Riot Compensation Bill

Kevin Foster Excerpts

Friday 4th December 2015 Commons Chamber

[Mike Wood]

My hon. Friend makes an excellent point, and businesses need to do as he suggests. This is about what private insurance should reasonably cover. Although direct losses tend to be relatively easy to quantify, consequential and other indirect losses can be more difficult to quantify, and they cause much more difficulty for public authorities when assessing and paying for those claims.

[Kevin Foster (Torbay) (Con)]

It has been interesting to listen to my hon. Friend’s contribution so far. Does he agree that the limit is about finding a balance between what is legitimately covered by private insurance, and compensation for those who were caught up in a riot through no fault of their own? Does he also agree that not many people would have been aware of the Riot (Damages) Act 1886 until after the 2011 disturbances?

[Mike Wood]

My hon. Friend is right, and in conversations I have found that a surprising number of right hon. and hon. Members from across the House were similarly unaware that police forces bear those liabilities. We should be under no illusions that most members of the public are much better informed.

Let me return to the principle of switching to a new-for-old system. From the perspective of public finances, much of the additional cost of such a change can be expected to be offset through savings on spending on the loss adjusters needed to calculate second-hand values. It is much simpler and more efficient to assess the cost of a new replacement product, which is why so much of the insurance industry has moved to such a process.

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[Mike Wood]

I would certainly hope that money raised to support local communities would be used for that purpose. Of course, we would want to avoid double compensation, with damages being repaid twice so that people were not just put back in an equivalent position to before the riots but received additional payments on top of that. I do not think that that would be appropriate. I do think that after a riot money should be retained more at a community level and invested in rebuilding community cohesion.

The structure of a riot claims bureau would include, in its running and financial decision making, a role for a police and crime commissioner or equivalent, or their designated representative, as well as insurers and loss adjusters. The Bill would allow local policing bodies to place the day-to-day management of claims into the hands of experts in the loss-adjusting profession. That is clearly a better alternative to expecting police forces to retain such responsibility in-house. Companies already have the capacity available to manage major insurance-related incidents, as has been seen in their response to major weather-related events. Moving responsibility for the management of the process to those who understand it best would allow police and crime commissioners to utilise fully industry experts, while retaining full control of the financial decisions for which they are democratically accountable.

The Bill provides, for the first time, cover for some motor vehicles. Understandably, motor insurance and damage to motor vehicles was not considered in the 1886 Act. It is time, nearly 130 years later, to address that. Most insurance companies cover riot damage in comprehensive motor vehicle policies, the type held by the overwhelming majority of the country’s motorists. The Bill would not seek to replace that coverage. The intention is to provide compensation for motorists not covered by comprehensive insurance. Where the vehicle is held in accordance with the law, it would be covered under the Bill: it would cover third-party claims that meet basic minimum legal requirements for insurance, or vehicles that are exempt from requirements for insurance.

[Kevin Foster]

My hon. Friend is being extremely generous in giving way. Does he agree that part of the reason for updating the legislation is to address its core purpose, which is to compensate those who might lose their business and equipment? In the modern era, as opposed to 1886, many people will have their tools and their business based in a motor vehicle.

[Mike Wood]

My hon. Friend is absolutely right. In fact, I wonder if he has read the next passage of my speech. The Bill is indeed about creating a safety net not only for vulnerable people but small businesses and the self-employed.

The purpose of the compensation scheme is not to pick up unlimited bills related to criminal activities, but to provide a vital safety net. We should recognise the serious implications for communities recovering from major public disorder. They include many of my constituents who work in Birmingham and were affected by the 2011 riots and earlier riots. It is the role of Government to protect the most vulnerable and ensure they are not unduly disadvantaged, whether at home or operating their businesses. It is not reasonable to expect a statutory compensation scheme backed by the taxpayer to provide the same coverage as insurance for which one pays considerable insurance premiums. Since 2011, the Government have done significant work on the causes and effects of the riots, but it would be wrong to hand over millions of pounds of public money to individuals and businesses that should have insured themselves against losses, and likewise, insurance companies that benefit from the premiums paid by millions of households every year should not expect the public purse to indemnify them against limitless losses.

The Bill would allow for a balance between the responsibility of the police to maintain order and the responsibility of the Government to protect the vulnerable and make adequate provision for insurable risks. It would retain the principle that the police are responsible for maintaining order, provide that local accountability remains in place and ensure that communities have the right mechanisms in place to recover quickly from serious disorder. It seeks to make an outdated 19th century Act relevant to the world in which we live, and to create a fairer, faster and more affordable system. I commend it to the House.

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[Kevin Foster (Torbay) (Con)]

It is a pleasure to follow the right hon. Member for Tottenham (Mr Lammy), particularly given his wide experience, his knowledge of the current legislation and the many concerns he has highlighted about it.

It is worth considering just how ancient the current legislation is. In 1886 Queen Victoria was on the throne, the Severn railway tunnel had just opened and, as the hon. Member for Ealing Central and Acton (Dr Huq) mentioned, Mercedes-Benz was experimenting with the first petrol engine, never mind thinking that someday there would be millions of them on the roads. There were also riots that year: one in west London and a couple in Northern Ireland, as we now know it, over proposed legislation for Irish Home Rule. It is also interesting to read the language of the 1886 Act. It refers to

“persons riotously and tumultuously assembled”.

I wonder whether many people might think that I could make a claim if my phone was damaged during Prime Minister’s questions on a Wednesday.

It is clear that the current legislation has come to the end of the line and desperately needs an overhaul. We all hope that riots do not happen and that order is kept, but it would be unrealistic to believe that there will not be another incident in the next 20 or 30 years that requires modern riot damages legislation. As several Members have noted in interventions, the age of the current legislation means that it is no longer fit for the modern age. For example, many small businesses depend on a van or mobile equipment. Even if they were compensated for damage to a shop or to putative premises, the loss of a van or vehicle would cause far more damage.

[David Morris]

What struck me when I was self-employed is the fact that rioting, terrorism and even political activity—that could cover what we do in this Chamber—are excluded in certain forms of insurance for commercial properties, especially for the self-employed. Does my hon. Friend agree that that should also be considered?

[Kevin Foster]

My hon. Friend makes a strong point. That partly reflects the change of era. There was terrorism in the 1880s, but its impact was very different from what a Semtex explosion would do today. The nature of terrorism has changed so greatly, as we saw in the recent attacks in Paris, with the use of automatic battlefield weaponry. In 1886, an automatic weapon was a Gatling gun, which needed a crew to operate it. Sadly, today’s automatic weapons can be carried quite easily. It is therefore absolutely right that we update the legislation. We should give the Bill a Second Reading and then in Committee look in detail at how we can make it suitable for the modern era. On political activity, for example, were the recent events at the Cereal Killer Cafe a disturbance or a riot? My hon. Friend sums up the issues perfectly. In Committee we will look in detail at where we should draw the lines, using modern language, not language that was suitable in the late 19th century.

It is also worth dwelling on the fact that the current legislation—it seems laughable to describe something from the 1880s as current—means that there is strict liability on the police. As has been mentioned, the areas that have been affected by rioting tend to be those areas that rely most on their local police force. If the local police force ends up picking up the bill for a very large amount of riot compensation, ultimately that is likely to be paid for either by putting additional taxes on communities that are least likely to be able to afford them, or by cutting police provision, and that would be in an area that had just suffered rioting and might therefore require more police provision. I respect the Government’s intervention after 2011 to prevent that from happening, but that is not guaranteed for the future. That is another reason why it is vital to update the legislation so that it is not just one community taking the risk.

As we heard in an earlier speech, some police forces could be bankrupted by a large-scale riot that affected particular commercial interests in their area. That is just not a sensible position to be in. That could also act as a disincentive to have economic activity in the local area. If we know that for some reason there might be a public order disturbance—even a once-in-100-years scenario —and that a particular economic interest could be damaged or destroyed, we would know that ultimately we might end up copping the whole bill for compensation. A review of that situation is long overdue.

Therefore, I also think that it is right to include the £1 million cap. Statistics from the House of Commons Library suggest that about 99% of claims made in 2011 would be covered under these proposals. To be clear, this will not be denying justice to thousands of interests; it is about having fairness between the large interests that are the most able to protect themselves and the smaller interests that find it the most difficult.

[Mike Wood]

Not only would 99% of the claims that were paid following the 2011 riots have been unaffected by the £1 million cap, but over 80% of the claims paid in 2011 paid for insured claims, so that money was effectively going straight to the insurance companies.

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[Kevin Foster]

I thank my hon. Friend for that intervention. As he says, the result is that a lot ends up going to the insurance companies, although I think that we will need to consider carefully the impact of any change, because, as my hon. Friend the Member for Morecambe and Lunesdale (David Morris) and the right hon. Member for Tottenham have pointed out, ultimately insurance is based on the premiums paid by people, so there is a balance to be struck. If the risks to insurers increase and the amount they have to pay out increases, much of that will likely be recovered through increased premiums. That is why we will need a good discussion about that in Committee. [Interruption.] I see the hon. Member for West Ham (Lyn Brown) nodding. It makes sense to update the legislation.

I was particularly struck by an intervention by the hon. Member for Croydon North (Mr Reed) on my hon. Friend the Member for Dudley South (Mike Wood). He said that people who had tried to help out their neighbours with a charity collection found that they had probably ended up helping out those responsible for paying compensation. The Bill Committee should look at that. People who give money and assistance voluntarily and out of the goodness of their hearts would not want to think that they were, in effect, saving money for the person who was supposed to pay compensation. They are de minimis amounts, but the details should certainly be looked at in Committee.

On limits placed on compensation, it is right to discuss the role of the taxpayer in protecting people against the breakdown of public order and the legitimate role of private insurance. There are other crimes whereby, if someone is not insured, they will not be compensated for their losses. Nobody chooses for their shop or premises to be affected by a riot, or to have their home burgled or for someone to steal large amounts of money from them. Nobody chooses for someone to commit arson and set fire to their business, potentially causing huge amounts of losses and, in some cases, putting them out of business. It is important that we look at the traditional approach taken to riots, but we must also balance that with what is appropriate for private insurance, particularly with regard to consequential loss. It is difficult to know where to draw the line, which is why it makes eminent sense to have a more modern definition.

The current time limit is also a subject of debate. It has been proposed that there should be a 42-day limit during which people could make an initial claim. As I said in an intervention, I suspect that not many people, including virtually everyone in this House, were aware of the impact of the Riot (Damages) Act 1886 until after the 2011 riots, which brought the issue suddenly to the fore. It would probably be much easier for various communities to understand modern legislation. I was reassured to hear the Minister say in an intervention that, under the 42-day limit, people could simply say, “I am likely to submit a full claim.”

[James Brokenshire]

indicated assent.

[Kevin Foster]

The Minister nods. It makes sense that people should not have to get absolutely everything together and that they would then have a further 90 days to make the full claim. That could be explored further in Committee, but it will give anyone affected by a riot, who will clearly be going through emotional distress and experiencing financial problems, the opportunity to flag up their claim and then submit the detail. That is far fairer than the current situation. If we do not agree to give the Bill a Second Reading, we must remember that we will end up not in a better position, but with that laid out in 1886, which has made it extremely hard for many people who are not conversant with the financial system. Unlike larger businesses, many smaller businesses do not have an accounts department to file a claim for the compensation they are due. That is another good reason to support the Bill.

On the provision on the replacement of property, it is bizarre to argue in favour of old for old. As my hon. Friend the Member for Dudley South touched on in his introduction, that means that people have to find something that matches what they have lost. It is unlikely, particularly in the aftermath of a riot, that they are going to find a five-year-old piece of equipment of exactly the same make and in exactly the same condition as that which has been lost. That is why insurance has changed from an old-for-old and like-for-like approach, as was the case in the Victorian era, to allowing people practically to replace an item.

On the limitation of damages, I suspect that many businesses that get same-for-same compensation end up using consequential loss compensation to find the piece of equipment they need to replace the item for which they are being compensated. Businesses in more deprived communities are less likely to have the most modern, advanced and expensive equipment, so they spend a lot of time trying to find a new piece of kit, whereas a large business can bring in replacement equipment from elsewhere as part of its existing renewal process. The proposed reform is eminently sensible. It will put smaller businesses in the same position as their wealthy counterparts. They will be able to buy a replacement and avail themselves of the compensation at a later date. Many Members have indicated how important that is and I think it is the most sensible change among a raft of very sensible changes proposed by the Bill.

It is also appropriate to introduce a structure to decide what constitutes a riot. I also agree with the proposal to transfer claims nationally if more than one area is affected or there is a particularly significant riot. Clearly, the Committee will discuss the detail—it is not a matter for the Second Reading debate—but the proposed provisions make eminent sense. I look forward to them being fleshed out in more detail in Committee.

It has been a pleasure to speak in this debate and to have heard some of the other comments that have been made. I thank my hon. Friend in particular for the work he has done in promoting the Bill. We should give it a Second Reading so that we can have riot damages legislation that is fit for the 21st century, not the needs of the 19th century.

[Julian Knight (Solihull) (Con)]

It is a great pleasure to follow my hon. Friend the Member for Torbay (Kevin Foster), and I congratulate my hon. Friend the Member for Dudley South (Mike Wood), who is the proud son of a west midlands police officer. I know from my dealings with him on matters to do with West Midlands police and fairer funding that he is a strong advocate for law and order and justice in the west midlands.

I commend and support the Bill. The right hon. Member for Tottenham (Mr Lammy), who is no longer in the Chamber, made a powerful speech in the shadow of the 2011 riots, which were obviously a great shock. What started as a local, limited protest burst into rank criminality. Ordinary individuals going about their daily lives found themselves embroiled in terror, violence and damage to property on an unprecedented scale in my lifetime. Even in daylight hours, ordinary people were being abused by feral elements in our society.

At the time, the police cautiously and correctly went about extinguishing those four days of violence in our society. Following on from that, the Prime Minister made many telling remarks, including that we would hunt down those responsible and bring them to justice. That is exactly what happened. I was pleased that the judiciary listened to the public voice on that occasion and handed out some exemplary sentences to those who had rioted. There was much talk in the newspapers about people being sent to prison for stealing relatively small items such as bottles of water, but it was the aggravated nature of the criminality that counted in this respect. Our authorities did their job and correctly followed through on what they had promised. The only area where there were problems—this has been mentioned by many hon. Members—related to compensation and delays to compensation. One of the main reasons for that was that they were acting under the auspices of antiquated and outdated legislation.

The Bill, which I hope will proceed to the Committee stage, correctly defines “riot”. It gives it a much more modern, telling and understandable definition. It tidies up much of the antiquated language used in the late 19th century. As the right hon. Member for Tottenham mentioned, it is difficult for people who do not have English as their first language to understand what constitutes a riot and to apply for compensation under the 1886 Act.

[Kevin Foster]

I am sure my hon. Friend would agree that many people for whom English is their first language would find it difficult to understand the definitions in the 1886 Act.

[Julian Knight]

English is my first language, and I, too, find it very difficult to understand fully the wording of the Act. That is not the only reason, but it is another reason why we need this update. Let us not forget that the Bill comes after very extensive, independent reviews, such as the Kinghan review. I welcome the fact that there is a lot of thought and consideration behind the Bill. We can see that in the careful way that many of its measures have been drafted and in the way it has been promoted by my hon. Friend the Member for Dudley South, who has worked incredibly hard on it.

My hon. Friend the Member for Torbay focused extensively on the provision of new for old, and I completely agree with him. As someone who worked on a range of financial matters, particularly personal finance, for the best part of a decade and a half, I must say that I know of no insurance policy that would replace items on an old for old basis. That almost disappeared 20 or 30 years ago, so to continue to insist that an item is replaced by one of a similar age is, frankly, ridiculous and completely out of kilter with modern society and modern insurance practices. The provision of new for old will give greater clarity and certainty for all those affected by riot, including small businesses.

The cap of £1 million per claim is eminently sensible. As I understand it, if there is a claim of £1 million for a building, there may be a separate claim by another individual for the loss of its fabric and other elements. That aspect takes good account of rising modern property prices. The advent of a riot claims bureau is also welcome. I want to know a bit more detail about exactly how it will work, but I am sure that that, like many other elements of the Bill, will be examined in Committee.

The Bill reflects the reality of modern insurance patterns not only in the provision of new for old, but, frankly, in recognising the existence of the motor car, which did not exist in 1886. I believe it does not make provision for third-party cover. As someone who has written about insurance and other financial matters, I know that third-party car insurance is almost extinct. In fact, if someone applies for a quote on a website, they will almost invariably find that car insurers’ quotations are higher for third-party cover than for fully comprehensive cover. To be honest, car insurers think someone taking out third-party cover is a bad insurance risk per se, so they are unlikely to write the business. It is good that the Bill covers the modern car, as well as tools and other items that may be left in vehicles overnight.

The Bill will allow for compensation to be paid more quickly, which we all desire. The proof of the pudding will of course be in the eating, but as my hon. Friend the Member for Torbay said, if the Bill does not go into Committee, we will simply be left with the 1886 Act and we already know how it works—or does not work—in relation to compensation. I do not agree with the idea that legislation should be introduced just because something must be done, but the fact that the Bill has already been considered extensively by an independent review reassures me that such matters will be looked at further.

I share some of the concerns expressed by the right hon. Member for Tottenham about the 42-day limit, so I welcome the Minister’s comments. I look forward to seeing how that plays out in Committee in catering for those who, as the right hon. Gentleman said, may be suffering a great deal of shock, may not have English as their first language and may need a gentler approach to time limits and more understanding in relation to time barring.

My hon. Friend the Member for Torbay asked whether the Bill would lead to increased premiums. Most claims will be paid out up to the £1 million cap, but, knowing the insurance market, I genuinely believe that the effect on premiums would be very marginal. Home insurance is in fact a very profitable business, unlike—strangely enough—car insurance. In the past 20 years, the car insurance industry has made a profit from writing its policies on only four occasions. Home insurance is generally quite a cash cow—a Steady Eddie, as it were—for the insurance industry. Let us not forget that there are moves ahead to help out on insurance premiums, such as by clamping down on the compensation culture and the no win, no fee blight in our society. Looking at it in the round, the effect of the Bill will be very marginal and will not be felt to the degree that some people fear.

Some legislation is brought forward almost because it is said that something has to be done and this feels as if we are doing something—I always vehemently oppose that aspect of lawmaking—but the Bill advances and upgrades the law, makes it more relevant to our society and sets us on a new footing so that if such an awful eventuality happens again, we can, I hope, respond more quickly and in a better manner.