Prisons and Courts Bill (Second sitting)

Debate between Oliver Heald and Chris Philp

Committee Debate: 2nd Sitting: House of Commons
Tuesday 28th March 2017 Public Bill Committees

[Chris Philp]

Q In the absence of any change, what is your assessment of the percentage impact on the average car insurance premium in this country?

James Dalton: It will go up significantly. I think the impact on young drivers is going to be particularly bad, because those are the customers who are most likely to have catastrophic injuries. It is estimated that their premiums could increase by £1,000.

Rob Townend: I will not say a lot that differs from what Mr Dalton has said. We have got to sort out the methodology for setting out the discount rate, because I think nobody would say that it fits the current world, either from an investment return point of view or from the point of view of looking after those who are seriously injured.

The fact that there are so many variations of the potential solution that the Lord Chancellor could have chosen tells you that the mechanism does not work. At the moment, while the consultation is happening, there is a world of uncertainty around what will happen in the future. I think it is in everybody’s interest to get clarity around a longer-term rate that can be as formulaic as possible and looks after the long-term interests of those who are seriously injured while looking at the longer-term investment returns that lump-sum payments can achieve. We just plead that the consultation is got on with quickly. We would love to see the piece of legislation that it could be put into.

Brett Dixon: It is important to understand that you are dealing with issues at two ends of a different spectrum. You are talking about a whiplash claim, and in the same breath, in terms of the discount rate, you are talking about the catastrophically injured person. The important point in relation to that is that, first, the insurers have known for some time that this change was coming. It was long overdue. For a number of years they have made provisions in their own accounts for this, so to suggest that this has come like a bolt out of the blue is disingenuous.

Secondly, the changes are to ensure that a seriously injured person has sufficient moneys available to make provision for their future needs because of somebody’s negligent act. A lot of it is about care. If you are not making sure the person who did the damage is paying via their insurance policy, it will be the NHS and the taxpayer who ultimately have to foot the bill to look after that seriously injured person. What you will not change by changing the mechanism for the discount rate is the fact that that person is seriously injured and needs that care. It is right for society that the person who did the damage should foot the bill, not the taxpayer.

Insurers knew this was coming. I hear a lot of talk about how you cannot buy Government gilts. Because of the mechanism chosen in the Damages Act 1996, the person who is investing their money does so on the basis that they are taking a no-risk investment. That is why that is there. There are no other no-risk investments available. If you want a judge to calculate damages, he has to have a methodology and a starting point.

James Dalton: No one is arguing about whether these claimants need the support that an insurance company is going to provide. No one is saying that these people should get less money. What we are saying is that the formula for setting the rate, which is now 20 years old, needs to be updated to take into account the fact that it is linked to Government bonds and assumes 100% compensation. These things do not just happen in practice.

[Sir Oliver Heald]

Q I do not know if Mr Dixon and Mr Dalton would agree that the Lord Chancellor has had to exercise her duty in a quasi-judicial way under the existing mechanism as it stands. It is right for this to be a consultation about the future, but that was the law. Do you agree?

Brett Dixon: I agree entirely. The Lord Chancellor made the decision that she was legally required to make. She was exercising a quasi-judicial function when we made the reforms, introduced the Supreme Court and made other changes. That role was retained by the Lord Chancellor, even though setting damages is properly a judicial function.

James Dalton: I do not agree. The Government undertook consultation exercises in 2012 and 2013 specifically asking questions around whether the regulatory framework for setting the discount rate was right. Indeed, there is going to be a consultation now asking similar questions. To me, that suggests that the Government do not think that the framework is right. In that context, it also suggests that the decision that the Lord Chancellor has decided to take, based on legal advice, is questionable. I do not think that the way that she has taken that decision is right.