§ 4.27 p.m.
§ Debate on Second Reading resumed.
My Lords, it falls to me to try to pick up the threads of the Bill relating to compensation and recovery. We have had broad agreement on the Government's proposals from all sides of the House. Noble Lords may be relieved to hear that the broad thrust of the proposals is fully agreed by the insurance industry. Perhaps I should add that I have been briefed by the Association of British Insurers.
1216 The need to protect awards for pain, suffering and loss of amenity is also fully agreed by the industry. The additional cost of the Bill to the industry, which is put by the Government at some £50 million and by the industry at between £51 million and £71 million, is accepted. Of course, some increase in the premiums is to be expected.
I wish to discuss two points of contention. First, Clause 2 makes the Bill retrospective. That damages insurers, who cannot charge extra premium for those claims which are currently in the pipeline; that is, between the occurrence and the award. Many precedents exist for a law becoming effective in respect of events occurring after legislation, the latest of which was the Damages Act 1996. That was amended by my noble and learned friend the Lord Chancellor after representation. On behalf of insurers, I wish to ask the Government to reconsider our proposal here and to do the same. I suggest to my noble friend the Minister that it does not follow that after today a new claim will have a shorter life in the pipeline than will an old claim currently going through and awaiting an award.
The second point that I should like to raise is more complex. The changes in the Bill not only ringfence the agreed compensation for pain and suffering and loss of amenity, but also take powers and apparently intend to abolish the small payments limit. It is the industry's contention that not only is the latter unnecessary in order to achieve the Bill's aim but that, rather than assisting the Government to claw back more money, it may actually add overall cost to all parties, including the Government.
Here I believe I should add some more details to explain why the industry takes that view. Although the Government commissioned a compliance cost assessment, its terms of reference were to look at each of the issues separately. If it had had terms of reference which included the need to look at the assessment of the overall result, it might have come to some different conclusions. For a start, the terms of reference did not address the impact of ringfencing those cases of pain and suffering which are currently settled below the £2,500 small claims limit but which will now be paid. The difficulty that arises from that now needs to be reviewed. We believe that the cost of doing so will actually damage the Government's financial recovery. For example—and this has happened since the discussions which the Government had with the industry—there has been a recent sample survey of past claims by a major employers' liability insurer. Looking at past claims, it found that, had they included the present ringfencing for all claims for pain and suffering, including claims under the £2,500 limit, the initial clawback that the Government could have achieved would have been 90 per cent. of all the additional clawback which they currently expect.
There is also the point that claims that are currently settled for the limit of £2,500 may well be suspect as to the actual injury or illness. The noble Baroness, Lady Hollis of Heigham, suggested that many claims are being settled too cheaply. However, the insurance industry suggests that some are settled too expensively because it is not worth the cost of sitting down to argue 1217 the case. If we remove the small claims limit, review in many cases would be inevitable. There is also the point that a number of claims under £2,500 consist of statutory sick pay only where no clawback exists.
Therefore, we have a situation where the compliance cost assessment has already stated that the removal of the small claims limit will add a 50 per cent. increase to the workload of the Compensation Recovery Unit and another 60 per cent. to its costs. We suggest that it will also add to the insurers' costs, as they will then become involved in some of the reviews. Finally, where those findings of below £2,500 are reviewed and then disputed, that will also add to court time and costs.
In our view, the better solution is to ringfence only for pain and suffering and to retain the existing small payments limit. We believe that that will add very little extra administration to the Compensation Recovery Unit; it will avoid extra court costs; and it will also leave insurers with less administration. But, most importantly, it is the pain and suffering ringfencing which will significantly enhance claimant recovery. As the Bill provides only for powers to be taken to remove the limit, insurers ask the Government to seek extra evidence of its effect before considering any implementation. Finally, they ask the Government to reconsider Clause 2 and to amend it in the way recently agreed under the Damages Bill.
§ 4.33 p.m.
§ Baroness Turner of Camden
My Lords, I, too, welcome the Bill, as has my noble friend from this Front Bench and, indeed, other speakers in the debate. I remember very well the discussions that we had in your Lordships' House when debating the Social Security Act 1989. At the time it seemed to me, and to a number of noble Lords on all sides of the House, that it was quite iniquitous to claw back from compensation, which had been awarded because injuries had occurred through negligence—often the employer in the case of industrial injury—the amount paid by way of social benefits.
The Government's argument then was that unless the entire amount of social benefits was recovered people would get double compensation. In fact, as we said then, the benefit being paid was one which had already been paid for via national insurance contributions—in the case of industrial injury back benefit—or by way of taxation. Moreover, it was a no-fault system. Damages paid at common law, however, were paid only if there had been negligence, if the injury had occurred through the fault of another person.
We said that if the Government persisted—as, indeed, they did—situations would arise where an injured person would end up with nothing at all, for if the case took some time to settle, the amount deducted from common law damages would be so much as to nullify the award, even though that award had arisen because negligence had been proven as the cause of the injuries. Indeed, as we have heard, that actually happened. My noble friend Lady Hollis has already cited a number of cases and I also have details of some cases sent to me by the Trades Union Congress. I shall give your 1218 Lordships an example. One individual had been exposed to ammonia gas and was unable to work for the last 22 months before his retirement. His case was settled for £13,000, but his benefit claim of £129 a week began to eat into the claim. Eventually the benefit income caught up with the value of his claim and all the damages were paid to the DSS. That may be rather an extreme case, but it is clear from the information supplied by the TUC that compensation has been cut dramatically in many cases, so that individuals who had quite serious injuries have not received lump sum compensation anywhere near compensating them for the pain, suffering and continuing disability that they may suffer.
It is true, as we have heard, that the 1989 legislation made provision for a threshold. Reclamation of benefits was possible only in legal cases settled above £2,500. But this itself has had a negative effect, and the Minister referred to it as the reason why the threshold does not appear in the present Bill. There is an incentive to settle at a lower rate than the claim may be worth in order to avoid reclamation. Indeed, as we heard, insurance companies often offer payments at the £2,500 level, with the rider that if the settlement is higher, reclamation will erode its value.
On the other hand, the Bill makes provision for a threshold of some sort to be introduced some time in the future. If there is to be a threshold, I believe that we should look most carefully at the £2,500. As I understand it, the view of the TUC is that the figure was set in 1989 and is now rather out of date. It ought to be higher if we are to have a threshold figure at all.
However, as I said earlier, I am disposed to give a welcome to the Bill before the House. At last it is acknowledged that pain and suffering is an element for which there must be compensation and that a common law settlement should not be eroded in regard to any part of it meant to compensate for this. I can well recall that in 1989 we strongly argued that an injured individual was at least entitled to be compensated for the pain and suffering involved in the injury. I am extremely glad that the Government have now seen the strength of that argument.
There is another aspect that I believe to be important and it is one that I am not sure is covered in the Bill. I am talking about prospective loss of earnings arising from an injury. I can well understand, without necessarily supporting entirely, the view that social benefits will already have compensated to some degree for loss of earnings already sustained. But possible future loss, which is not always quantifiable, arising from disability contingent upon the accident is a rather different matter. I hope that the Government will be prepared to consider it.
One of the problems about common law claims for industrial injury is that, generally speaking, the awards tend to be too low. Here I disagree with the comments made by the noble Viscount, Lord Chelmsford, who gave the views of the ABI. Perhaps this is not the place to raise the matter, but I understand that the TUC is already taking it up in connection with other possible legislation. When I was a union official involved with 1219 industrial injury cases, I can well recall that every so often there would be a case with a very large amount of compensation. Of course we made a lot of fuss about it because we were very proud that we had managed to achieve a very high settlement for an injured member. But very often the injuries in such cases tend to be quite horrific; for example, in some cases the individual concerned would not be able to work again. The general level of compensation payments for industrial injuries tend, I believe, to be rather on the low side. The low level of award means that, in general, accident victims could hardly be regarded as being over-compensated, even if no deductions were made for social benefits. Indeed, before we had the 1989 Act, judges had to take into account the amount paid for social security benefits when awarding lump sum compensation. Of course if an individual has private accident insurance, the benefits deriving from that are not considered when assessing common law damages for negligence.
When we discuss the Bill in Committee we shall be able, as my noble friend Lady Hollis has said, to explore a number of possible improvements. As I believe the noble Viscount, Lord Chelmsford, has confirmed this afternoon, it is possible that insurance premiums will increase as additional amounts will now fall to be paid by employers and their insurers. However, that may assist in keeping down the number of industrial accidents, and if that is so, that would be another benefit. Moreover, I remind the Government that when insurance premiums rise they also benefit because they impose insurance premium tax on the industry at the rate of 2.5 per cent., and there will be a corresponding increase to the taxpayer from such revenues.
I am grateful for the explanation that the Minister has given this afternoon on the appeals procedure. I am glad that there is to be an appeals procedure set out in the legislation. Generally speaking, I welcome the new Bill. I hope that we shall soon get it on to the statute book and that during the course of discussion in Committee we shall be able to advance some arguments which could improve it still further for individuals who suffer accidents at work.
§ 4.41 p.m.
§ Lord Mackay of Ardbrecknish
My Lords, as I indicated at the beginning, I thought I was going to be in the unusual situation of introducing a Bill which received a wide welcome throughout the House. At the end of the debate I find that welcome even more surprising. I am particularly glad to see the noble Baroness, Lady Turner, in the Chamber. We have taken part in a number of debates together and I am pleased that the events of the summer have not prevented her from taking part in these proceedings. I look forward to hearing her contribution in the Committee because I know that she has considerable knowledge of these matters gained in her previous career in the trade union movement. The noble Baroness referred to damages for future loss of earnings. They, of course, will be paid in full. The recovery of benefit takes place only up to the point of settlement. The benefit is recovered only between the incident and the point of settlement. Any 1220 money thereafter is not recovered in the way that the noble Baroness mentioned. I hope that I have reassured her on that point.
Some of the points made in the debate are much more suited to the Committee stage of the Bill, as your Lordships will appreciate. If I do not refer to them all, it is because I anticipate we shall discuss them in Committee. The noble Baroness, Lady Hollis, said that the taxpayer had lost out in respect of the current scheme which we introduced in the 1989 Act. Before the 1989 Act the taxpayer did not receive anything at all. Last year the taxpayer received £140 million, and since the Act came into force he has received something like £500 million. That suggests the taxpayer has got at least something out of the 1989 Act which he or she would not have received before. However, as I mentioned, we think that a further sum of about £50 million will also reach the taxpayer as a result of the Bill before us.
The noble Baroness also asked about interim payments. We would seek to recover the benefits paid up to the point of the interim payment. That means that when an interim payment is being discussed or decided the court or the parties have to take account of the fact that recovery will be sought up to that point. I believe the noble Baroness gave an example of a person who needed £3,000 for an operation. Consideration would have to be given to the £3,000 for the operation, plus the benefit recovery up to that point.
I was also asked about contributory negligence and what effect that might have on benefit recovery. We have no plans to take into account contributory negligence. That is a complex issue and we shall no doubt return to it in Committee. We believe that as the Bill is constructed at the moment it will not be a relevant factor in the recovery of benefit.
The noble Baroness, Lady Turner, and my noble friend Lord Chelmsford referred to the small payments limit. We are willing to consider a de minimis small payments limit in future if a good case can be made for one. That is why we have retained the power to set one. However, as I say, we shall have to be persuaded that we ought to introduce some small payments limit to replace the figure of £2,500. I would say to my noble friend Lord Chelmsford that I do not think the ABI has provided any convincing evidence that the compliance cost assessment estimates are likely to prove incorrect as regards revenue because the document addressed the issues of ringfencing and the removal of the small payments limit. It has given the best estimate available for the loss to the industry looking at the whole package and not just at the various parts of it. However, we may return to that matter later. Because of the removal of the small payments limit the Compensation Recovery Unit costs are likely to increase by only £2 million per annum. If one considers the savings I have already mentioned that we believe will accrue to the taxpayer of £50 million from the new scheme, that seems to me to be a reasonable leverage as regards the interests of the taxpayer.
The noble Baroness, Lady Hollis of Heigham, asked me about Clause 31 and its interaction with Clause 2. I said in my opening speech—the noble Baroness can 1221 check this later in Hansard—that the broad intention of Clause 31 is to enable compensation claims determined but not paid before the point of change to be dealt with under the current scheme but in addition to apply new rules to such cases where it is administratively sensible to do so. We may well return to that point in Committee.
The noble Baroness asked me, as regards income related benefits, what happens to a lump sum which is paid in compensation for pain and suffering and for loss of future earnings. She asked whether these amounts of money would be treated as capital and added to any other capital the injured party may have when it is decided whether the individual qualifies for income related benefits. The situation will not change. These amounts of money have always been taken into consideration as regards income related benefits. Compensation awarded for any personal injury, either by the courts or in an out-of-court settlement, can always be placed in a trust for the injured person. The trust can either be set up by the victim or by someone acting on his or her behalf. Placing the payment on trust enables long-term provision to be made for the disabled person's future without the capital affecting his or her benefit. The way round the capital rules is to set up a trust. That is the current position and it will remain the position after this Bill becomes an Act.
The noble Earl, Lord Russell, asked me why the word "may" is used in Clauses 4 and 10 rather than "shall". As I recall from my time in another place, that is one of those questions that occupied committees for many happy hours. Every time "may" was included, Members of another place suggested including "shall" and asked the Government why "may" was used. Every time "shall" was included, they suggested including "may" and asked the Government why "shall" was used. I believe the noble Earl was making a rather more serious point than I am suggesting is often made in such discussions. I am willing to consider the point he has made. No doubt we shall return to it, or we will return to it in Committee.
The noble Earl also asked me—as I expected he would—about any Henry VIII clauses in the Bill. Although I have had the interesting experience this afternoon of discovering that everyone agreed with me as regards the merits of this Bill, I am not being left totally bemused by that in that the noble Earl is chivvying me about Henry VIII clauses. The Bill contains some provisions which would allow modification of the effect of the Bill by secondary legislation, and we have reported that to the Delegated Powers Scrutiny Committee. I look forward to reading what it says.
The powers not just under Clause 16 but under Clauses 14, 16, 18, 19, 20 and 31 allow for modification of an Act of Parliament by secondary legislation. They will be used for only very limited purposes which will be to make special provision for particular 1222 circumstances covered by those clauses. Nevertheless, it is possible that regulations under those clauses may not be able to make sufficient provision for those circumstances without making technical changes to the Bill. I have no doubt that we shall discuss those matters when we have the benefit of the advice of the scrutiny committee.
On the same theme, the noble Earl asked me about the commencement clause and suggested that it is open-ended which might mean that the Bill could wither on the vine. As I said, it is our intention, subject to parliamentary approval, that the Bill should be commenced in October 1997. I see no good reason for delay beyond that point once the Bill is passed. I hope that that assurance from the Dispatch Box helps to persuade the noble Earl that I have no underhand intentions with regard to not delaying the Bill after this House and the other place have passed it.
My noble friend Lord Chelmsford asked me about the provisions in Clause 2 and the retrospective nature of that clause. He asked me to reconsider the matter. I explained in opening that we sought to catch cases in existence as well as new cases at the time of change. If we did not do that, people with similar injuries and similar compensation could walk away from the claims with quite different levels of benefit because of the workings of the two provisions. For that reason, I suggest that we should take the unusual step of making the changes retrospective so that they will catch existing cases going through the pipeline as well as new cases. Therefore, while I understand my noble friend's concern, I hope that he will accept that it is perhaps the only way in which to prevent serious unfairness occurring in the years after October 1987.
It is clear that all noble Lords who have spoken agree with us that we should reform the compensation recovery scheme. The reasons that I gave in my initial speech are the reasons referred to in every contribution that has been made. The first is that in the present scheme, compensation payable for pain and suffering can be eroded, which means that the victim can lose out. All noble Lords agree with me that that is wrong. Secondly, manipulation of the present scheme is taking place around the £2,500 limit which means that the taxpayer is losing out. Therefore, I believe that the case is strong and your Lordships have agreed that the new system will be fairer to the victim; it will enable compensation for pain and suffering to be paid in full; and it will be fairer to the taxpayer by recovering all social security benefits in the cases where compensation is payable. I believe also that it will be fair to business, allowing compensation to be reduced where a corresponding benefit has been paid. I commend the Bill to your Lordships and look forward to the Committee Stage.
On Question, Bill read a second time, and committed to a Committee of the Whole House.