Mesothelioma Bill [HL]

Lord Freud Excerpts

Monday 10th June 2013 Grand Committee

[Lord McKenzie of Luton]

My Lords, Amendment 16 requires an independent review of average civil compensation for mesothelioma cases, an annual reporting to Parliament and a review of the payments made under the scheme. We know very little of how the payment arrangements and levy amounts will work in practice and trust that a draft at least of the regulations for payments under Clause 4 and the levy under Clause 13 will be available in good time before Report. Can the Minister give us an assurance on this? We are grateful for the additional documents covering these matters that were circulated on Thursday, which do provide some additional analysis. It is a pity, frankly, that we did not have sight of them in time for the Committee session last week.

Although the Minister told us that his negotiation had been about the levy rate, it seems, inevitably, that payment amounts will be determined by the tariff. The levy rate will be set at a level that is presumably estimated to be sufficient to meet the projected numbers of those diagnosed and their age profile, together with admin and legal costs. If this is the case, the computation of average civil compensation is fundamental to payment levels and it is important that compilation of the tariff is current, hence the call for an independent, periodic review. The period between reviews might depend on an interim uprating—perhaps based on CPI—and maybe the Minister can tell us what is intended in that respect. Amounts payable under the statutory schemes are in practice uprated on an annual basis. We need to know more about the intent when the levy produces more, or less, than is required to cover scheme payments and administration. When it produces more, has the Minister’s negotiation focused on this being used to enhance the percentage payout—to the extent that it is not already 100%—or on it being carried forward to reduce the levy in subsequent periods? What is the insurance industry’s expectation of the position from the negotiations? Indeed, what is the Treasury’s position?

Clearly, to the extent that it has not already been achieved, we would expect to see any surplus used to enhance payments. If levy shortfalls could be borne, in whole or in part, by those diagnosed with mesothelioma, we will resist this. What consideration has been given to the possible avoidance of the levy by insurers, by bundling products and/or loading premiums on other business lines such as public liability? The additional information provided last week indicates a significant change to the estimated amount of legal fees which the scheme will fund. It reduces from £7,000 to £2,000, a benefit of £5,000 per case for the insurers. What is the reason for that reduction? It is also noted that the percentage of average civil compensation taken is calculated before any benefit recovery, which depresses the net amount received by claimants. Can the Minister let us have a note of the overall savings to government from these proposals—not only the estimated benefit recoveries but from not having to make payments under the 1979 scheme in the first instance?

There is much we need to know about these matters before we sign off the Bill. As well as ensuring proper updating, will the Minister tell us why the proposed percentage of civil compensation amounts payable under the scheme has been reduced from the original impact assessment of, I think, 76% to 70%? Which of the various averages or means from the national institute’s calculations has been used to drive the tariff in the new document, and why? The levy rate for the first four years is calculated in that document at 2.61% at the 70% payout rate. Is this consistent with an overall average of 2.24%, which is in the updated impact assessment? Further, the updated impact assessment puts overall cost as a percentage of GWP at 2.74% for the first four years. The current impact assessment, in a footnote, suggests that this was due to basing the average only on settled and withdrawn cases. Why is this, other than the fact that it is to the advantage of the insurers? Our concern is that even in the past few months the insurance sector has been chipping away at the scheme in order to reduce its obligations. That is why we need to strengthen the primary legislation. I beg to move.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, before I address the noble Lord’s amendment, I shall clarify a couple of points that were raised when we last met on Wednesday, to put noble Lords’ minds at rest and to aid today’s discussions. In the case of people who contracted mesothelioma from exposure to asbestos fibres that were on another person’s clothes, or were brought into the household by other means, the question was raised whether these people, too, were covered by employer’s liability. This is a complicated area and I will do my best to be succinct.

In cases of secondary exposure, the claim will be of negligence against the person who exposed the primary victim. Theoretically, that person could have public liability insurance, employer’s liability insurance, or both, or none. We have contacted the ABI on this matter and I understand that it is not aware of any cases where anyone other than the employee has been compensated under the employer’s liability policy. Therefore, we return to the point that the scheme will raise funds from the employer liability market to cover those who would ordinarily have been covered by those insurers. In this case, it seems that, historically, instances of secondary exposure have not been covered by employer’s liability insurance, so the scheme cannot provide for them.

[Lord Howarth of Newport]

I am extremely grateful to the Minister for responding to the Committee on this point, which was the subject of an amendment that I tabled. As I heard him just now, he said that because historically no cases had turned up, in future employer’s liability insurance should not cover secondary exposure, even in a case where the secondary exposure occurred—I hope he agrees with this; I think the Committee agrees—to someone who did the family laundry and washed the overalls of the employee who was exposed to asbestos fibres and who therefore found herself exposed to asbestos and contracted the disease. Surely we cannot simply extrapolate from the past on the basis that there do not happen to have been any such claims. It is entirely imaginable that there could be such claims, and it is not enough, if I may say so, for the Minister to say simply that because it has not happened, the Government will make no provision for it to happen in future. We still have a class of people whose predicament is just as grave as the predicament of someone who was a direct employee. I hope that the Minister will be prepared to look further at this.

[Lord Moonie]

To follow up on that, was the Minister referring to claims or successful claims?

[Lord Freud]

I am not sure whether they are claims or successful claims. My understanding is that there have been no cases where there has been compensation. My interest today is obviously not to re-run the debate that we have already had. We will have another chance to do this. I just wanted to get this on the record for the convenience of Members of the Committee at subsequent stages.

[Lord Browne of Ladyton]

The noble Lord is generous with his time. I listened carefully to his words. If they were a direct quotation from what the Association of British Insurers told his officials, and therefore him, it said that it had no record of any claim of that secondary nature having been settled through the employer’s liability insurance, not no record of any claim having been settled. I ask the Minister to go back to the question: since the association clearly has comprehensive data, has it any record of claims having been settled? If so, through what form of insurance were they settled and—this is the important question—were the insurers and those who carried the risk the same companies that carried the risk for compulsory employer’s liability insurance in respect of the circumstances of the cases?

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[Lord German]

Following that point, I will quote from a House of Commons document, Mesothelioma: Civil Court Claims, dated 22 March 2011. Under the section marked, “Claimants other than employees”, it reads as follows:

“In a number of cases, claims have been made by those, including family members, who have contracted mesothelioma following secondary exposure to asbestos. Each case is determined on its own facts”.

I dread to quote the following fact:

“For example, the Ministry of Defence admitted liability for the transmission of mesothelioma to Mrs Debbie Brewer, whose father died from small-cell lung cancer … after a career as a lagger at the Devonport Dockyard. He had greeted his daughter each evening whilst wearing dusty overalls from which she is believed to have inhaled the fibres that caused her disease”.

It goes on to cite another case. There have obviously been some cases. The one I have quoted admittedly has the Government as the employer, but there is one involving another company further on.

[Lord Freud]

My Lords, I am grateful for those observations. I am sure that we will have a chance to discuss this in more detail later. I now move to—

[Lord Wigley]

Before the Minister moves on, is he not going to respond to the point made by his noble friend, who has shown that there were cases, which is totally at variance with the lead the Minister gave to the Committee?

[Lord Freud]

My Lords, we could spend all day on one point. I am just trying to get a response on the record. We will have another chance to go through this again. I was making a clarification.

I turn now to the query of the noble Baroness, Lady Sherlock. When discussing the proposed start date of eligibility for this scheme, we talked about insurers being able to reserve against that liability from that date. The noble Baroness drew attention to the fact that the levy will be an annual running cost, not a liability to reserve against. She is of course correct: the payment is not the same as a liability. However, the impact is much the same. The levy is an additional cost to insurers that needs to be factored into their business plans. To do this, they need to have confidence in the timing and amount of the cost to be incurred. Therefore, on 25 July 2012, when the intention to set up a payments scheme was announced, this provided a sufficient level of confidence for insurers to start to factor the levy into their business plans for 2014. I ask the noble Baroness’s forgiveness for my incorrect use of terms, and for her recognition that this does not change the shape of things in this case.

[Baroness Sherlock]

My Lords, I thank the noble Lord for taking the trouble to look into that and for the gracious way in which he has acknowledged his error. Of course I am happy to forgive him for this and for any similar offences. However, can he reflect for a moment on the consequences of the change? Although I confess to a tendency to pedantry, on that occasion I do not think I was simply being pedantic. I was trying to draw a distinction between whether the matter was a liability for which the insurance company would wish to reserve or a running cost for which it would have to plan, because I understood that the Minister had used the fact that an insurance company would not be permitted to reserve before a certain date as an argument for why the scheme could not start before 25 July. Had that been the case, I would imagine that no such restraint would exist in the case of planning for a payment. An insurance company can plan for a future level of running costs based on its own judgment, not on any auditing limitations. Will the Minister respond to that?

[Lord Freud]

In the interests of time, the best thing I can do today is to accept the fantastic offer of future forgiveness for anything I may say, and in return I promise to reflect on the consequences of the change.

Let me move on to all the other points that have been made. I promised to write to the noble Baroness, Lady Golding, about the Prison Service’s work, to the noble Lord, Lord Browne, on Clause 2, and to the noble Lord, Lord McKenzie, on three counts. A letter is now being sent to Peers and a copy has been placed in the Library. Judging from some side conversations that I have overheard, I am sure there will be further discussion on one or two of those matters. Having dealt with those issues, let me turn to the subject under discussion as set out in Amendment 16.

I understand noble Lords’ wish to ensure that if we are to express payment amounts in relation to civil damages, the data we hold on average civil damages in mesothelioma cases should be current. However, I must reject the proposal to require a yearly review on the grounds that it would not be fruitful due to the volume of mesothelioma cases. Reviewing civil cases on a yearly basis would be too frequent to show any trends or changes in the awards. Indeed, the data that we hold on the initial trawl for the period 2007 to 2012 show this. In this case, it takes a bit longer for meaningful trends to appear.

It should also be said that gathering the data is pretty costly, and in the interests of value for money we need to make sure that they are gathered at intervals that allow us to identify change. One year is too short a period for this, so a review of the data every five years is more appropriate. If we were to accept the amendment, costs would be incurred from gathering data on an annual basis, and further costs would be involved through the requirement for these reviews to be carried out by an independent body. As part of the monitoring planned, civil compensation amounts in mesothelioma cases will be reviewed, but there is no need for a separate body or for annual reports. Furthermore, I can give my assurance that this area will not go ignored.

I also offer the reassurance that we shall not just assign a fixed tariff to this and then ignore it. Far from it. Along with the monitoring of data from civil cases that I have just mentioned, I can confirm for the noble Lord, Lord McKenzie, that we intend to uprate the tariff on an annual basis in line with the consumer prices index. The noble Lord went on to put a vast number of specific questions to me, and we shall touch on quite a few of them later. However, perhaps I may pick up the point about legal fees, although we will deal with them in due course. A figure of £7,000 was mentioned, and more recently £2,000 was mentioned. In practice, it will probably come in at something in between, but we will deal with fees in the fullness of time.

A set of questions was based on what will happen if we collect more or less than we expected. The DWP will underwrite any under levy after the first four years through smoothing. Any over levy will be paid to the Consolidated Fund, as required by HMT.

Clearly, we will be setting a figure initially, then reviewing it. That is our best guess of the right kind of figure that we will be using. We moved the 76% figure to 70% on the basis of what the likely amount was that would minimise the risk of those costs being passed to British industry. This became clearer during the process of negotiation. Rather than go into the specifics about the 2.61% being consistent with the 2.24%, I will add that to a letter.

I hope with the commitments that I have made on how we are planning to set this levy, I reassure both the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, on this matter, and I urge them not to press their amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his clarifications on some of our earlier debates. I am sure we will return to each of the substantive issues about who should be entitled under this scheme and, indeed, about the start date. I am grateful for what he has said this afternoon.

Perhaps the purpose of the amendment was not as clear as it might have been and the Government did not anticipate or expect that there would be an annual updating of the civil compensation analysis. That would have to be done periodically, and how often that would be done might be driven in part by what is going to happen on annual uprating. The noble Lord has reassured us that there will be an annual uprating of the starting tariff by CPI. I think that is consistent with the statutory schemes at the moment. I took it that he was also supportive of a periodic updating of the data that underpin the tariff. I think that meets the purposes of the amendment.

I note that any over levy will accrue to the Consolidated Fund and make the Treasury happy, I am sure. The noble Lord said that the move from 76% to 70% was driven by the assessment of whether amounts were going to be passed on to the customers of the employer liability insurance providers. I take it from the impact assessment that it was to do with quite what cases were included in the analysis and those that were not. Perhaps I need to look at the record and go back on that analysis. It seemed that for no justifiable reason there has been a 6% reduction in the support that is going to be available for those availing themselves of this scheme, quite apart from the further loss, because of the change in the support for legal costs. We will come on to these things later this afternoon. Having said that, unless the noble Lord has anything further—

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[Lord Freud]

That is a good point. I should have made it in response. Just to make it absolutely clear, the legal costs, whether they are £7,000 or £2,000, will be on top of the levy that we are talking about.

[Lord McKenzie of Luton]

I am grateful for that, and I understood that position. I guess that the insurer in that respect have to pay £5,000 less per case than they otherwise would have done, so they are in pocket as a result of this change.

[Lord Freud]

There are two points there. We have not determined the £2,000. We are looking at those two figures and have not yet made a decision. There are two bits of clarification there.

[Lord McKenzie of Luton]

I look forward to the final figures when they do come out. Can the Minister assure us that we will get at least a draft of the levy regulations before we get to Report? Without carping too much, if we are going to do that, it would be really helpful to have it at least in time so that we can spend a few hours getting our minds round what it all means.

[Lord Freud]

With the smallest of caveats, I am most hopeful that I will get that information to the noble Lord before Report.

[Lord McKenzie of Luton]

I am most grateful to the Minister, and I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, we have Amendment 42 in this group, about which I can be brief. Before speaking to it, I will say that I support the thrust of the amendments moved by my noble friend Lord Howarth and the questions posed by the noble Lord, Lord German. Specifically, the amendment seeks to ensure that the definition of the costs of the diffuse mesothelioma payment scheme includes legal costs incurred by a person bringing proceedings, including appeal costs, and in particular that it covers the costs of proceedings brought as a consequence of Clause 10. Where Clause 10 proceedings are facilitated, can the Minister confirm that the financial help referred to will cover the legal costs of proceedings, including appeal costs? How is the funding for this to be organised? Presumably it will come from the levy but, like other amounts in respect of legal costs, not in a way that reduces the tariff amount. I will not probe further the issue of the reduction in estimated legal costs as the Minister has enough queries about that already. However, I look forward to the answer.

[Lord Freud]

My Lords, these amendments look to allow for legal fees to be paid by the scheme without limit. Amendment 17, tabled by the noble Lord, Lord Howarth, looks to reimburse in full all legal costs incurred either through applying to the scheme or through bringing proceedings against an employer or insurer. The noble Lord, Lord Howarth, has also tabled Amendment 28 to cover the cost of legal advice obtained in respect of appeals to the First-tier Tribunal. Amendment 42, in the name of the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, also seeks to cover any legal costs, including the cost of appeals.

The introduction of the scheme is aimed at making the receipt of payment as quick and simple as possible. The amount that a successful scheme applicant is paid will include an amount for legal costs. This will be a fixed amount and will be included as part of the scheme payment received by an applicant and specified in the regulations. In the impact assessment, we used the working assumption of roughly £7,000 to go towards legal fees for each successful application. Since then, we have revised the numbers, using the working assumption of £2,000. The final amount will likely fall somewhere between the two. For clarity, the schedule will show the amount of the actual payment and the amount of legal fees, which will be on top of the 70% figure, to be absolutely clear in response to the question from my noble friend Lord German and the noble Lord, Lord Howarth.

I reassure the noble Lord, Lord Howarth, that the MoJ and the DWP are at least on the same planetary system—some of the time, anyway. The specific regulations will be laid after the Bill receives Royal Assent. The MoJ will conduct elaborate, complicated consultation. To update the noble Lord, Lord Howarth, on timing—I hear his strength of feeling on this—the consultation will be launched in July 2013, next month, and will contain specific options. Clearly, it is recognised that this is a complex issue. The consultation period will last 12 weeks as it will go through the summer, and the response will be published in the winter of 2013. Some of the issues around the right kind of fixed costs will be dealt with in that consultation.

The aim of the scheme is to make the receipt of payment as quick and simple as possible. In response to my noble friend Lord German’s question about the level of information that is required, the eligibility criteria are specified in Clauses 2 and 3 of the Bill. The scheme is not a no-fault scheme, so the applicant will be required to establish the eligibility criteria. However, they are in practice much simpler and more straightforward than in a civil claim. Rather than go through all the specifics of that, in the interests of time I would prefer to set it out in writing.

The reasons for wanting to set a fixed amount of legal costs that can be recovered by lawyers are threefold. First, it is important that applicants are not charged unreasonable or disproportionate legal costs by their lawyers, as we have seen happen in other instances. Any legal work would be in respect of an application to a statutory scheme, which is non-contentious and much quicker and simpler than civil litigation. Secondly, we hope that fixed costs will deter scheme applicants being pressured into entering no-win no-fee agreements, potentially reducing the amount of scheme payment paid in respect of their disease. Thirdly, it is important that the scheme is not overburdened with high legal costs, which would raise the levy and jeopardise the scheme in its entirety.

In respect of any legal costs associated with appealing to the First-tier Tribunal, if these were to be paid in every case that could act as incentive for anyone who was unsuccessful in receiving a scheme payment launching an appeal, even if the appeal was without merit. This would significantly increase the amount of money needed to fund legal fees, requiring the levy to be set higher. Any significant increase in costs could prevent the scheme being set up. It could also overburden the tribunals system with unnecessary appeals.

[Lord Avebury]

That takes care of the disincentive to bring claims to the First-tier Tribunal that have no merit, but what about the claims that do?

[Lord Freud]

It is important to highlight that higher rights are not required in the First-tier Tribunal or the Upper Tribunal as they are in civil courts. That means that scheme applicants could represent themselves, or that their solicitor could conduct any advocacy on their behalf; they would not need to instruct expensive legal counsel. There will be no legal aid for appeals to the First-tier Tribunal following the review scheme decision unless exceptionally it is necessary to make legal aid available to avoid a breach of an individual’s rights under the ECHR or under European Union law relating to the provision of legal services. This will keep costs to a manageable level.

Picking up on the point about the tribunal system, it is traditionally an inquisitorial rather than adversarial system and is designed to make things easier for those representing themselves. For those who do wish to obtain legal representation, it is hoped that lawyers will charge a fair and proportionate rate. The work will be non-contentious and there will be no defendant as there is in a civil case. The tribunal system is there to assist appellants. There is therefore every incentive for lawyers to carry out work on scheme appeals required efficiently and in a way that keeps costs proportionate.

Picking up the question from the noble Lord, Lord Howarth, on the level of fixed fees, clearly the MoJ consultation will consult on both the principle and the structure of such a regime to support a dedicated pre-action protocol. I hope noble Lords can see the need for pragmatism here—the need to keep costs at a proportionate amount and to protect the money that an applicant receives in respect of the disease from high legal costs, as far as possible. I urge the noble Lords not to press the amendment.

[Lord McKenzie of Luton]

Could the Minister deal with the point about proceedings that could arise under Clause 10? These are proceedings which the scheme administrator may help a person to undertake,

“for example, by conducting proceedings or by giving advice or financial help”.

Presumably the costs of that help would be outside the fixed fee arrangements. Would the levy make some sort of provision for those costs? Otherwise that would come off the tariff announcement.

[Lord Freud]

We will deal with this issue in some detail in debate on a later amendment. In practice, where the scheme decides that it is a sensible thing to do, it will of course by definition take on the costs of pursuing that application.

[Lord Howarth of Newport]

My Lords, I am very grateful to the noble Lord, Lord German, and to my noble friend Lord McKenzie for their precisely focused and apposite questions. I am also grateful to the Minister for what he has said in response to this debate, although I wish he had not set up an Aunt Sally in misrepresenting both my amendments, because I was very careful to include in the wording of each amendment that it was only reasonable legal costs that I contemplated should be met in these ways.

[Lord Freud]

Let me apologise for any misrepresentation that I may have inadvertently made.

[Lord Howarth of Newport]

The Minister is so engaging as he apologises that of course it would be churlish if I did not immediately say yes. I think it would be helpful if at some stage he would also elaborate on the circumstances in which the ECHR exception to the disqualification for legal aid might apply. Should we anticipate that people taking cases to tribunals would do so in pursuit of justiciable rights under the European Convention on Human Rights, because that could make a significant practical difference? I simply do not know the answer, but it would be interesting and helpful to have some advice.

The Minister did his best to defend his colleagues over the way at the Ministry of Justice, but when I inquired on Wednesday of last week when they expected to issue the consultation, I was told that it was going to be this week. He has just told us that it has slipped yet again to July. There would then be the consultation, and it is proper to allow a reasonable amount of time for people to respond to that. Finally, the Government’s response and determination of what they are going to do is not expected until the winter. That is a fairly elastic target.

I am worried that the MoJ might be holding things up so that mesothelioma sufferers and their families will be prevented from getting the benefits of the scheme as soon as they might. While we as parliamentarians seek to scrutinise this legislation properly, we are anxious to give it the speediest possible passage through Parliament. It would be rather sad and ironic if, because of the lumbering pace at which another department moves, it was not possible to get the whole scheme up and running as early as it otherwise might be. I hope the Minister will convey these thoughts to his colleagues in the Ministry of Justice.

The Minister brought us the good news that legal costs will be paid on top of the 70% payment under the scheme. That makes me very happy, and on that basis I beg leave to withdraw the amendment.

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[Lord Freud]

My Lords, I fully recognise that Amendment 19 is a probing amendment that would remove the possibility of the scheme making payments subject to conditions. It would therefore have the consequence that the recipient of a scheme payment would have full control over the use of the scheme payment.

Let me make the purpose of this part of the clause absolutely clear. In general, we fully expect that most scheme payments will be made to the applicant. This is for vulnerable people who might be mentally incapable of handling their own finances or who are unable to look after their own welfare by attending to basic financial transactions that adults normally carry out for themselves. It is important, therefore, that in those sorts of cases the scheme administrator is able to subject some payments to certain safeguards, such as how a scheme payment is to be used, and to decide when such conditions should be imposed.

We expect the scheme administrator to use this power to ensure that, where appropriate, payment is made to an appropriate person or fund to safeguard the beneficiaries’ interests. I am sure that the one thing on which we are all agreed in this Committee is that we want to avoid the recipient of a scheme payment having unsupervised control over the use of a large sum of money if they are incapable of managing such a sum. However, a number of valuable points are being made about the interplay between primary legislation and regulations, which we will take away and consider. Clearly, the rules are in draft and we will take the points made today as we look over them. With that assurance, I urge the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, not to press their amendment.

[Lord Avebury]

Perhaps I may ask my noble friend why, if the only circumstances in which conditions are to be imposed are those that he has just outlined, where the recipient of the compensation is incapable of handling his own financial affairs, Clause 15 does not specify those circumstances and thereby reduce the breadth of the wording, which according to him is completely unnecessary.

[Lord Freud]

I take on board my noble friend’s point. As I said, I shall look at this and the other points made by this Committee. The rules are only in draft form, and we may look at them to lock that down.

[Lord Browne of Ladyton]

I am sure that the Minister will do this, but perhaps I may check that he will consider whether it would be better to reflect that restriction in primary legislation rather than allowing it to appear for the first time in the rules.

[Lord Freud]

I will look at that, but I remind noble Lords that primary legislation sets a framework, and what matters here is how the rules work. In this case, the rules that we have agreed will go before Parliament in the form of regulations, so there will be a chance for oversight of that issue. Therefore, it does not matter too much where we make sure that the matter is under control.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his response and his consideration of this matter. I am not sure that we had formally heard that the rules will go before Parliament by way of regulations. We had anticipated that from our debate last week, but I am grateful for the assurance.

[Lord Freud]

My Lords, I must withdraw that completely. I meant to say that we are considering very deeply the suggestion made by the Committee that the rules will go into regulations.

[Lord McKenzie of Luton]

I am most grateful to the Minister for his further clarification. Of course, this was a probing amendment, and we have common cause in seeking to make sure that vulnerable people are safeguarded in relation to these payments. I thank my noble friend Lord Browne for his support—he made a very telling point about the interpretation of things as they stand—and the noble Lord, Lord Avebury. I am grateful for the fact that the Minister will take this away and give it further thought. I hope he will consider putting a provision into primary legislation that will make clear the intent of this decision-making power and the conditions that could be imposed by the administrator. Even if the rules are to be dealt with by regulations, they are likely to be dealt with by the negative procedure, which is what the Delegated Powers Committee recommended. Obviously, that is a less satisfactory forum in which to address these details. Having said that, I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, my noble friend Lord Howarth opened up an important area for consideration, and was strongly supported by my noble friend Lord Browne. I start by asking the Minister about the computation of the benefit recovery amounts in the impact assessment. Does he have an analysis that distinguishes between the recovery of lump sums and the recovery of a benefit, and, if so, what is included in the second list?

In principle, we should seek from the Bill a scheme that will place claimants in the same position as they would have been had they received compensation in the normal manner, notwithstanding the fact, as my noble friend outlined, that it is a payments scheme. This position is fettered in two key respects. First, average compensation in age bands is used as a proxy for actual compensation. We accept this as a practical matter. Secondly, only a percentage—70% is the figure that is currently suggested—of relevant average compensation will be used. We strenuously reject this and will continue to press for 100% payment.

On benefit recovery, we do not challenge the current broad approach in the benefits system, although there is always scope for a review to see how it is working in practice. However, I suggest that any change should not be fundamentally a matter for the Bill. However, neither should we see it as a mechanism to redress any shortfall in the payments scheme. That should be addressed by paying at 100%. To do otherwise would relieve insurers of their obligations and impose a cost on the state. However, it is absolutely right, if our benchmark is normal compensation arrangements, to ensure that a scheme payment should attract no greater benefit recovery than a payment received as compensation. If our benchmark is 100% payment, we would not want to see any compensation recovery that was greater than it would be with a formal compensation scheme.

One key difference is that a scheme payment, absent my noble friend’s amendments, is not allocated over various heads. We received a helpful note on this from the Bill team with some illustrative examples, and were grateful for a further meeting this morning that helped to clarify some issues. As for lump sums recoverable in respect of the 1979 and 2008 Acts, it is understood that there is no difference between the payment scheme and normal compensation, although if paid at less than 100% there might in extremis be a shortfall for a scheme payment. The recovery of other benefits is more convoluted, and a whole range of benefits are potentially recoverable. The rules were helpfully summarised in the briefing note, which says:

“The compensator may reduce the amount of payment he makes to the injured person to take into account … any amounts he is required to pay the SoS. The injured person is never required to repay the SoS recoverable benefits or lump sums. If the compensator cannot reduce the compensation he is still required to repay the SoS”.

Two things are happening here: there is an amount that has to be paid by the compensator to the Secretary of State, and there is a second question about the extent to which any of that can be recovered from claimants. The note continues:

“Compensation can only be reduced to offset amounts to be repaid to the SoS where the compensation and the benefit are both paid to meet the same need”.

So,

“compensation paid for loss of earnings can only be reduced to offset benefits paid for loss of earnings”,

such as IIDB, while,

“compensation paid for cost of care can only be reduced to offset benefits paid for cost of care”.

Further, compensation paid for general damages such as pain and suffering—the thrust of a number of my noble friend’s amendments—cannot,

“be reduced to offset any recoverable benefits”.

On principle, since what is being paid here is not allocable over any of those amounts, it would seem difficult to justify any benefit recovery as a result. I think it was suggested in our meeting this morning that this is a practical matter and that these things are somehow fixed by the insurers in how they allocate payments. I am bound to say that I struggle to see how that might happen.

There is a further issue. Again, I am grateful for a note from the officials on this. I just want to press a point of principle to clarify the situation. If the scheme payment was 100% for pain and suffering, would the compensation recovery work as follows? If the scheme payment was £100,000, the claimant received IIDB of £10,000, and a 2008 scheme payment of £10,000, the benefits of IIDB could not be recovered from payments for pain and suffering but the 2008 scheme lumps could be, so the outcome would be that the claimant received £90,000—that is, the £100,000 scheme payment minus the £10,000 deduction for the lump sum—but the cost to the scheme administrator would be £110,000: the £20,000 to DWP and the £90,000 to the claimant. In those circumstances, the claimant actually meets more than the gross cost of the scheme payment. I do not know the extent to which that is factored into the noble Lord’s calculations. It seems that we need clarity about how this will all work. We would be reluctant to go down the path of tweaking the benefit recovery as a means of letting insurers off the hook. It is their obligation to pay 100% compensation. If we do otherwise, we in effect ask the state to meet that shortfall, when insurers should be doing that.

[Lord Freud]

My Lords, I thank the noble Lord for these amendments. Clearly, the general intention behind them is to place restrictions on the ability of the Secretary of State to recover both social security benefits and existing lump-sum payments made in accordance with the 1979 and 2008 Acts. This would then prevent the scheme administrator from reducing scheme payments to offset the cost of repaying recoverable benefits and lump sums to the Secretary of State. Actually, it may be the case that two of the amendments would restrict the scheme administrator from seeking repayment where sums were paid incorrectly due to error, mistake, misrepresentation or fraud. Clearly, where a scheme payment is falsely claimed it is only right that it should be repaid. Broadly, we think—as the noble Lord pointed out in his cogent remarks—that the amendments are aimed at restricting the recovery of benefits from scheme payments.

--- Later in debate ---

[Lord Freud]

That is clearly the theoretical position. The reality is that, of course, in practical terms, the payments in the scheme we are introducing dwarf any other payments that have already been made and any of the lump-sum and other benefit payments. They absolutely dwarf them, given that typical payments under the 2008 Act run at, I think, approximately £15,000. It would inevitably be worth anyone’s while, in terms of money, to go after a promising claim.

On the trusts mechanism, we are using the existing mechanisms to protect these kinds of payments, or to isolate them and see what they are. As the years stretch out, it would be taking a sledgehammer to crack a nut to change all that legislation. As noble Lords know, I am trying to do my best to keep the benefits system coherent and as simple as possible.

With that, I hope that I have covered most of the ground there—

[Lord McKenzie of Luton]

I think that the Minister is about to wind up his remarks. Can he confirm that if one is dealing with benefits, not lump sums, a scheme payment can only be reduced to offset amounts to be repaid to the Secretary of State where the scheme payment and the benefit are both paid to meet the same need? As the scheme payment is not allocated to meet any particular needs to do with mobility, the cost of care, loss of earnings or pain and suffering, it would seem logically to follow that there can be no withholding from the scheme payment in respect of those benefits. Is that correct? It is a different issue for lump sums.

[Lord Freud]

I shall speak slightly off the cuff. We do not look backwards to those payments anyway, so only the payments in respect of mesothelioma would be offset. Looking ahead, there may be some payments, but they would have to be specifically for mesothelioma. I do not think that I have misrepresented the position, but I will write to get it precisely right for the noble Lord.

[Lord McKenzie of Luton]

I am most grateful.

[Lord Freud]

These amendments do not achieve their aim in many cases, and they could have some deeply unintended consequences. In particular, they would change the way in which the long-established benefit recovery system operates, and I therefore urge the noble Lord to withdraw them.

[Lord Howarth of Newport]

My Lords, I am grateful to my noble friends Lord Browne of Ladyton and Lord McKenzie of Luton, and the noble Lord, Lord Avebury, for participating in the debate and for the excellent points that they have made. I will study with great care what the Minister has said and see whether I can elicit from his words a clear and acceptable set of principles that the department will apply here. He seemed to say that nothing must shake or disturb the existing ways of doing things, and I am not in the least bit surprised that he has said, in his characteristically courteous way, that my amendments are variously defective, subversive or would create chaos. I am an amateur in these matters and I have simply sought to raise the pertinent issues. Merely because my amendments may not stand up to the rigorous scrutiny of this Committee does not mean to say that the issues are not very important and worthy of continuing consideration as we reach the later stages of this legislation.

I agree with the Minister that the term “compensation” is a pretty slippery and rather sloppy one. It becomes a fairly sickly euphemism, not least in the context in which it is often used, where it refers to bankers’ compensation. Those are remuneration packages worth many millions of pounds, and one wonders what the bankers are being compensated for, other than the opprobrium in which they are held in society. I am with him in being cautious about the use of the term “compensation”. However, as my noble friend Lord McKenzie indicated, there may be difficulties in the Government seeking to have it both ways. We should consider further whether the normal rules that apply to compensation recovery, which are entirely legitimate and we do not challenge, can actually be laid over this particular scheme with its very distinctive circumstances.

I detect between the lines of what the Minister has said and from his tone that he wants to be as flexible, constructive and generous as he can be. In that case, we should certainly look further at the use of the mechanism of trusts. I completely accept that we should not take a sledgehammer to crack a nut and that it would not be sensible or appropriate to drive a coach and horses through the existing provisions of trust law in relation to social security benefits. However, it may be possible to harness those provisions to provide slightly more extensive alleviation. Whether, for example, the scheme might be able to provide a hand-out package, which is a trust ready for use that it would be easy for people to pick up and use, I do not know.

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[Lord Wigley]

I am grateful for being curbed. I support the amendment. It will lead on to Amendment 32, which also addresses these issues, so I may come back to them at a later stage. It is immensely important that this body is seen and respected by those outside the industry as being at the very least impartial with regard to the way things will be conducted. It must have the confidence of the beneficiaries, their families and everyone else involved. This amendment, together with Amendment 32, which we will consider in a moment, needs to be taken on board, if not in this form of words then at least in a form of words that addresses what could be a weakness in the Bill.

[Lord Freud]

I thank the noble Lord and the noble Baroness for their amendments. I assure them that all diligence will be observed during the setting up and monitoring of the administrative body. Irrespective of the background of the scheme administrator, the body will have to administer the scheme in a way that satisfies the requirements of the legislation and apply scheme rules that will ensure that the administrator is sufficiently tied to a set of rules as determined by the Secretary of State and not by the insurance industry. What matters is not whether the body administering the scheme is formally independent of the insurance industry but whether it is controlled by the arrangements put in place by the Secretary of State and whether it is properly monitored. The arrangements will achieve that.

The insurance industry is setting up a company to meet the requirements of the scheme rules. There would be time advantages to using such a body, with it potentially being able to make payments more quickly than if the Government had to establish a body. However, any body with which the Secretary of State makes arrangements will be subject to the standard call-off contract that gives us the power to change a supplier should it fail to operate as required.

I make it clear that we will undertake due diligence in ensuring that whoever ends up delivering the scheme does so in compliance with the rules that we set out. If any body does not meet our requirements, we will not make arrangements with it, and, if it fails to deliver, we will make arrangements with another one. I will respond to Amendment 32 when the noble Lord moves it. It may be relevant, and I will make a further statement at that point.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his response and am grateful to the noble Lord, Lord Wigley, for his support. He said it was important that the administrator was seen as, and respected for, being impartial and particularly important that he had the confidence of beneficiaries. I was less than satisfied with the Minister’s response. He said that it might be quicker to get things under way because the insurance industry was actively engaged in putting together a body now, but that does not cut much ice because it will be April 2014 before any payments are made, which gives ample time to set up all sorts of bodies in the interim.

Also, we still do not have a response as to who the members of the body are likely to be. I do not know whether the Minister can at least share his initial thoughts on that. We accept entirely that, ultimately, it is the Secretary of State who must be satisfied that the scheme is being run properly but that is quite different from having someone with overall responsibility and having confidence in the routine operation of the scheme. As the noble Lord, Lord Wigley, said, both the beneficiaries and the industry itself must have confidence in the way its routine operation is undertaken.

I think that this is outstanding business that may overlap in part with the next amendment but, for the time being, I shall withdraw the amendment after the noble Lord has dealt with the issue of the likely membership of the vehicle, whether it is set up by the insurance companies or someone else.

[Lord Freud]

Perhaps I may deal with it under the next amendment.

[Lord McKenzie of Luton]

That is fine. I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, this amendment calls for the establishment of an oversight committee to monitor, review and report to the Secretary of State on the overall aspects of the scheme and related arrangements. Those arrangements cover not only the scheme, but its administration.

[Lord Freud]

My Lords, in the interests of time, I thought I might pre-empt the noble Lord on this, although I think that he must move the amendment first.

[The Deputy Speaker]

The noble Lord, Lord McKenzie, must beg to move the amendment, and I will then put the question. If that is in order, the noble Lord, Lord Freud, can then speak.

[Lord McKenzie of Luton]

I beg to move.

[Lord Freud]

I apologise to the noble Lord for cutting him off in full flow. I understand that the level of independence of the scheme administrator is of some concern and clearly it is one of the things that have prompted the amendment. I can reassure the noble Lord that whoever the Secretary of State makes arrangements with to administer the scheme will be bound by agreements to comply with the scheme rules and departmental standards of implementation and administration. However, I am attracted to the idea of having some oversight of the scheme set out more formally. We could, for example, put something about reviewing and monitoring the scheme in the scheme rules and set this out in more detail in the arrangements for the scheme administration. I am minded to do more work on this to consider further whether we should bring forward an amendment on oversight of the scheme. I am not able to agree to the amendment today because I need to do the work first, but I would be grateful if I could consult the noble Lord, Lord McKenzie, and get his wisdom on this. I shall then come back to noble Lords at a later stage. On that basis, I urge him to withdraw the amendment.

[Lord James of Blackheath]

I will make one small comment about subsection (2) of the new clause proposed by Amendment 32: there are no longer any active insurers for asbestosis. You are really talking about the reinsurers. They are the people you should seek to have represented.

[Lord Freud]

I am most grateful for that point. We shall bear it in mind.

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[Lord Avebury]

My Lords, I think the Minister said in replying to the previous amendment that when we came to this one he would give us some more information about the membership of the body that the industry proposes to establish. It would be very useful to know that, as it conditions the way we will think about monitoring and reviewing. Clearly, if the board established by the insurance industry contains people who have an association with that industry, the degree of intensity of monitoring and reviewing would have to be far higher than it would if the board were totally independent.

[Lord Freud]

To answer in just one minute: I will take the whole package and look at it. That is what I am committing to do.

[Lord McKenzie of Luton]

My Lords, just before I formally withdraw the amendment, I should say that I am grateful to the noble Lord for his offer to take this away and consider it. I am happy to engage with him in doing so, as I am sure are other noble Lords who have spoken in support of this: the noble Lords, Lord Wigley and Lord Avebury, and the right reverend Prelate the Bishop of Ripon and Leeds. To make the point clear: I see this as an oversight not only of the scheme but also the wider components of the ELTO technical committee. We know that the insurance industry sees all these arrangements as an integrated package. It is important that the oversight that we set in train covers all the components. I would certainly be keen to see those people involved in the victim support groups having some role in this, as well as the insurers.

[Lord Freud]

I can assure noble Lords that I will enter negotiations with them without any preconditions. Basically, we will have a look at this issue and then discuss it with noble Lords to determine the best way forward.

[Lord McKenzie of Luton]

I am grateful to the Minister and beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, I will speak also to Amendments 34, 35 and 44 in this group. Clause 10 gives the power to the scheme administrator to help a person bring proceedings. However, this is only the case where a payment is first made under the scheme. Under Clause 2(1)(c), eligibility for the scheme depends on a person not bringing or being unable to bring an action against a negligent employer or insurer. Perhaps the Minister would expand on the circumstances envisaged where a payment has been made but proceedings may now be possible. Is it to do with the subsequent discovery of the possibility of proceedings in light of new information? Why is there the requirement that a payment be made before these provisions apply?

On Amendment 35, the Bill suggests an enabling power for the administrator to help a person bring proceedings. Our amendment requires the administrator to give this help, provided they have the agreement of the claimant. In pressing the point, we are mindful of the prospect of the insurance sector itself running the scheme, and thus of potential conflicts of interest. Where proceedings are possible that might garner a higher reward for the claimant, then, unless the claimant stipulates otherwise, that help must be provided. I accept that it may be necessary to stop any spurious or vexatious requirements by claimants, but that could be built into any amendments.

The proceedings in question can be brought against an employer for negligence or breach of statutory duty, or against an insurance company. Amendment 34 includes those against whom proceedings might be taken, such as the Financial Services Compensation Scheme. I am bound to say that this is rather a tentative amendment, but it is understood that the FSCS compensates those covered by insolvent insurers. However, perhaps that is what the Minister has in mind in Clause 10(5).

Amendment 44 in this group addresses a different point. It requires the arrangements for establishing a technical committee to be in accordance with regulations; that is, that the committee should be subject to a parliamentary process. The Delegated Powers and Regulatory Reform Committee has addressed this point, but having seen the Government’s response to it, I am minded not to press the amendment. I beg to move.

[Lord Freud]

I thank the noble Lord and the noble Baroness, Lady Sherlock, for these amendments. Amendments 33 and 35 cover the scheme administrator’s ability to help a person bring relevant proceedings through the courts. The amendments allow the scheme administrator to help a person bring relevant proceedings against particular employers or insurers whether or not a scheme payment has been made. They also provide that the Secretary of State’s scheme rules may include the circumstances where the scheme administrator is required to help a person bring proceedings with that person’s consent.

Where bringing relevant proceedings will benefit both the applicant and the scheme by allowing a scheme payment to be recovered from an award of civil damages, it is right that the scheme should be allowed to help a person bring relevant proceedings. We want to allow flexibility in the scheme so that the scheme administrator can decide, based on an individual’s circumstances, whether it is in the interests both of that person and of the scheme to help that person bring proceedings. We want to avoid inflexibility where a scheme administrator is obliged to help a person bring proceedings with that person’s consent. It is also not appropriate for the scheme administrator to use scheme funds to bring proceedings where the scheme may not benefit from such action.

Amendment 34 allows the scheme administrator to help someone bring a claim against the Financial Services Compensation Scheme where they have already received a scheme payment. The Financial Services Compensation Scheme makes compensation payments when insurers are insolvent. In cases prior to 1972, the Financial Services Compensation Scheme will pay compensation only where both the employer and the employer’s liability insurer are insolvent. Where both an employer and insurer are insolvent, a person may also be eligible for a payment under the Bill. So it is possible for a scheme payment to be made where a person may also be eligible for compensation from the Financial Services Compensation Scheme. If a scheme payment has already been made and it is subsequently established that a Financial Services Compensation Scheme payment can be made, it could be in the interests of the scheme to help a person make an application for an FSCS payment so that the scheme payment can be recovered from the FSCS payment.

This amendment is an interesting proposition. I am minded to do more work on it to consider further whether we should bring an amendment to allow the scheme administrator to help a person make a claim to the Financial Services Compensation Scheme. However, since I have not done the work, I am not able to agree to the amendment today.

Amendment 44 means that regulations will be needed for the Secretary of State’s arrangements with a body to establish a technical committee. The committee will make decisions on questions arising between a potential claimant and an insurer as to whether an employer maintained employer’s liability insurance with that insurer at a particular time. The technical committee is separate from the scheme and will decide an issue prior to any application being made for a scheme payment. The scheme may in fact never be involved with some cases, if insurance cover can be determined by the committee. The committee is therefore still essentially determining a private dispute between two parties, albeit facilitated by legislation, and is not directly making any decision about the allocation of public money to individuals. For that reason, it is appropriate that it will be outside government and that it should be set up under non-statutory arrangements.

We also want the procedure of applying for a technical committee decision to be simple, straightforward and as flexible as the law will allow. We believe that the best way to achieve that is for the Secretary of State to make arrangements with a body that will have the expertise to decide questions on insurance, rather than to enshrine the technical committee’s functions in statute. I therefore urge the noble Lord to withdraw the amendment and to not press the others.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister. As I think I said in moving the amendment, I had already gone cold on Amendment 44. The exchanges with the Delegated Powers Committee have dealt with that. I am grateful to the Minister for taking away the point about the Financial Services Compensation Scheme and I hope that we will see an amendment on Report. On the other amendments, I am not totally convinced that there should be a “may” rather than a requirement but I am not minded to press the matter and beg leave to withdraw the amendment.

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[Lord Wigley]

My Lords, I will speak briefly in support of this amendment for the same reason: to try to get clarification with regard to the interplay with the 1979 scheme. I raised this matter at an earlier stage and would be very interested in some clarification from the Minister.

[Lord Freud]

I thank the noble Lord and the noble Baroness for these amendments, which I understand are probing amendments. I am hopeful that I can give complete satisfaction on the matter. The intention of these amendments is to enable a person to apply for a payment under the Pneumoconiosis etc. (Workers’ Compensation) Act 1979, or under the corresponding legislation in Northern Ireland, after they have made an application for a scheme payment but before a scheme payment is made or where the application is unsuccessful.

One of the conditions of entitlement under the 1979 legislation is that a person has not brought any action or compromised any claim for damages in respect of a disablement, for example by issuing proceedings against a negligent employer or insurer, or by settling a potential claim out of court. The provisions of Schedule 2, which these proposals would amend, ensure that people who apply to the scheme and those who bring an action or claim for damages are treated equally under the 1979 Act. If a person is prevented from claiming under the 1979 legislation because they have made an application to the diffuse mesothelioma payments scheme, instead they may still be able to claim under the 2008 diffuse mesothelioma schemes established under Part 4 of the Child Maintenance and Other Payments Act 2008 and the corresponding Northern Ireland legislation.

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[Lord James of Blackheath]

My Lords, the problems of the Navy in this regard persist for that service. An MoD meeting has been called for 10 o’clock tomorrow morning. Will the Minister be present at that meeting? It would be helpful to know that.

[Lord Freud]

I regret that I am not invited.

[Lord James of Blackheath]

I think it will be harder to make progress without the Minister. It seems to me that three very significant problems are emerging in any dialogue with the MoD at present, and they will not go away very easily. Each of them has been shadowed in the discussions this afternoon. For a start, of course, this is a compensation payment for a dying sailor. There is no argument about it. There is no way you can call it anything else. We are here talking of it not being a compensation payment and this gives rise to a total misunderstanding in the minds of the MoD people to whom I have been talking because they seem to think that what we have here is a great big government-funded handout that they can dip their hands in and have a share for their sailors.

Of course, the downside is that in saying no to them, we run the risk that this clever and inspired programme to force the compensation programme through for non-compensation payments will invite the dreadful comparison that the Government, who are concerned to prepare catch-up payments to all the sufferers of this disease for whom they can, should include responsibility for the Navy, which has deliberately discarded any responsibility for payments for people who are suffering similarly. I cannot imagine a more unfortunate juxtaposition.

The MoD has to understand that if it wants a solution to this problem, that must come out of its own resources. It cannot come from this scheme. When I first realised this, simply on the grounds that I did not know the answer I tabled my strange Amendment 47, which says that we have a problem for which we need an answer, and that we must find it when we get a sensible dialogue going with the MoD—which may or may not start tomorrow morning.

There are two other big problems with the MoD. First, it will have a hugely high percentage of what I call the household contamination problem. The sailors and workers will have gone home at night to their wives with their dirty washing from working in the boiler rooms of the intensely asbestos-lagged warships. We are going to have a huge problem of a different nature there.

Secondly, the MoD cannot run an insurance industry-based solution because it cannot insure its ships or people; that has to come from a different pot and a different source. It is absolutely unacceptable that we do not have a solution for the sailors in parallel with this, but it is not going to be compatible with this Bill. Forgive me for having put the clause in, which is completely wrong and irrelevant, but it really is a desperate call: we have got to have something instead. I want to put a marker down that the whole House must work towards this.

We must be totally intolerant of any fudge that does not give the Navy a fair deal. There are far too many affected persons out there. The way to get the MoD really interested in this is to threaten to write to the Queen and tell her how many of her crew of Royal Yacht “Britannia” have been killed by it. That will get the MoD’s undivided attention. I will continue to run that one.

I will withdraw my amendment as it stands, quite clearly, because I cannot run it here. I just wanted to leave it there for the moment. It is a hole into which I have got to get something put before we are through with this.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, our Amendment 46 is in this group. I will say at the start that I thoroughly support the amendments of my noble friend Lord Howarth. I agree with the noble Lord, Lord Alton, that the Minister has almost made a rod for his own back in raising hopes and expectations. Those are challenges that he will have to face, and I am sure he is well up to the task. The noble Lord, Lord James, should not apologise for having brought forward his amendment. He is right to say that what he seeks is not an insurance-based solution, but there are issues around inviting comparisons with the progress that has been made.

As we have discussed, the payments scheme relates to those diagnosed with diffuse mesothelioma. It therefore excludes other asbestos-related diseases such as asbestos-related lung cancer and asbestosis. It also excludes other work-related, non-asbestos diseases such as pneuomoconiosis. The DWP’s June 2013 analysis quotes the HSE data on industrial diseases, which has an annual estimate of sufferers of asbestos-related diseases of some 3,500—that excludes those suffering from mesothelioma—and of non-asbestos-related industrial diseases of some 4,200. Many of these will face the same problem in identifying a negligent employer, or an employer liability insurer. The DWP’s June note acknowledges that many of the diseases covered do not share the same characteristics as mesothelioma, and that their severity and progression may vary, depending on the heaviness of exposure to asbestos.

It also highlights the fact that, for example, only a small proportion of asbestos-related lung cancers are compensated through government schemes, because of the range of different causes of lung cancer that mask an asbestos cause. Notwithstanding this, and perhaps somewhat strangely, in computing the effect of extending the scheme, it has been assumed in the data that the same proportion of those with diffuse mesothelioma who can access the scheme proposed by the Bill will be able to access an extended scheme, that the same level of scheme payment will be received, and that the same amount of benefit will be recovered. Those are fairly broad-brush assumptions, to say the least. In resisting the amendment, the Minister will doubtless point to the costs of bringing forward an extension of the scheme. On the basis of their estimates over a 10-year period, they suggest that there will be 5,100 successful applicants for other asbestos-related diseases, and 6,100 non-asbestos work-related diseases. There will be an additional levy on insurers of £478 million and £564 million respectively.

At face value, the figures are shocking. It is not so much the amounts as the suggestion that over 10 years, some 11,200 people will miss out. By how much will depend on benefit recovery arrangements, but they could miss out to the tune of £1 billion. If the concentration were just on the other asbestos-related diseases, not expanding the scheme will deny 5,100 people, who will miss out just because an employer has gone out of business or cannot be located and a relevant insurer cannot be established.

The amendment requires the Secretary of State to bring forward proposals within a year to establish other schemes to cover these other diseases. On reflection, limiting this to diseases covered by the 1979 Act may not be the most appropriate approach, and we might seek a different definition on Report. We have been clear that we do not want the pursuit of broader coverage to hold up the scheme of diffuse mesothelioma, and there is no reason why acceptance of the amendment, or my noble friend’s variations, should cause this to happen. It is accepted that it will be difficult to graft on to the mesothelioma scheme the tariff approach, given the varying degrees of suffering that some of the other diseases entail, and that there may be convoluted issues around causation. Therefore, while continuing to acknowledge the merits of the mesothelioma scheme, we should no longer look aside from those people—many thousands on the Government’s own figures—who face terrible suffering because of the negligence or breach of statutory duty of an employer. This is all the more important where access to the state lump sum and social security support is more difficult, as it is for some.

The Minister has come thus far and we have supported and congratulated him on doing so. Indeed, he has expressed sympathy for a broader scheme. Accepting the thrust of these amendments would add to that journey, which I beg him to undertake.

[Lord Freud]

My Lords, I thank the noble Lord for these amendments, and clearly I am sympathetic to the desire to provide for as many people as possible. Let me deal with the amendments tabled by the noble Lords, Lord Howarth and Lord McKenzie, and the noble Baroness, Lady Sherlock, in the first instance, and then perhaps I may turn to the amendment tabled by my noble friend Lord James regarding members of the Armed Forces.

I recognise the wish to provide for other groups of people who fall foul of poor record-keeping by the insurance industry and so cannot bring a claim for civil damages. There could be another scheme for these people in the future, but as the noble Lord, Lord McKenzie, has just acknowledged, it cannot and will not be this particular scheme. It is neither possible nor realistic to extend it in this way, and that is the reason I must reject these amendments.

The remit of the Bill is strictly related to mesothelioma. However, like many noble Lords, I hope that the momentum generated by this legislation will not dissipate and that further work will be done in the future. Perhaps I may explain why we cannot be flexible on this. I should start by reminding noble Lords about the distinctive characteristics of mesothelioma. The Bill allows for a relatively straightforward and quick scheme to be established. The key points are mesothelioma’s undeniable link to asbestos exposure and lack of co-causality with other factors such as smoking. The unique elements of diffuse mesothelioma allow us to establish a tariff payment scheme of this nature. A streamlined scheme like this would not work for other long-tail diseases. The law of causation is favourable to mesothelioma victims in the sense that it is an indivisible injury. It does not matter who exposed the victim or how many people exposed him, they will all be jointly and severally liable for the same damage. This allows for simplicity when assessing whether someone is eligible for a payment. Assessing liability for other diseases where the causation rules are not the same would involve a degree of complexity that this scheme has not been designed to allow for.

I join noble Lords in their hope that, in the future, other people will be provided for. Until such time, there remain state payments that sufferers of other long-tail diseases can apply for, such as payments made under the 1979 and 2008 Acts. I hope that I have explained and made it clear why this scheme will succeed only if it deals exclusively with mesothelioma, and I urge the noble Lord to withdraw his amendment.

Let me now turn my attention to the amendment tabled by my noble friend Lord James of Blackheath regarding the creation of a scheme to cover retired or current members of the Armed Forces who were exposed to asbestos and have since developed a related disease. I should clarify that, when I denied the 10 o’clock meeting, one of my representatives sitting behind me today will be at that meeting, and so I will be given good intelligence on what happens.

[Lord James of Blackheath]

Can we have an indication by paw of who will be attending the meeting?

[Lord Freud]

The paw has been raised. I am more than happy to hold a meeting with the noble Lord after that meeting if he so desires.

[Lord James of Blackheath]

The noble Lord is taking a big risk in sending the best looking member of his staff to the Navy.

[Lord Freud]

The noble Lord must be very careful about making remarks like that. I think that we should strike them from the record.

The noble Lord was clearly referring in particular to those working in the boiler rooms of those three ships—HMS “Britannia”, HMS “Furious” and HMS “Albion”—a great many of whom would have been exposed to asbestos during the course of their service. We all in this Committee, I know, are deeply sympathetic to a tragic situation. However, as the noble Lord acknowledges, it is not possible for this Bill to be the solution for that, mainly because the MoD was not and is not covered by employer liability insurance. It would not be appropriate to raise finds for such a scheme from the employer liability insurance markets; they are entirely different issues. I know that the noble Lord has particular issues with the arrangements which the MoD has in place for compensation, so I will not go into those. They are dealt with by the MoD and I suspect that they will be the subject of conversation tomorrow.

[Lord Alton of Liverpool]

Before the Minister goes any further on that, would he accept that there is a parallel between people who slipped through the insurance arrangements for people with mesothelioma—and for whom there is therefore no known legal authority and so the Bill has been brought forward to plug that gap—and servicemen who have also fallen through a gap because there is no liability accepted by the Ministry of Defence and no insurance arrangements in place for them either? In parallel with this scheme, surely we should at least accept a moral responsibility for the obligations of the Government to people serving in our Armed Forces and risking their lives in the service of this nation, and therefore accept that it should in due course be met. Can the Minister at least tell us how many people are in those groups to which he has just alluded?

[Lord Freud]

My intelligence on this comes from my noble friend Lord James, who told me that the estimate was 300 people. However, I stand to be corrected by him.

[Lord James of Blackheath]

The provisional estimate is up to 300 dead already and 180 contaminated. However, the figure we need to be concerned about is the number of wives who have got it, too.

[Lord Freud]

The noble Lord has put that on the record. Clearly, there is a difference in the sense that the MoD as a public authority does not use employer liability; it effectively self-insures. The noble Lord is concerned about the terms of when it pays compensation; I know that he is looking to address that issue with the MoD.

I share the concern of noble Lords in the Committee to help to provide for as many people as possible who have a terrible disease through absolutely no fault of their own. However, this scheme is addressed precisely at one part of that. It is not stretchable in that way.

[Lord McKenzie of Luton]

My Lords, I do not think that anybody is suggesting that we should stretch the scheme in the Bill to encompass other arrangements. Certainly, however, Amendment 46 would require a commitment from the Government that they will bring before Parliament within a period of time other arrangements to deal with these other situations. It is accepted that it cannot be readily grafted on to the existing diffuse mesothelioma scheme for the reasons that the Minister has advanced. We are looking for the commitment to saying, “Let us move on and bring forward a scheme or schemes to deal with these other issues”.

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[Lord Freud]

Regrettably, I am not in a position to make any kind of commitment along those lines. We responded to the consultation document which the noble Lord, Lord McKenzie, launched, and our considered view was that this was the most urgent thing to tackle. That is the only commitment that I am in a position to make today. Having urged other noble Lords to withdraw or not to press their amendments, I ask the noble Lord, Lord James, not to press his amendment either.

[Lord James of Blackheath]

For the sake of accuracy, I will just correct the figures to this extent. The Navy’s figures include subcontracted staff in naval ports.

[Lord Howarth of Newport]

My Lords, I am very grateful to my noble friend Lord McKenzie for laying out the case in his customarily lucid and reasonable style. I strongly support Amendment 46, in his name, which wisely would require the Secretary of State to set out his plans to establish further analogous schemes within a year.

We will come back to the Minister’s refusal to contemplate doing that in a moment, but I will just comment on Amendment 47, concerning the Armed Forces, in the name of the noble Lord, Lord James of Blackheath. He has raised a massively important issue. Our concern has to be not only for sailors, for people doing highly skilled labouring jobs in naval dockyards and for other members of the armed services, but for people who could well have been directly employed by government in a whole host of other fields in publicly owned facilities of one kind or another, including of course civil servants. The Government self-insure, and there must be an employer’s liability in that situation. I cannot see how it could possibly be otherwise. Perfectly understandably, the Government do not go to the insurance market to take out employer’s liability insurance but absorb the risk themselves.

I can well understand that the Ministry of Defence has form and has sought, over many years, to resist what many very well informed people consider to be well founded claims for compensation against the Ministry of Defence. It digs in and goes into the trenches. However, there must be a strong case—not only a moral case, as the noble Lord, Lord Alton, very powerfully suggested, but, I would have thought, a strong legal case. The difficulty, presumably, is that potential claimants do not have the confidence to take on the MoD because it has infinite resources with which to defend itself in those trenches.

The noble Lord, Lord Alton, compared the Minister to William Wilberforce. The persuasive powers and techniques of the noble Lord, Lord Alton, are legendary, but I would join him more prosaically in simply encouraging the Minister not only to receive a report on the important meeting that is due tomorrow but to pursue this matter strenuously. I do not know whether the Bill would permit an amendment to be incorporated that was designed to achieve the purposes of the noble Lord, Lord James of Blackheath, with this amendment. However, I hope the Minister will do his very best to ensure that some such amendment is included.

This brings me back to my own amendments, which the Minister resisted despite saying that he was sympathetic to their purpose. How could he not be considering that he went so far at Second Reading? I assume that if the department was going to do the work to produce the estimates document to which I and others have drawn attention, it must be because it sees that there is a strong case for establishing other schemes in the future for other long-latency asbestos-related diseases.

I now know that this is his technique in debate, but the Minister has set up another Aunt Sally, as my noble friend Lord McKenzie spotted. He sought to interpret the purport of my amendments and my remarks as being that we have to stretch the mesothelioma scheme to encompass the payment of compensation in relation to these other diseases. That, of course, is not at all what I said. Amendment 40 would insert,

“or any other scheme established under this legislation”.

Amendment 45 says:

“The Secretary of State may by regulation establish other schemes in relation to other … diseases”.

I am not at all saying that the mesothelioma scheme should be expanded, inflated or stretched to do what he said. I am saying that, to the extent that the Bill clearly does not confer the powers requisite, we ought to amend it so that it would be possible to establish other schemes analogous to the diffuse mesothelioma payment scheme in future. This does not cost the Treasury a penny, and I cannot see what the conceivable difficulty should be. The Minister has given no reason why this should not be done.

[Lord Freud]

I apologise if I abused the Aunt Sally—if I did so, I did so unintentionally. I want to make absolutely clear that we have had recommendations from the Delegated Powers Committee that we are obviously taking with great seriousness. One of the two big recommendations is resisting widening this Bill in the context of the technical committee. The noble Lord in this amendment goes directly against the thrust of the Delegated Powers Committee, which said we should keep this specific rather than giving wider, extra powers to the Secretary of State. I neglected to put my finger on that point, but it is a substantial one for that amendment.

[Lord McKenzie of Luton]

If my noble friend will allow, is that a fair representation of what the Delegated Powers Committee said? I thought its point was that, in the context of this Bill, the reference to other kinds of disease or bodily injury when it referred specifically to a definition of a potential insurance claimant was too broad and could be made more specific. Indeed, if the noble Lord felt able to adopt one or more of the amendments before him, that would tie nicely in with that. I did not think the committee’s point was that a broader reference was inherently inconsistent with the Bill, simply that the specifics of this clause were not specific enough to identify the other kinds of disease that might be involved. If the problem is not being specific about the other types of disease that ought to be covered by the scheme, that could be rectified quite readily by drafting. Would the Minister be more comfortable with that?

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[Lord Freud]

Perhaps I have opened up a completely new front. I am reluctant to go into that specifically. The point is that we are trying to draw up a specific scheme in this legislation. We would be most reluctant about other schemes with other rules having powers in secondary legislation, whether or not the Delegated Powers Committee were on the same page. I will resist; I cannot do that.

[Lord Howarth of Newport]

I am grateful to the Minister for his explanation. I yield to no one in my respect for the Delegated Powers and Regulatory Reform Committee, which does extremely valuable work in ensuring that the Government do not take outsized powers of a rather generalised nature when they present legislation to Parliament. However, I am not sure that an argument put forward by the Delegated Powers Committee on the proposed technical committee would have a bearing on whether it would be appropriate to take the opportunity of this scheme to make provision in primary legislation to be able in due course by regulation to establish further schemes that would be on the same model as Parliament will have approved in the primary legislation for the diffuse mesothelioma payment scheme, and which would of course have to be legislated in their specifics by way of regulation—as is quite explicitly stipulated in my Amendment 45.

I do not know what the Minister had in mind when he addressed the House at Second Reading and said that schemes to deal with these other terrible diseases should be brought forward, and that there were situations that needed to be addressed. If he was saying that he hoped he would have the opportunity to bring forward a Bill of one sort, then another and then another after that to establish further schemes, he must have known that that was not realistic. To secure legislative time is always a considerable problem, and I am afraid it would be pretty improbable that we would have the opportunity to embark on fresh primary legislation to repeat the process that we are going through now to create the mesothelioma scheme. Therefore, I can see no difficulty of principle that ought to deter us from amending the Bill to provide a clear legal base for establishing other schemes, so that it could accommodate the principle that the Secretary of State could by regulation establish further analogous schemes. In the mean time, I beg leave to withdraw the amendment.

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[Lord Howarth of Newport]

I am always disposed to defer to the noble Lord as he has a depth of knowledge on this matter that I do not think is matched by the rest of the Committee. However, if Lloyd’s of London did not get a computer until a rather late date in the history of that august market, it none the less had brown cardboard files. It seems to me that strong procedural safeguards and impeccable record-keeping are always central to the upholding of property rights and the protection of people who enter into contracts. I cannot see how employer’s liability insurers at any phase of their history could ever have been justified in allowing the documents to disappear. There might have been a fire in the warehouse but we have not been told that there has been such a fire at any of these insurers. Other than in an extraordinary circumstance of that kind, it must be normal and basic practice to keep the documentation and to pass it on to the successor insurers and reinsurers. I cannot see how anything else could have been appropriate.

We are looking here at a spectrum of wrongdoing that runs from inefficiency and muddle through negligence to, very possibly, deliberate criminality in some places. Indeed, the scale on which the documentation has gone missing suggests that there could have been widespread criminal intention on the part of some people in an earlier generation of insurers. I say “an earlier generation”; they may no longer be active in the market but many of them may still be extant as individuals.

Another recent major scandal has occurred in terms of record-keeping. I refer to the sub-prime lenders in their Gadarene rush towards 2008. The banks, in issuing huge numbers of mortgages and eagerly selling them on, took to neglecting procedural safeguards. The combination of disregard for procedural safeguards with fraudulence led to the catastrophe of 2008 and in the years following, from which we continue to suffer. It reached a point where, with millions of mortgages in default, the banks abandoned the attempt to examine individual documentation to certify that a particular person owed a certain amount of money on a mortgage, which was the asset being sold on, and took to what was known in the trade as “robo-signing”. Instead of examining the individual records, they hired a person simply to sign masses of these documents without even examining the records.

The temptation for businesses not to keep full, accurate and proper records when it is convenient to do so clearly can be very great. We do not suppose—I do not think we do; I certainly do not—that the banks which were guilty of that systematic failure of proper record-keeping should be able to walk away from the scene of what they did and just get away with funding a token scheme. Equally, it seems to me that in the interests of justice and for exemplary purposes, there should be a proper investigation of what went wrong with the employer’s liability insurers. Of course, ELTO has been created and that improves the methodology of tracing claims and liability. However, a disastrous failure has occurred in this regard for a great many people. As I say, it seems to me that this is a major scandal. That is the reason why I have tabled Amendment 43—to require the Secretary of State to establish a commission to investigate and report on what happened in this history of inadequate record-keeping, which I do not think anything can possibly have justified. I beg to move.

[Lord Freud]

My Lords, the noble Lord has tabled this amendment to require that investigations be made into the record-keeping practice in the insurance industry which, to put it no more brusquely, we know has been insufficient in the past. It would also require us to legislate to protect those who cannot bring a claim against an employer or insurer because the records have not been traced.

I sympathise with the aim behind this amendment, which is to bring those culpable to account. Unfortunately, what we already know about record-keeping practices tells me that this simply will not be possible and that any investigation of this sort would be a costly addition to the scheme. One of the things of which the noble Lord may not have been aware, and inevitably would not have been aware of when he put down this amendment, is that on 4 June the FCA published details of its requirements for employer liability insurers to undertake effective searches for historic policies. Moreover, the employer liability tracing office, ELTO, is currently undertaking an audit of the record keeping of its 150 or so members, including Equitas. The number affected by the issue of records that were destroyed is broadly 300 out of the 2,400 people with relevant mesothelioma per year, which implies that one in eight cases is untraced—that is the proportion of the problem.

I hope that noble Lords will understand that we want to ensure that the maximum amount of funds possible go to helping those eligible people who come to the scheme and therefore there is not the flexibility to put resources into potentially costly investigations such as these. I have already spoken to noble Lords about the exercise that I conducted into what was likely to be available on a historic basis, and we already have measures to improve tracing. On that basis, I urge the noble Lord to withdraw this amendment.

[Lord Howarth of Newport]

I am glad that the Minister sympathises with my aim in tabling this amendment. I am sorry, however, that he thinks an investigation of the kind that the amendment would require is not practical. I think it depends on how important people think it is to do the detective work. Of course, it is not within the resources of his own department and I think it would be difficult for the employer’s liability insurers themselves to meet the full cost of this.

However, if we consider that an inexcusable series of abuses has occurred, I cannot see that it is right to allow those who perpetrated these abuses simply to get away with it. If as many as one in eight cases of insured people are untraceable, then something is going wrong on a very big scale indeed. It cannot be satisfactory to leave it at that. The noble Lord gives me a modicum of encouragement in telling me that from now on the FCA is going to intensify the requirements for effective search and that ELTO is going to audit its members. However, if we accept the position as stated by the Minister just now, we will be saying in effect that those generations of people in the insurance market who did not take the basic duty of care that they should have done in relation to the documentation of people who turned out to have contracted this most terrible of diseases should get away with it, I think we should be ashamed of ourselves. I will not say any more about this today and I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, I wish to be brief and I am slightly hesitant about whether I should move the amendment. It was pressed on us by ACOR. It concerns the definition of dependants, and the suggestion is that rather than live with the definition we have, which I think is based on what is set out in the 1979 Act, we should pick up the definition used in the Damages (Scotland) Act 2011, which ACOR suggests is fairer, more flexible and less prescriptive. It includes, for example, siblings, grandparents and grandchildren. It seems to me that this can cut both ways. The wider the group of dependants, the less each will get, although the wider the group, the more likely it is that a dependant will be spotted and available to benefit. On balance, living with the existing definition is probably the better route, but perhaps the Minister will give us the benefit of his wisdom. I beg to move.

[Lord Freud]

My Lords, I think I will treat this as an extremely probing amendment, and in that spirit I am happy to go through our thinking; indeed, there is some value in doing so. The amendment seeks to replace the definition from the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 that we have used in the Bill with the definition of “relative” set out in Section 14 of the Damages (Scotland) Act 2011.

The definition in the 1979 Act provides an order of priority and is not just a straightforward list. In other words, the first dependant on the list is a spouse or civil partner and it is that person, if they exist, who must make the application for a scheme payment. If there is no spouse, the next on the list is a child or children and they must make the application, and so on. The scheme payment would then be made to that applicant or applicants, and it would be up to those applicants if they wanted to share the scheme payment with any other relatives further down the list.

The definition in the 2011 Act is a straightforward list. The effect of the amendment would be that anyone on the list may make an application for a scheme payment. The 2011 list includes some relatives who are not defined as dependants in the 1979 Act. They are uncles, aunts, nephews, nieces, cousins, and former spouses or civil partners. If all these people make an application for a scheme payment, the payment made in accordance with regulations under Clause 4 under the scheme must be divided equally between them. It is right that there is a hierarchy of those who can make an application for a scheme payment as it provides certainty to those who may want to make such an application, and certainty to those administering the scheme who would not be in a position to identify all the other relatives who might want to make an application.

Most applications for a scheme payment are likely to be made by a surviving spouse or civil partner. In these cases, the amendment would dilute the amount available to that spouse or civil partner by compelling the scheme payment to be divided up between other relatives who are less close, either legally or by blood, to the deceased person with mesothelioma. That could mean that a former spouse or cousin, for example, would receive the same amount as the current spouse. Without the amendment, the current spouse would receive the whole payment. I do not think that it is right that a scheme payment should be divided up in this way so that those closer to the deceased person with mesothelioma would receive less in order that a proportion could be paid to more distant relatives.

I can tell that the noble Lord was already concerned about the effects of the amendment. With this explanation, I hope that he will be encouraged to withdraw it and that we will perhaps not see it again.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of and response to the amendment. I beg leave to withdraw it, and I can assure him that he will not see it again; not from us, anyway.