rose to move, That the draft regulations laid before the House on 2 November be approved. First Report from the Statutory Instruments Committee.

The noble Lord said: My Lords, I welcome the opportunity to present this debate on amending the Financial Services Compensation Scheme to help sufferers of mesothelioma to receive more timely access to compensation.

As the House will know, mesothelioma is a cancer of the lining of the lungs or abdomen, which is almost always caused by exposure to asbestos. The Government legislated in the Compensation Act 2006 to help claimants suffering from mesothelioma to obtain the compensation to which they are entitled as quickly as possible. This was achieved through reversing the effects of the House of Lords judgment in Barker v Corus UK and conjoined cases. The Government took the view that the practical effects of that decision would have made it more difficult and time-consuming for sufferers of mesothelioma to obtain full compensation in circumstances where sufferers and their families were already under considerable pain and stress.

The Compensation Act provides that, where a person has negligently or in breach of statutory duty caused or permitted another person to be exposed to asbestos, and as a result that person has contracted mesothelioma, the negligent person will be jointly and severally liable. This will enable the claimant to recover full compensation from any responsible person.

When the change was made in relation to mesothelioma liability through the Compensation Act, an issue arose concerning the Financial Services Compensation Scheme and direct improvements that could be made to speed up access to compensation. The FSCS is an industry-backed fund of last resort relating to financial services products—in this case, insurance. It provides a consumer safety net in relation to financial services and can pay out compensation if a firm is unable or likely to be unable to pay valid claims against it. It is an independent body set up under the Financial Services and Markets Act 2000. The rationale behind the scheme is that it gives people the confidence to invest in and use financial services. It is not a fund to provide general compensation—that would be a fundamentally different compensation scheme.

Following the Government’s decision to reverse the effects of the Barker judgment, the Treasury has laid legislation to allow the Financial Services Authority to make changes to the FSCS to help victims of mesothelioma to receive more timely access to compensation. Broadly speaking, under the proposed changes negligent employers and their insurers who have paid victims of the disease will now be able to claim a contribution from the FSCS in certain cases. This should help to avoid delay in compensation being paid to claimants while the FSCS’s liability is being established. It is also fairer to insurers and responsible persons who, without these changes, would not be able to pay the mesothelioma victim up front and subsequently recover a contribution funded by the FSCS. It is a process change that does not change the overall liability of the FSCS.

The proposals have retrospective effect and allow payment of compensation to a responsible person or their insurer notwithstanding that they have already made a payment to the victim where the application for payment is made on or after 25 July 2006. The Treasury’s powers under Section 3 of the Compensation Act 2006 and the regulations laid before Parliament, provided for in subsections (7) to (11) of that section, are part of the section on damages for mesothelioma. These subsections conferred a power on the Treasury to make regulations about the provision of compensation under the FSCS to a responsible person or an insurer of a responsible person in specified circumstances. Broadly speaking, these regulations include two additional powers to enable the Financial Services Authority to make various rules in relation to the FSCS.

Regulation 2 sets out a power that deals with claims involving insurers subject to insolvency and other defaults that took place before the commencement of the FSMA on 1 December 2001. The power applies where the following conditions are met. First, where a claimant could have claimed under the FSCS order where Section 3(1) of the Compensation Act applies. The power is therefore restricted to claims relating to mesothelioma, because Section 3(1) applies only where a responsible person has negligently or in breach of statutory duty caused or permitted a victim to be exposed to asbestos. Secondly, where the victim has contracted mesothelioma as a result of exposure; thirdly, where it is not possible, because of the nature of the disease and the state of medical science, to say whether this exposure caused the illness; and, finally, where the responsible person is liable in tort for the exposure in connection with the damage caused to the victim.

Moreover, the power to make rules will apply only where and to the extent that a responsible person could claim a contribution from another person who is also responsible for causing damage to a mesothelioma victim under the Civil Liability (Contribution) Act 1978 but is unable or likely to be unable to get a contribution because an insurer of the other responsible person is unable or likely to be unable to satisfy the claim for a contribution.

The regulations also set out various specific situations that can expressly be covered by the FSA’s rules concerning the FSCS. These are that payment can be made under the new rules even though payment has been made to the victim; the value of the payment to a responsible person would not exceed what would have been available to the victim from the FSCS; payments could be made concerning applications made on or after 25 July 2006, which was the date of Royal Assent of the Compensation Act 2006, and, by virtue of Section 16(5) and (6) of the Compensation Act, can cover payments relating to a victim’s claim on or after 3 May 2006. The power also enables the rules to include payments to insurers of responsible persons.

Regulation 3 is in almost identical terms to Regulation 2. The power will allow the FSA to make rules concerning mesothelioma claims where insurers involved enter insolvency or default on their payment obligations on or after 1 December 2001. The only changes are to make the power work in the context of the FSMA generally.

The final provision in the regulations relieves the FSA of the statutory obligation to consult on its rules and any guidance that it publishes on this subject solely for the first time that this power is exercised. However, a joint consultation has in fact been carried out by HMT and the FSA, a summary of responses to which has been published on the Treasury’s website. The proposal was widely supported.

Once the Treasury’s regulations are made, the Financial Services Authority would put the proposed rule changes to its next available board meeting, which is scheduled to be later this month.

In summary, we are making a minor change to the FSCS to allow the Financial Services Authority to make rules facilitating the faster payment of compensation to victims of mesothelioma. This step was required as a direct result of the Compensation Act 2006, but it is none the less an important step in helping victims of mesothelioma to receive timely access to compensation and to make sure that insurers and responsible persons are not prejudiced with regard to the operation of the FSCS. I beg to move.

Moved, That the draft regulations laid before the House on 2 November be approved. First Report from the Statutory Instruments Committee.—(Lord McKenzie of Luton.)

My Lords, I should like at the outset to declare an interest as a director of Hanson plc. It is fairly well known—at least in financial markets— that Hanson has a significant exposure to asbestos litigation, including that involving mesothelioma. I assure the House that that litigation is all in the United States and, to the best of my knowledge, I have no interests that would in any way affect my ability to deal with the regulations. With that clarification of my position, I thank the Minister for introducing the regulations in his usual meticulous way.

The plight of mesothelioma victims is not a matter for party politics. The Compensation Act improved the ability of those victims to gain compensation. The regulations in effect deal with the consequences for responsible persons and their insurers. The approach taken by the regulations has been consulted on, albeit under a shortened period for consultation. However, it seems to us to be a sensible way forward and we will not oppose the regulations.

If I may, I have a couple of questions to ask the Minister. The first relates to the ability of mesothelioma victims to get compensation, depending on the existence of a responsible person. If the responsible person no longer exists or is insolvent, the compensation then potentially depends on the ability to find an insurance contract and, through that, to trace a trail to the Financial Services Compensation Scheme. But, as the Minister will be aware, comprehensive paperwork is not a hallmark of companies that become insolvent or have been wound up, and that may leave victims without compensation. I completely understand that such cases will not impact on the FSCS, which is the subject of the regulations, but can the Minister explain what the Government intend to do about those cases? The document issued at the conclusion of the consultation period referred to the matter being taken up by the Department for Work and Pensions. I was a little puzzled by that, and I hope that the Minister can explain what the Government intend to do for this category of mesothelioma victims.

My second point concerns the statement at paragraph 8.2 of the Explanatory Memorandum that the regulations mean that government departments or former nationalised industries will benefit from being able to claim a contribution from the FSCS. Will the Minister explain how many of the 1,800 or so new cases each year are expected to result in the Government or a former nationalised industry paying compensation that is then recouped ultimately from the FSCS? How much money are we talking about each year? Are the Government, in effect, picking up the ultimate liabilities of the former nationalised industries involved, or are they borne by the industry, which is now in the private sector? In sum, how much are these regulations worth to the Government?

Subject to those points, I repeat that we support the regulations.

My Lords, I believe that I should step carefully when approaching these types of regulations because I feel as though I am going into quicksand. Having said that, I agree with the general thrust of the regulations. It seems that we are trying to ensure that those who have acquired an industrial injury over a long period of exposure receive compensation. However, as has been explained to me by the Minister and by those outside, this is a difficult issue involving an injury acquired over a long period of time and a variable number of employers, some of which may no longer exist. We have therefore had to turn to a special type of regulations to enable the Government to ascertain the chain of employers who are liable to pay compensation and the level of compensation that can be paid to the victims. I think that I more or less have that right—that is, we are enabling payments to be made to people. If I am not right, I will put my hands up.

Can the Government assure us that the element of retrospection required to get these regulations on to the statute book will be regarded as a one-off? If not, questions arise that go beyond this issue. Other than that, I can see no reason for objecting to the measure, as it seems to be a practical way of providing a solution. But, given that the conditions surrounding it are unusual, I should like the Minister to assure us that it will not be normal practice to rely on retrospection to enable something to happen.

My Lords, I thank the noble Baroness, Lady Noakes, and the noble Lord, Lord Addington, for their broad support for the regulations, and I shall try to deal with the points raised. The noble Baroness asked what the Government are doing generally about claims and what work programme is under way. The Government are taking forward a programme of work led by the DWP to improve the handling of mesothelioma claims to ensure that claimants receive the compensation to which they are entitled as quickly as possible. On 20 July 2006, John Hutton announced a number of interim measures to ensure faster compensation payments to those with mesothelioma, as well as the intention to put in place a long-term solution to ensure that, wherever possible, sufferers of mesothelioma can receive compensation in life. He committed to consult stakeholders on a long-term solution.

The DWP launched a consultation exercise to discuss improving claims handling. That consultation closed on 23 November. The DWP is currently analysing the responses and will publish a summary shortly. The DWP is also organising a mesothelioma summit on 13 March 2007 at which stakeholders will discuss options for action following the consultation. Within that process, there will be an opportunity to address the issues raised by the noble Baroness. In a sense, those are outside the specific proposals in the regulations, which are to do with process.

The noble Baroness asked what the measure is worth to the Government. The purpose of the regulations is to put us back in the position that we were in when the Fairchild judgment was operating. Under that judgment, it was accepted that there was joint and several liability in respect of claims. Therefore, the Government are in neither an improved nor a disadvantaged position.

I turn to the comment in the Explanatory Memorandum. Because of joint and several liability, part of the thrust behind the regulations is to avoid payments to claimants being delayed while the question of who owes what is settled. Thus, a person—normally a major employer—can make a payment and will not then be precluded from claiming from the compensation fund, because the fund carries a liability in respect of someone who is jointly and severally liable. To that extent, going back to the Fairchild position neither advantages nor disadvantages the Government.

My Lords, perhaps I may clarify the point that I was trying to make. I understand that, in reversing the House of Lords decision, the Government consider that they are putting themselves back in the same position. But these regulations enable the Government to go into the Financial Services Compensation Scheme. That is paid for by the industry and the Government do not pay anything into it. So we are creating a right for the Government to go into the scheme, and I was merely trying to ascertain how much it is worth to the Government to take the industry’s money.

My Lords, that right is no more or less than the right that claimants would previously have had to go into the scheme. The only difference is that now the Government or an employer are not precluded from paying out the whole amount earlier to the claimant and then recovering the bit that the claimant would otherwise have got from the fund. Prior to the Barker judgment, payments would not be made until it was determined who had what liability, and then the compensation fund would make a parallel payment to the claimant because it was the claimant whom it had to pay. On that basis, the Government are not advantaged or disadvantaged by this measure. The benefit is in getting money into claimants’ hands sooner—not an increased amount but the same amount that they would otherwise be entitled to.

The noble Lord, Lord Addington, asked about retrospection. The House debated this matter as part of the Compensation Act. Here, the purpose of the retrospection is to take us back to the Fairchild position before the Barker judgment changed people’s understanding of the situation. Under the Barker judgment, a liability had to be apportioned and, when there were a number of possible contributors, the timescale involved in arriving at that apportionment could be substantial—again, delaying payments being received by claimants. Therefore, going back to joint and several liability through the regulations generally enables claimants to access compensation sooner than they might otherwise have done. I hope that that has dealt with the point. If not, I shall have another go.

My Lords, I accept what the Government are saying, but my point relates to the fact that this is an unusual and specific process of going back or reversing to make a change. It would be valuable to hear whether the Government see this approach as dealing only with these specific circumstances.

My Lords, I think that the noble Lord has probably answered his own question. It is not usual. These are relatively unusual circumstances. The issue was discussed when the Compensation Act was debated. It is relevant to that rather than to the regulations, which are simply a consequence of that Act.

If there are no further points, I thank noble Lords again for their support, and commend the regulations to the House.

On Question, Motion agreed to.