the reason why the Secretary of State felt obliged to wait for its consideration of referral fees, but its consumer panel released the most extraordinary report stating that referral fees worked in the public interest. If we examine the basis of its research, we find that a third of the people whom it surveyed had received compensation for things like whiplash.

On any objective consumer evidence, and there is plenty of it, it is perfectly plain that the public collectively do not like what they are learning about how the wider insurance industry operates. They reckon they are being defrauded, and that is absolutely true. In motor insurance, for example, a conservative estimate is that at least £2 billion of the total premium income of £9 billion is additional costs caused by the merry-go-round of referral fees.

[Mr Kevan Jones]

My right hon. Friend is correct that in 2004, referral fees were put on a legal footing. However, many years before that it was quite clear that referral fees were being paid in various guises. My hon. Friend the Member for Bassetlaw (John Mann) and I raised the scandal that was going on in the miners’ compensation scheme. When we were arguing for that practice to be banned, the Government of the time did not do a great deal about it.

[Mr Straw]

The Government should have done, and as I have sometimes said in respect of that period, my alibi is that I was abroad. I am the last to suggest that the problem has been created by the current Government. I accept that although the Labour Government did many wonderful things, the consequence of a number of things, some of which we introduced and some of which, such as the OFT report, were forced on us, has been the creation of a dysfunctional system.

[Mr Jones]

Will my right hon. Friend give way again on that point?

[Mr Straw]

Very briefly, but others wish to speak.

[Mr Jones]

The fact that this has become an issue for middle England is quite ironic, but I am angry that when my hon. Friend the Member for Bassetlaw and I raised it in respect of poor mining communities, people did not think it was a great priority. Does my right hon. Friend agree that it is ironic that if we had tackled the problem at that time, the scandals in the motor industry that he has outlined would have been put to bed years ago?

[Mr Straw]

That might be so—it is good to know that my constituency is representative of middle England.

Similarly unacceptable practices take place in motor repairs. In bottom-line referrals, accident management companies require repairers to give them a discount of up to 25%. The repairers then increase their prices to take account of that bottom-line referral fee. Royal and Sun Alliance outrageously practised a type of subrogation whereby it set up an internal subsidiary, which contracted repairers for, say, £1,000 for a repair, and then added 25%, which was charged to the main company—RSA Ltd—which then charged the at-fault insurer. Product mandating is another unacceptable practice. Deals are struck with, for example, paint manufacturers, and repair companies are required to use specific brands of paint. That has led to a 67% increase in the cost of paint since 2003.

We must act on all those matters, and I hope the Minister will say briefly what will happen on the RTA portal if he gets the chance. I know that he has indicated that he hopes to take action, but is he sympathetic to what I suggest in respect of whiplash and many other matters?

I come now to the issue between the Minister and me. I welcome new clause 18, and I am grateful to the Secretary of State and the Minister for introducing it. However, for my hon. Friend the Member for North Durham (Mr Jones), the right hon. Member for Berwick-upon-Tweed (Sir Alan Beith) and I, there are two issues. First, in my judgment, the breadth of the ban must go wider than personal injury claims. It could be excluded in one or two discrete areas, but in the generality of cases, as the right hon. Gentleman said—he has a great deal of experience—abuse also happens elsewhere.

Secondly, on the question of whether there should be a criminal offence, I noted what the hon. Member for Cardiff North (Jonathan Evans) and my hon. Friend the Member for North Durham said about what happened before 2004, and in a sense, they have made my point. My understanding is that the prohibition on solicitors charging referral fees was in the solicitors conduct rules and that it was not a criminal offence. Those rules changed; it was not that a criminal offence was abolished. I am glad that the Secretary of State proposes to make greater use of the regulatory authorities, and I would not for a moment suggest that that is unnecessary, because it is very necessary. However—this is where, with respect, I found his argument least convincing—there are many other areas of regulation, including, for example, of financial institutions, when conduct that is in clear breach of regulations leads to both a fine or penalty by civil regulatory authorities and a criminal offence. That is particularly true given the vicarious liability requirements imposed by section 7 and others of the Bribery Act 2011.

I applaud what the Secretary of State is doing as far as it goes, but for the life of me, I simply do not understand why, given that he recognises the inadequacy of the 2004 regulatory system and many other things, he does not back that with the criminal law.

--- Later in debate ---

[Kate Green]

I, too, am keen to ask the Minister some questions, similar to those put by the hon. Member for Harrow East (Bob Blackman).

I completely share other hon. Members’ concerns about securing much better protection for the consumer, but given that the amendments have been introduced rather hastily I hope that the Minister will assure us that there will be a level playing field for different business types and, in particular, that access to independent legal advice from independent solicitors will be protected for claimants.

I therefore seek a fuller explanation from the Minister of how it is intended that referral fees will be defined. Specifically, to what extent does he see marketing activity by solicitors and others as covered—or not covered—by the provisions? For example, as has already been suggested, if a high street solicitor takes on some work, but realises that he or she does not have the expertise to pursue the case and therefore refers it to another solicitor and arranges some form of fee sharing, how is it intended that this should be treated under the provisions? Some solicitors have grouped together to pool their marketing budgets. Is the intention of the Minister’s amendments to outlaw pooled marketing completely or to cover it in regulation? It would be useful to have some clarification on that.

I welcome what the Minister said in answer to my earlier intervention about alternative business structures, but I am curious to know what his assessment is of the possibility that more and more large claims management companies will seek to handle all such business in-house and will stop using the services of other legal firms or legal experts. Has he made any assessment of the possibility of the provision of such services being concentrated in a way that reduces consumer choice and independent advice, and will he say what steps he might take to address that?

[Mr Kevan Jones]

I welcome the banning of referral fees, and I congratulate the Minister and the Government on doing it. The scandal is that, frankly, it should have been done years ago. My hon. Friend the Member for Bassetlaw (John Mann) and I campaigned hard to expose the scandal surrounding the miners compensation scheme, which created a feeding frenzy not just for solicitors but for claims management companies. As I have said before—and to answer the hon. Member for Harrow East (Bob Blackman)—I frankly do not care if they all go bust, because they are not needed in this process. If people need legal advice, they go to a solicitor. Claims management companies have acted like parasites on the access to justice model that we have had in this country for many years.

I find it ironic that my right hon. Friend the Member for Blackburn (Mr Straw) said that I was referring to Blackburn as a middle-England constituency, because I was not. The fact of the matter is that my hon. Friend the Member for Bassetlaw and I, along with one or two other Members, argued hard about the scandal surrounding the miners compensation scheme. One of the key points was referral fees and the amount of money received not only by solicitors but by unscrupulous trade unions and unscrupulous claims handling companies. The issue was regulated in 2004, with referral fees being made legal. However, in the case of the miners compensation scheme it was quite obvious that referral fees were being paid and that the Law Society was turning a blind eye—I always refer to the Law Society as the best trade union in the world, because it does such a good job of protecting its self-interest.