Access to Justice

Debate between Chris Philp and Rob Marris

Wednesday 11th January 2017 Westminster Hall

[Rob Marris]

I entirely agree. It is little use having rights if one cannot afford to enforce them. That entrenches inequality.

The consultation came out under the rubric of whiplash. I have to say to the Minister that the consultation somewhat sneakily was announced on 17 November and closed on 6 January. That is a short consultation period over Christmas, which is not helpful.

The Government’s own figures on the whiplash proposals, which may well be a gross underestimate, suggest that if implemented, they will see the NHS lose at least £9 million a year and the Treasury lose £135 million a year. But here is the stinger: insurance companies will get at least £200 million more per year. That is likely to be an underestimate. That figure is due to a methodology that is biased towards insurance companies and has been severely questioned by the Association of Personal Injury Lawyers, of which I think I used to be a member.

The methodology for who gains and who loses under the proposals counts as a gain the extra moneys that insurance companies will get but does not take into account the loss to solicitors. We can all weep crocodile tears about solicitors, but when talking about commercial arrangements, if we are looking at them dispassionately, we have to weigh in the balance where one commercial sector gains and another loses.

[Chris Philp (Croydon South) (Con)]

Will the hon. Gentleman join me in welcoming the UK’s largest insurance company’s commitment to pass on in full any savings realised to consumers? That means, I hope, that the transfer of value, if it occurs, is from the personal injury law community to everyday consumers.

[Rob Marris]

I will get on to that. It is interesting and a great declaration, but of course other changes in the past five years or so have led to an increase in insurance company savings of £8 billion in claims costs. That has not been passed on in terms of reduced premiums, which have continued to go up, so I will believe it when I see it. The Government’s own calculations suggest that at least 90% of the money has to be passed through—the term for returning money to policy holders—for there to be any benefit at all.

--- Later in debate ---

[Rob Marris]

It cannot be because the Minister has the figures wrong. The Government’s compensation recovery unit indeed talks of 771,000 claims in round terms, of which 441,000 are for whiplash. That figure has come down by 7% since 2011-12. The overall figure is already coming down, so it is not going in the direction the Minister thinks it is and perhaps he will rethink the proposals.

The ABI says that its statistics

“are therefore intended to provide an indication of the volume and value of fraud detected by the industry. These statistics do not include claims which involve exaggerated personal injury, particularly for whiplash, where the claim has been paid.”

However, it also says that insurers pay out on 99% of claims, so apparently we are talking about the 1% and that is what all these assumptions are based on. That is not a good basis for creating public policy.

[Chris Philp]

Does the hon. Gentleman agree that the qualified, one-way costs-shifting arrangements that were introduced three or four years ago, whereby the defendant bears their own costs, even if they are successful, creates a perverse incentive for insurance companies to settle claims even when they have a very good prospect of defending them?

[Rob Marris]

That regime was introduced as part of other changes which have led to £8 billion more for the insurance companies. One must look at the matter in the round.

The ABI says:

“Previous reforms aimed at tackling the compensation culture have not had the desired effect because claims frequency has not been addressed. As such, the removal of general damages for minor soft tissue injuries is by far the most effective way to address claims frequency.”

What sort of minor injuries are we talking about? The Law Society helpfully provided me with some examples from a public briefing:

“A fractured rib (up to £3,300)”—

that is well below the £5,000—

“Food poisoning symptoms continuing for weeks (up to £3,300)”—

[Chris Philp]

Will the hon. Gentleman give way?

[Rob Marris]

No, I will not. The Law Society continued:

“Neck injuries lasting”

for up to

“12 months (Maximum £3,630)… Back injury lasting up to 3 months (up to £2,050)… Minor wrist fracture (£3,960 maximum)”.

I would venture that such injuries would not seem minor to most of our constituents. Most of them would not say a broken wrist was minor. [Interruption.] Well, they certainly would not in a Labour constituency; perhaps they would in Conservative constituencies. [Interruption.] The Minister is chuntering, “It’s not whiplash”; part of the problem is that the proposals in the consultation paper do not cover just whiplash, with which, I have said, there is not a problem. They cover all personal injuries, including accidents at work. Someone who breaks their wrist at work would not be able to instruct a solicitor, but they would almost certainly have to get a medical report and so on. I just do not think that these are what most of my constituents would call minor soft tissue injuries.

That is one reason why the Law Society has come out against the proposals, saying that:

“the government does not appear to have a robust evidential basis for undertaking the reform”.

So, too, has Cycling UK—it used to be the CTC or the Cyclists’ Tourist Club—which says:

“This change doesn’t target whiplash claims or claimants: it impacts most on those who end up in casualty with broken limbs due to the negligence of others.”

It talks about

“A reform which denies”

the injured

“justice, and sends a message to motorised road users that vulnerable road users’ injuries are a trifling matter”.

The Government have said in their propaganda that most road users have legal expenses insurance as part of their car insurance policy—I do not—so they will be able to get legal representation under that policy. That may be true for many if not most car drivers, but most of us cyclists do not have such insurance, nor do most pedestrians. That is why Cycling UK and its partners—RoadPeace, a national charity for victims, and Living Streets, a national charity for everyday walking—have come out against these changes.

[Chris Philp]

Will the hon. Gentleman give way?

[Rob Marris]

No, I will not. I have already given way to the hon. Gentleman. I was going to talk about employment tribunal fees, but I have taken up quite some time, and some of my colleagues wish to talk about that. Of course, employment tribunal fees have dissuaded huge numbers of people from bringing employment claims. If the Government really think that 67% of previous claims were frivolous—that is how much the figure has dropped by—they are living in a different world from me. Again, the Law Society, which of course has a vested interest, is against those fees. It said:

“In our members’ experience the remission system”—

for remission of fees for those who cannot afford to pay tribunal fees—

“is confusing, uses complicated language, and is hard to navigate”,

and that is for Law Society members, who are solicitors, let alone the lay person who may have just lost their job and perforce be broke. Only 21% of claimants—far fewer than the Ministry of Justice predicted—have benefited from any fee remission at all. Early conciliation was put forward as another approach, but ACAS says that 70% of claimants who entered into early conciliation did not reach a formal settlement.

--- Later in debate ---

[Chris Philp (Croydon South) (Con)]

It is a pleasure to serve under your chairmanship, Mr Davies, particularly given your previous association with Croydon.

I would like to talk specifically about the Government’s consultation on whiplash claims, and the reason for that is an experience that I had two or three years ago. After a very minor road traffic accident in which no one was injured, I was bombarded with phone calls to my personal mobile every week for about a year from a claims management company. It explicitly asked me to pretend to have an injury that did not exist in order to claim compensation.

I have no issue with the more general points that the hon. Member for Wolverhampton South West (Rob Marris) makes about access to justice and the court system. I am talking specifically about whiplash. It is as a result of practices such as the one that I have described that this country has more than two times more whiplash claims than the rest of Europe, and the total number of claims for soft tissue injuries— whiplash and neck and back—has been static, at about 800,000, for the last few years.

One reason for that is the perverse incentives in the system. As I mentioned in an intervention, under qualified one-way costs shifting, when a claim is made, even if the defendant—the insurance company—is successful in defending the claim, it must bear its own costs, which are quite often up to £10,000, so it is easier for the insurance company to stump up £3,000 in insurance and pay some costs to the prosecuting or claiming solicitors firms—some of those costs go to the claims management company—than to dispute the claim. That is why claims here have grown to proportions that are vastly higher than obtain in the rest of Europe and why, as my right hon. and learned Friend the Minister said, at a time when accidents have declined by 30%, claims have gone up by 50%.

In The Sunday Times a year or so ago, there was a shocking report about a company called Complete Claim Solutions—one of the most notorious CMCs, which makes 7 million outbound cold calls a year. Its trainers were covertly recorded by The Sunday Times encouraging or telling—instructing—its staff to get the public basically to lie and make fraudulent claims. I have myself been on the receiving end of those phone calls.

On the point made by the hon. Member for Wolverhampton South West about broken bones, I have looked at the consultation document, and it specifically refers to soft tissue claims. I fully accept that where a cyclist or motorist has broken a rib, wrist or leg, their claim is perfectly valid and verifiable and should be allowed to proceed. We are talking about soft tissue injuries, where there is no objective medical evidence other than the claimant’s own claim. Those claims add, I believe, about £40 to everyone’s motor insurance policy, but more worryingly in my view, they are morally corrosive because large numbers of the public are being incited to commit fraud. That is a bad thing for the fabric of our society.

[Rob Marris]

The Government’s press release announcing the consultation on 17 November said that measures include

“raising the limit for cases in the small claims court for all personal injury claims from £1,000 to £5,000”.

It said nothing about soft tissue injuries.

[Chris Philp]

Well, certainly the consultation document refers on its front page to soft tissue injuries. I am sure that the Minister will consider how that might apply to broken bones, but the title of the consultation refers to soft tissue injuries only.

In my response to the Ministry of Justice consultation, I made a number of proposals, several of which I would like to elaborate on here. I believe that there should be a blanket ban on outbound cold calls in relation to soft tissue injuries. There should be a ban on pre-medical offers. Insurance companies should be required to conduct face-to-face medical examinations, and those examinations should produce independently verifiable evidence. That should be more than just someone saying, “My neck hurts.” The injury should be capable of verification by a third party, so in the case of a broken bone, that would clearly involve an X-ray.

I believe that there should be a ban on general damages for minor soft tissue injuries—not broken bones, but minor soft tissue injuries, where there is no evidence of the kind to which I have just referred. For those injuries, I fully support a threshold of £5,000.

There should also be a duty on claims management companies and solicitors to explain explicitly to prospective claimants that fabricating evidence is an unlawful act. They currently do the reverse; they actually encourage false claims. The Ministry should look again at qualified one-way costs shifting, because it creates a very perverse incentive for insurance companies to settle even when they could win a case in court.

On the point raised by the hon. Member for Wolverhampton South West about where the money ends up, I think that the saving could be more like a billion pounds a year, not £200 million. I would expect that to be passed on to ordinary members of the public and not pocketed by insurance companies. Aviva has committed to do that, but if, after a year, it turns out that the insurance companies have simply pocketed the extra money and not passed it on, I would expect the Competition and Markets Authority to be encouraged by the Government—or even required, if the Government have that power—to conduct an investigation to make sure that those savings are passed on to the hon. Gentleman’s constituents and mine. I do not expect these savings to end up in the back pockets of the insurance industry.

I would also like to see another practice ended. Again, this is a point for the insurance industry. A few years ago, there was a ban on referral fees, which is money that a claims management company would pay an insurance company to hand over the details of somebody who had been involved in a motor traffic accident. They are circumventing that ban through what they call alternative business structures. That is where the insurance company has some form of equity or profit share stake in a claims management company, the details still get passed on, and the insurance company effectively gets paid via the equity stake as a means of circumventing the referral fee ban. That is clearly an abuse and we should take steps to end it.

Finally, there are many examples of insurance companies procuring services such as car hire, legal services or vehicle repair services very cheaply, and they get recharged to the at-fault party’s insurance company at a significantly marked-up price. That is profiteering and, again, steps should be taken to prevent it happening.

In summary, I very strongly support the measures proposed in relation to soft tissue injuries. They will end a whole cottage industry that is morally corrosive because it is encouraging huge numbers of people to commit fraud, and costing our constituents £40 each per year, per car insurance policy. I welcome these proposals. I hope to see them brought on to the statute book at the earliest opportunity, and look forward to supporting them on the Floor of the House when that happens.

Finance Bill (Fifth sitting)

Debate between Chris Philp and Rob Marris

Thursday 15th October 2015 Public Bill Committees

[Rob Marris]

Sir Roger, I did understand your explanation. As you know, I am new and old—a retread—and I found it very helpful; thank you.

Clauses 40 and 41 are essentially anti-avoidance measures, so hon. Members on the Opposition Benches welcome them. I welcome the fact that there will be no base cost shifting—something that is discussed in the pubs and clubs of Wolverhampton every night of the week; we are very keen on that. However—there is on occasion a “however”—we do not think that clauses 40 and 41 go far enough, because the carried interest is still treated as capital gains. It seems to us that treating carried interest as capital gains is a bad idea and the Government should not permit it. It certainly appears to be a tax loophole—again, not illegal, but immoral—and we think that it should be closed. I have considerable sympathy with the spirit and wording of new clause 2, which was spoken to very eloquently by the hon. Member for Kirkcaldy and Cowdenbeath.

[Chris Philp (Croydon South) (Con)]

Will the hon. Gentleman join me in welcoming the fact that the current Government have increased the tax rate on these kinds of capital gains from the 18% that it was at under the last Labour Government to 28% today? Would he also like to explain why, during its 13 years in office, the Labour party took no action in this area?

[Rob Marris]

Looking round the room, I think that one hon. Member, the Minister, will remember that I was not a member of the last Labour Government when I was previously in the House—[Interruption.] I was “supportive” says an hon. Member from a sedentary position; we will get on to that—[Hon. Members: “Ah!”]. The Minister is well aware of this. I am aware that Alistair Darling, when Chancellor of the Exchequer, cut the capital gains tax rate to 18%. I said at the time that I thought that that was wrong and I have to say now that I think that it was wrong. Furthermore, I have to say, bearing in mind the time at which it took place, that it is shocking that I do not recall in the debate on that change any debate about how it would affect positively many right hon. and hon. Members who at that time, within the rules, owned second properties in London, on which they would accrue a capital gain, and on that capital gain, they would pay a lower rate of 18%. The hon. Member for Croydon South is absolutely right to say that it was the wrong thing to do. Putting it up to 28% is a step in the right direction, but on these measures and these activities of investment fund managers, they should pay income tax on what most people, including me, would regard as income.

As I have said, I have considerable sympathy with new clause 2. I shall listen with great interest when the Minister speaks at greater length about the new clause—he said he would and it would be helpful. Having heard his side, I and my hon. Friends will make up our own minds. We are not only swayed by the arguments for equity, equality and justice; we also bear in mind, as the hon. Member for Kirkcaldy and Cowdenbeath mentioned in speaking to new clause 2, the OECD’s recommendation that such incomes should be treated as incomes and be subject to income tax, not treated as capital gain and subject to capital gain tax. To those of us who are not taxation experts, it appears that calling it a chargeable gain is a manoeuvre to lessen the tax paid by those who benefit from that form of remuneration.

[Mr Gauke]

I will respond to the remarks, not necessarily at length. The comments from the hon. Members for Kirkcaldy and Cowdenbeath and for Wolverhampton South West were pithy.

I shall deal straight away with the question of carried interest. Carried interest is a reward for a manager that is linked to the long-term performance and growth of the funds they manage. It is therefore capital in nature and should continue to be charged against capital gains tax. That has been the approach followed by Governments of both major parties for many years, and it is consistent with what happens in many other jurisdictions.

My hon. Friend the Member for Croydon South was right to say that capital gains tax was 18% when the Labour Government left office. If I remember correctly, it was possible for private equity managers to benefit from taper relief, so there was often an effective rate of 10% for many years under the Labour Government. There at least seems to be a consensus in the Committee that that was not the right approach. We believe we were right to take steps to change the capital gains tax rate, as we did at the beginning of the previous Parliament, but I would still argue that, as is the case in many jurisdictions, it is perfectly reasonable to treat carried interest as essentially a capital gain issue rather than an income issue. Of course, if any part of a manager’s rewards payments are properly regarded as income rather than capital, they should be charged to income tax. That is what drives the Government’s approach. We have launched a consultation to ensure that rewards that should be charged to income tax are always taxed in that way.

I will just pick up a couple of points made by the hon. Member for Kirkcaldy and Cowdenbeath. He is correct that national insurance is not chargeable on capital gains; it is payable only on earned income. However, it is not the case that entrepreneur’s relief can be accessed by investment managers, as the activity of the underlying fund is investing, not trading. Entrepreneur’s relief therefore does not apply in those circumstances.

If I were so inclined, I could quote extensive comments from the likes of Ed Balls, when he was a Treasury Minister, in support of the capital gains treatment of carried interest, and that was a period when the gap between income tax and capital gains tax was much greater, but I will spare the Committee that this morning. I am not sure that Ed Balls is a particular hero of the hon. Member for Wolverhampton South West, but our approach on carried interest is consistent with that of other countries and previous Governments.

We are determined to ensure that the rate at which private equity managers pay tax is never lower than their cleaners pay. That was the case under previous Governments, but it is not the case any more. Nor is it acceptable that what should be charged as income is in fact charged as capital gains. The Government have taken action on those points. I hope that provides reassurance to the Committee and I urge the hon. Member for Kirkcaldy and Cowdenbeath not to press new clause 2.