House of Lords
Tuesday 15 May 2018
Prayers—read by the Lord Bishop of Leeds.
To ask Her Majesty’s Government what assessment they have made of the prospects for a negotiated end to the civil war in Syria that does not involve President Assad.
My Lords, the lack of progress made towards a negotiated settlement in Syria is deeply disappointing. While the opposition has confirmed its readiness for negotiations without preconditions, the Syrian regime has pursued its brutal military campaign and refused to engage seriously in talks. Only a political settlement can bring stability and peace to Syria. The United Kingdom will be pragmatic about the nature of that settlement and we will continue to support the UN process to achieve it.
My Lords, I thank the Minister for that Answer. Our Syria strategy—if we actually have one—is prolonging the civil war, when ending the civil war is the best thing for the poor, benighted people of that country. Our focus seems to have been, from day one, regime change: presumably, not to hand over to the hotchpotch of opposition forces, many of which are worse than Daesh. Our lack of a clear vision has resulted in Russia being the arbiter, massive Iranian participation, Hezbollah, the raising of Kurdish expectations and consequent problems with the Turks. Surely, our aim must now be to put a stop to the war as quickly as possible, accepting that the loathsome Assad is inevitably part of the equation.
My Lords, I agree with the noble Lord that our aim must be to end this civil war as soon as possible. However, I assure all noble Lords that the Government have been and continue to be committed to the UN Geneva process, because it brings together all the Syrian parties required to ensure the stable settlement that we all desire. If we look at what Staffan de Mistura is actually presenting, a whole constitutional commission is proposed, which, yes, includes members of the Assad regime being present. The only reason why that meeting has not been held in Geneva since January is that the Assad regime refuses to engage. We implore Russia, and indeed Iran, to put on the utmost pressure to ensure that the regime takes part in those talks so we can achieve the lasting settlement that I know the noble Lord and all of us desire.
My Lords, why does Her Majesty’s Government’s policy—including funding armed groups and local councils affiliated to jihadists and maintaining a special forces presence in Syria, in breach of international law—demonstrate a commitment to removing President Assad, which can only help ISIS to recover territory? Surely, the priority must be to eliminate ISIS and related terrorist forces from Syria?
I agree with the noble Baroness that this is about eliminating ISIS, which is why the anti-Daesh coalition of 70-plus nations has managed to achieve that in Iraq. I have seen it at first hand myself. However, the perverse ideology of the hijacking of the noble faith remains. Therefore, we must prevent ISIS coming to the fore, not just in Iraq again—we must also eradicate it from Syria. However, I refute totally the allegation that the Government are supporting the regime. We are supporting organisations such as the White Helmets, which provide essential assistance, including sanitation and emergency health provision, to address the civilian population’s needs as a priority. That should be commended, not condemned.
My Lords, what discussions are the Government having with Russia and with President Erdoğan—who is here today—in engaging internationally with the Syrian peace process? What efforts are being made to de-escalate the conflict between Iran and Israel, which is so dangerous right now, in Syria?
The noble Baroness is quite right: Turkey is also a key player in Syria, as we have seen through its engagement in Syria. Wide-ranging talks between the President of Turkey and my right honourable friend the Prime Minister will be under way shortly and Syria will be discussed. The noble Baroness raises an important point about engaging with Russia. As I have said previously from the Dispatch Box, we continue to do so at the United Nations, because they remain an important player. On the engagement of Iran and Israel in Syria, we implore all sides to show restraint. As the noble Baroness knows, we remain committed to the nuclear deal because we believe that to be the best way of ensuring Iran’s continued engagement and of finding a resolution further afield.
My Lords, I support the noble Lord, Lord West, when he says that President Assad is clearly going to be party to the negotiated settlement. I hope that we can avoid saying that individuals should be “held to account”. Although that may be morally and ethically right, it does encourage them to hang on.
We, and the international community, certainly do not want to encourage anyone we feel is not right for the process. Most importantly, anyone whom the Syrian civilians themselves feel cannot lead their country—it is, ultimately, their decision—should not hang on and we should not encourage him. As I have already said, we are not against the engagement of the Syrian regime, led by Bashar Assad, in the UN process, which all parties are signed up to. However, the fact is that they are not engaging in that process. We implore them, and anyone who has influence over the regime, to do so.
My Lords, one key thing is to keep stressing peace talks with no preconditions. That is the clear message that we need to hear from the Government. As the Secretary-General of the United Nations said, evidence shows that gaining territory and seeking to win this war militarily do not work. Will the Minister convey that message to all the parties concerned? Talking is the only way that we are going to achieve a lasting peace.
I agree with the noble Lord. That is why the UN’s efforts have been geared to talks without preconditions, and the opposition voices in Syria have subscribed to that. Equally, the door is open to the Assad regime to participate in those talks. A UN-agreed settlement must be the right way forward, not individual players working out whose interests are best served by the regime continuing. I again implore Russia, and indeed Iran, to do their utmost to ensure that the regime participates in those important talks.
My Lords, in 2002 I attended a reception at No. 10 for Bashar Assad and his wife. They had earlier met Her Majesty the Queen. He took in more than 1 million Sunni refugees from the war in Iraq and was considered an important strategic ally in the Middle East. When he looked like being toppled in the civil war, he suddenly became a monster and his Government a regime. Does the Minister agree that this sort of name calling, of someone who is in effective charge of the country, does nothing to help bring peace to the innocent people of Syria, who are suffering nightmare bombardment from the United States, the UK, Iran, Turkey, Russia, France, Israel and Assad himself?
The noble Lord partly answered his own question with the final point he made: “and Assad himself”. That is when he became the person we, the international community and the Syrian people themselves felt could no longer lead a Government. When you start attacking your own people and using chemical weapons against your own population—I can think of many words the press and others may use, but the fact is that we do not believe he is part of the future. Ultimately, it is for the Syrian civilian residents to decide themselves.
Buses: Wheelchair Users
To ask Her Majesty’s Government what steps they are taking to protect the rights of wheelchair users to travel on buses.
My Lords, the way people travel should not be determined by their disability, and it is vital that bus services meet the needs of all people who wish to use them. Significant progress has already been made on the physical accessibility of vehicles, with 97% of buses now incorporating a wheelchair space. But we must do more. We are supporting mandatory disability awareness training for bus drivers, improving on-board information, and have announced our intention to develop a package of measures to support access to the designated wheelchair space.
My Lords, it is six years since the courageous Mr Doug Paulley was left off the bus and started legal action, without any legal aid, over wheelchair access. It is 16 months since the Supreme Court judgment in his favour. It is eight months since the department’s task force reported, and now it wants a further consultation. Will the Minister give a date for action? How will the priority of wheelchair users be ensured if a buggy user refuses to move? How will priority legislation be enforced, and how will the public become aware? Has the Minister on her travels not noticed that the purpose of wheelchair and elderly priority seats on London buses and trains is widely ignored?
My Lords, I have indeed noticed that, and I acknowledge absolutely that there is frustration over the time it has taken the Government to respond to the Supreme Court ruling that was given in January last year. We know that wheelchair users continue to face unacceptable barriers when using bus services, and we are taking action to ensure that they get access to the wheelchair space. In March, the Government accepted in principle the expert recommendations of a task and finish group we set up on improving access to the wheelchair space, and we will bring forward a package of measures later this year to address the issue. I acknowledge that it can be difficult for drivers to force someone to give up a space, and that is why we are speaking to drivers, parents and other interested stakeholders on how best to address this. One option we are considering is to amend the conduct regulations, but we are also looking at driver guidance and how best to raise awareness of the behaviours expected from other passengers.
My Lords, I had the privilege of being with Doug Paulley in the Supreme Court to hear that court’s judgment, which made it absolutely plain that the easiest way to resolve this problem was to amend the conduct regulations. The Minister’s predecessor, the noble Lord, Lord Ahmad, said at the Dispatch Box immediately after that judgment that the department would look at bringing forward those regulation changes. Sixteen months on, nothing has happened. To start a consultation when the Supreme Court was so clear seems ridiculous. When will the Government bring forward new draft conduct regulations?
My Lords, again I acknowledge why there is frustration on this. As I said, amending legislation is certainly one of the options we are considering. I am conscious that not only wheelchair users rely on access to wheelchair space, and we must make ensure that the approach works for all passengers. We set up the task and finish group to look at this issue and advise us on what measures to take; those experts were clear that the solution lies in a combined approach, including legislation, so as I said, we are looking to amend guidance and influence passenger behaviour. We are working on this and will have a package of measures later this year, which we think will deliver what we need.
My Lords, as the noble Baroness, Lady Deech, will know, the Oxford Tube bus service has an infallible and excellent system for dealing with wheelchair users, and it operates with complete efficiency. Why cannot other bus companies emulate that service?
My Lords, I am pleased to hear of the provision of the Oxford Tube service. For many disabled people, the quality of their interactions with coach and bus drivers will be as important as physical accessibility. Since March, it has been a mandatory requirement for drivers of local and scheduled buses to complete disability awareness training, and we are working with the industry and enforcement bodies to ensure that that requirement is implemented effectively. As I said, we are working on guidance for this training and will certainly look at what the Oxford Tube is doing.
My Lords, although this important work is being carried out, many disabled people rely on community transport schemes. What measures are the Government taking to protect those schemes from the draconian new EU regulations?
I agree with my noble friend that community transport operators provide vital services. We are interpreting the exemptions to the EU regulations as widely as legally permissible within the existing legal framework so that as many community transport organisations and operators as possible can continue to provide their important services. There was a recent debate on this matter in the other place, and my honourable friend the Roads Minister has addressed this issue in detail. I will pass on a copy of his letter to my noble friend and place a copy in the Library.
My Lords, the Minister said that the Government have been working on this issue. For how long, how many staff are working on it and how much time has been spent on it, or is it simply a fig-leaf to cover total inaction?
My Lords, I am afraid that I do not have the exact number of members of staff who are working on this issue. As I said, in March my honourable friend Nusrat Ghani agreed in detail the recommendations of the task and finish group. We are working on this and will continue to do so, and, as I said, we will come forward with a package of measures later this year.
My Lords, I declare an interest in that my eldest daughter had to use a wheelchair for over 20 years. Fortunately, her multiple sclerosis has been treated and she does not use it any more. When she worked with London Buses on wheelchair access, she discovered that you have to be quite sure that the vehicle conforms to a certain weight limit. Manufacturers need to know what that limit is so that they can be sure that their wheelchairs will not break the ramp. If a wheelchair is too heavy, as some motorised ones are, it can cause damage. When my daughter first used one, the driver was very unwilling to take her on the bus, until the noble Baroness, Lady Boothroyd, turned up next to her and said, “Get the ramp out, man”, which he did.
My Lords, I am just sorry that all disabled passengers who travel by bus do not have the noble Baroness there to help them out. The size of wheelchair spaces on buses and the specification of the boarding ramps and lifts are based on the dimensions of an internationally recognised reference wheelchair. I recognise that many people use larger or heavier wheelchairs, which might not easily be accommodated. It would be difficult and complicated to amend the standard so we do not have any current plans to review it, but we will definitely ensure that the information is readily available.
Overseas Development Assistance: Fossil Fuel Subsidies
To ask Her Majesty’s Government how much overseas development assistance was spent on fossil fuel subsidies in the most recent reporting period.
My Lords, the UK does not spend bilateral overseas development assistance on fossil fuel subsidies to benefit consumers. Our assistance helps countries to develop appropriate energy policies, attract private sector investment, and generate clean and renewable energy.
I thank the Minister for his Answer. CAFOD figures released last year for the reporting period from 2010 to 2014 show that at least £931 million of overseas development aid was spent on fossil fuels, rather than subsidies. What plans exist to reduce fossil fuel spending so that this contradiction in DfID policy—fighting climate change on the one hand and worsening it on the other—becomes history?
The noble Baroness makes a good point. As she rightly said, the CAFOD report refers to 2010-14. That precedes the SDGs, which have brought about a whole host of changes in how we promote renewable energy, and another change was the Paris Agreement on climate change. The numbers she referred to also include UK export finance, which supports the UK’s oil and gas industry, but it is not overseas development assistance. We do not use ODA to support fossil fuel subsidies at present.
My Lords, one of the key things is that the CDC has a five-year plan—the Government have ploughed billions into it—and a lot of the existing investments include fossil fuel investment. What is the Minister doing to ensure that, within the CDC’s five-year investment plan, we are not just not investing in fossil fuels but taking a proactive approach to investment in renewables? That is the solution. These countries need energy.
Energy is critical. I want to make absolutely sure that I got out the last words in my previous answer. As I sat down, I referred to fossil fuel subsidies, which the overseas development assistance system does not deal with. The noble Lord is absolutely right: power is incredible. You cannot have economic development at the pace we want to see or, often, the healthcare systems that people need without access to energy. That is why the CDC is right to invest heavily in bringing extra power plants on line. Some 5,000 megawatts that the CDC has invested in is currently under construction or coming online. Overwhelmingly, it is in favour of renewable energy because we believe that, in terms of economic benefits and costs, it provides the best opportunity for developing countries in the future.
My Lords, the UK’s shareholding in the Asia Infrastructure Investment Bank is scored from overseas development assistance funding from DfID. While the bank itself has a strategy of being lean, clean and green, it still invests in fossil fuel projects; granted, not coal, but nevertheless fossil fuels. What is the UK’s position in multilateral organisations that it directly supports where there could well be projects in which, as part of the finance mechanism, there is a subsidy element?
It is a good point. The noble Lord points to the Asia Infrastructure Investment Bank, but there are some tremendous examples. For example, the African Development Bank lent 100% to renewables in 2017. Progress is being made. There is general agreement in the international community that we need to move away from fossil fuels to renewables because that is what the STGs call for—STG7 is about clean and sustainable energy available to all—and what the Paris climate accord calls for.
My Lords, 1.06 billion people on the planet currently live without modern energy services. Renewable energy, particularly small-scale and off-grid energy systems, will play a key role in making sure that energy-poor communities have access to affordable and reliable electricity. DfID’s Energy Africa campaign is an excellent example of this. Will the Minister update the House on the progress of that campaign since its launch in 2015, and elaborate on the Government’s plans for spending on small-scale, off-grid energy systems?
The right reverend Prelate is absolutely right. A lot of the power stations we are talking about are of no benefit to the rural areas in which most of the poor people live because they cannot be cost-effectively connected to the grid. Therefore, solutions have to be off-grid. Energy Africa is a key part of what we are doing but, as well as that, we are launching some exciting programmes for the rural economy in Sierra Leone and there are the CDC investments in off-grid. Off-grid offers tremendous opportunities in getting power to poor people in rural areas and we will continue to invest heavily in it.
Will my noble friend join me in welcoming the UK’s membership of the International Solar Alliance, which was initiated by Prime Minister Narendra Modi and announced during his recent visit to the UK? Will he also welcome the joint infrastructure fund we have created with India with the help of his department?
I will absolutely do that. Solar offers enormous potential. Not only is it a clean energy but, as technology advances, we see the cost of solar tumbling compared to other fuel supplies. The opportunity to achieve economic growth and development and to meet our climate change obligations is immense, and we are delighted to be able to partner other countries in delivering that.
My Lords, organisations all over the world are taking responsibility for their spending on fossil fuels. Will this Government do a full audit of their spending on fossil fuels and their investments—for example, pensions? They could then assess their impact on climate change and air pollution.
This country has done more than most to advance and drive its position towards clean growth. Just last year we had the launch of the Clean Growth Strategy and we put £2.5 billion—a record amount of investment—into innovation and technology that will help us meet those obligations. We have said that coal-fired power stations will be phased out by 2025, so we are doing a lot. Through the International Climate Fund we are doing more for the poorest in our world as well.
Hereditary Peers: By-elections
To ask Her Majesty’s Government, in the light of the Lord Speaker’s announcement of the retirement of Earl Baldwin of Bewdley on 9 May, what is their policy on by-elections for hereditary Peers.
My Lords, we are committed to ensuring that the House continues to fulfil its constitutional role as a revising and scrutinising Chamber effectively, including by working with others in your Lordships’ House to address the question of its size. That policy extends, of course, to any questions on the composition of the House. We should of course also offer the noble Earl, Lord Baldwin, the very best for his retirement.
Well, that was an amiable Answer —but in no sense an answer to the Question that I asked, which was about the policy of the Government on hereditary Peers’ by-elections. Will the Minister confirm that the retirement of the noble Earl, Lord Baldwin, means that a by-election—we shall call it a parliamentary by-election—will be taking place, the electorate for which will be 31 hereditary Peers, and that the list of those eligible to stand as candidates in the election will consist of 198 hereditary Peers, 197 of whom are men?
The Minister is straightforward with this House and he has a sense of humour, so I hope that he shares the view of the overwhelming majority of this House that these by-elections are now beyond satire. They are ludicrous and indefensible. If he does think that—although he keeps his face very straight as he looks at me—I hope that he will be able to announce that the Government will do something popular and announce that these by-elections will be ended by supporting my Bill, and that this by-election, which we will be forced to go through, will be the very last of its kind.
My Lords, the noble Lord’s Bill had an unopposed Second Reading on 8 September and on 23 March useful progress was made in going through the amendments. The Government are prepared to allocate yet further time for the Committee stage of the Bill—a hospitality not normally extended to a Private Member’s Bill, as the noble Lord, himself a former Chief Whip and custodian of Fridays, will know. The use to which the House puts that extra time is a matter for him and for the House.
So far as the by-election is concerned, it will contain, I suspect, the most sophisticated and discerning electorate, comprising 31 Cross-Bench hereditary Peers.
My Lords, should we not merely wish the noble Earl, Lord Baldwin of Bewdley, well, but remember that he was the grandson of one of the greatest peacetime Prime Ministers? As a strong supporter of the Bill of the noble Lord, Lord Grocott, I ask that we reduce at least some of the absurdity of this by-election by allowing all Peers to vote.
My noble friend will know that that is a matter not for legislation but for the Standing Orders of the House. If the House wanted so to do, it could do that without the noble Lord’s Bill or any action by the Government. It is entirely a matter for the Standing Orders of the House, as my noble friend Lord Cope mentioned in one of our debates.
My Lords, this House is involved in very serious business at the moment. It was therefore very good to hear the Minister’s robust defence of the actions that this House has taken in scrutinising legislation and doing its constitutional duty of asking the other place to think again—if it thinks it should do that and it is appropriate. But it is subject to a great deal of criticism for doing that constitutional duty at the moment. Does that not make it much more important and urgent that, at this time, we take action against things that are indefensible, including both the size of the House and the nonsense of hereditary Peers’ by-elections?
The Government are giving a fair wind to this Bill and I can say from the Dispatch Box that the Government have no plans to block it or obstruct it.
My Lords, the Government have the power to take the Bill in government time, which we would greatly welcome. Some 60 years ago there was not a single female Member of your Lordships’ House; things have moved on and improved since then. This year we are celebrating 100 years since women gained the right to vote in general elections. So is it not a deep-set irony that the only place in the UK that will not have elected a woman in a recent by-election is your Lordships’ House? Surely hereditary by-elections have had their time, which has passed and gone. I know that the noble Lord is very good at keeping a straight face on this issue and I admire him tremendously for that—but the time has come for them to go.
I am not sure who put the Equality Act 2010 on the statute book, but it does not extend to the hereditary peerage—that answers the first question. On the second, the House of Lords Reform Act went on to the statute book in 1999. The Labour Government had 11 years with substantial majorities in another place in which they could have addressed this anomaly. It is a little unfair to criticise this Government for not making it a priority.
My Lords, while there is room for more than one point of view as to the merits of the Bill introduced by the noble Lord, Lord Grocott, would it not be better to wait for the outcome of the proposals from the noble Lord, Lord Burns, before we decide how to proceed in this matter? In the meantime, I agree with the suggestion that the by-elections should be made all-House by-elections, not narrowly defined ones as at present.
As I said in response to an earlier question, the latter issue raised by my noble friend would be a matter for the House and does not require legislation. The Burns commission looked at this issue, but because it requires legislation did not directly address it. However, the Burns report did point out that, without action, the hereditaries would account for a growing proportion of a smaller House and that it would pre-empt the ability, particularly of my party but also of the Cross-Benchers, to nominate new Peers if spaces were occupied by the winners of hereditary by-elections.
My Lords, in addition to the very formidable arguments advanced by the noble Baroness, Lady Hayman, the Minister has just touched on an extremely important and urgent issue. Unless action is taken to finish these by-elections, we will have continual problems with the two-out, one-in policy that is absolutely critical to making progress on the Burns recommendations. This will affect the Conservative Benches and the Cross Benches in particular. Can the noble Lord not only give us an assurance that the Government will urgently find time for the Bill introduced by the noble Lord, Lord Grocott, but tell us that they will support it?
I have said that I will not obstruct it, which I think is of some reassurance. On the two-out, one-in policy, since October last year some 15 noble Lords have taken voluntary early retirement: eight from my party, four Cross-Benchers, two from the Labour Party and one from the DUP. The Liberal Democrats have scored nul points. By any reckoning, they are the most overrepresented group in this House and they should be leading the resignation field instead of being stranded at the starting post.
Follow that, my Lords. I beg leave to ask a Question of which I have given private notice.
Private Notice Question
To ask Her Majesty’s Government what measures are in place to ensure the safety and well-being of asylum seekers during periods of detention in the prison system and during their removal from the United Kingdom.
My Lords, the dignity and welfare of those in our care is of the utmost importance and we accept only the highest standards from those who manage the detention estate. Detention and removal are essential parts of effective immigration controls and it is vital that they are carried out with dignity and respect. We are working with our new escorting contractor, Mitie Care and Custody, to ensure that appropriate focus is placed on welfare considerations during removal from the UK.
My Lords, this Question is prompted by a report from Her Majesty’s Chief Inspector of Prisons, which related that there were 80 staff members on a flight organised by a subsidiary of Capita in which 23 asylum prisoners were being deported, 22 of whom were placed in waist restraints that were neither necessary, proportionate nor reasonable, in the inspector’s view. Bad language was used and the only female detainee was forced to use the toilet with the door open. How many more cases of mistreatment of prisoners and asylum seekers by the private companies engaged by the Ministry of Justice and the Home Office to run our prison and asylum services will Her Majesty’s Government tolerate before terminating their contracts and taking the service back in-house?
My Lords, I stress that the Government do not have a dogmatic approach to contractors where private is bad and public, or in-house, is good. It is important that the companies that we contract with meet the standards that we set when we engage them. A service improvement plan will be issued shortly. All escorts are fully trained in HOMES techniques—that is, the Home Office Manual for Escorting Safely—and they undertake regular refresher training courses. For the new contractor, which started on 1 May, we will revisit some of the assessment processes and the use of de-escalation techniques.
My Lords, have we forgotten Jimmy Mubenga? The coroner who inquired into his death during his removal recommended that the Home Office and the Ministry of Justice,
“rigorously review the approved methods of restraint, and specifically the use of force in overseas removals”,
“appropriate techniques and bespoke training packages”.
The Minister just mentioned training but it does not sound as though it has taken. In this case, the Chief Inspector of Prisons said:
“What we found was pre-emptive and excessive use of restraints that was indicative of poor operational practice and inadequate management”.
Will things change?
The noble Baroness will appreciate that I will not talk about individual cases, but she is absolutely right that the dignity and welfare of all people in our care is of utmost importance. Physical force should be used only after a thorough risk assessment and in consideration of each individual’s personal circumstances. Restraints should be removed at the earliest opportunity. Home Office contractors, including escorting staff, are expected to behave in a professional, calm and measured way at all times. The Home Office uses all reports resulting from use of force monitoring reviews to ensure that techniques are used proportionately, are justified and are used for the minimum period required. As I told the noble Lord, Lord Beecham, a review of dynamic risk assessment processes and the use of de-escalation techniques will be undertaken by the Home Office and the new escorting provider.
My Lords, does the Minister accept that there is a much wider issue here? The ability to remove immigration offenders, including failed asylum seekers, is vital to the credibility of the entire immigration system. None of that excuses some of the behaviour in the report, as referred to by the noble Baroness, Lady Hamwee, but let us keep our eye on the ball. There is a wider issue here, but we need to clean up the actual mechanics.
The report in question focuses on third country removal charter flights, but the noble Lord is nevertheless absolutely right that while people should be treated properly and humanely, with risk taken proportionately, we have to ensure immigration removal for those who should not be here.
The noble Baroness told us in answer to the question from the noble Baroness, Lady Hamwee, that there is an automatic reporting system when force is used. In the cases that have come to light from Her Majesty’s inspectorate, how many of those reports of force being used were received by the department and was the force considered proportionate by the department? What does the Home Office do when it receives these reports?
The noble Lord will know that the report was produced just today. On the proportionate use of force, I have recognised that use of de-escalation techniques will be reviewed. That will be undertaken by the Home Office and the new provider. I do not have the numbers before me but I can certainly ask and get them to the noble Lord.
My Lords, Her Majesty’s inspector’s report says:
“Clearly, some senior-level intervention is required to ensure that the situation is rectified without delay”.
Who is the most senior person in the Home Office dealing with this? What criteria have been laid down for the new provider, which will be signed off by that senior person, to ensure that this can never happen again?
The noble Lord is absolutely right to point out that this sort of thing should never happen again. I assume the most senior member is the most senior management person within the detention estate who organises these things. I do not have that sort of detail before me. I hope the noble Lord will appreciate that I have had very short notice of this Question. I am not trying to avoid his question. I will get back to him in writing.
My Lords, that exchange of questions illustrates perfectly the point I want to make. This is yet another example of the incompetence of the Home Office in not being able properly to supervise the performance and activities of its subcontractors. This is not a major management problem. If the Home Office really cannot manage that then truly, as a noble Lord who is a former Home Secretary said, it is not fit for purpose. What is it going to do about it?
I just explained that a service improvement plan will be released very shortly. We always have to learn from events such as this and make sure that we improve our processes and treat people properly.
My Lords, what arrangements are there so that when someone is deported to another country they will be welcomed or at least have some sort of support when they get to their new destination?
It might be helpful to the noble Lord if I say that the individuals we are referring to in the report are third country removal individuals on charter flights back to countries in Europe. These people are from all over the world. They came to Europe using the Dublin regulations but they have found themselves here. I do not think that the question that the noble Lord asks is particularly relevant to this situation.
My Lords, would the Minister agree that this case supports why we need to develop alternatives to detention as a matter of priority?
The right reverend Prelate is absolutely right that detention is used only when all other methods of removal have failed. Detention should be used rarely, not commonly. It is not used where someone willingly leaves the country.
My Lords, given the questionable reputation of the Home Office on these issues going back many years, many of us would question whether its review of procedures that the Minister mentioned will be independent. Would it not be better if a more independent body did these reviews, maybe including Her Majesty’s inspectorate?
That is a very apposite question. In fact, we will work with HMIP to scrutinise, first, what happened and, secondly, how things can be improved.
Draft Health Service Safety Investigations Bill Committee
That the Commons message of 17 April be considered and that a Committee of six Lords be appointed to join with the Committee appointed by the Commons to consider and report on the draft Health Service Safety Investigations Bill presented to both Houses on 14 September 2017 (Cm 9497) and that the Committee should report on the draft Bill by 24 July;
That, as proposed by the Committee of Selection, the following members be appointed to the Committee:
Billingham, B, Chisholm of Owlpen, B, Eaton, B, Elder, L, Kirkwood of Kirkhope, L, Watkins of Tavistock, B.
That the Committee have power to agree with the Committee appointed by the Commons in the appointment of a Chairman;
That the Committee have power to send for persons, papers and records;
That the Committee have power to appoint specialist advisers;
That the Committee have leave to report from time to time;
That the Committee have power to adjourn from place to place within the United Kingdom;
That the reports of the Committee from time to time shall be printed, regardless of any adjournment of the House;
That the evidence taken by the Committee shall, if the Committee so wishes, be published; and
That the quorum of the Committee shall be two.
Secondary Legislation Scrutiny Committee
Delegated Powers and Regulatory Reform Committee
Secondary Legislation Scrutiny Committee
That Lord Chartres be appointed a member of the Select Committee in place of Baroness Watkins of Tavistock, resigned.
Delegated Powers and Regulatory Reform Committee
That Baroness Andrews be appointed a member of the Select Committee in place of Baroness Dean of Thornton-le-Fylde, deceased.
European Organization for Astronomical Research in the Southern Hemisphere (Immunities and Privileges) (Amendment) Order 2018
Motion to Approve
That the draft Order laid before the House on 29 March be approved. Considered in Grand Committee on 9 May.
Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018
Renewable Heat Incentive Scheme Regulations 2018
Motions to Approve
That the draft Regulations laid before the House on 7 February and 19 March be approved.
Relevant document: 21st Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 9 May.
My Lords, with the leave of the House, I shall repeat in the form of a Statement the Answer to an Urgent Question asked in the other place on the violence at the Gaza border and its impact on the Middle East peace process. The Statement is as follows:
“As I said in the statement I put out from the FCO yesterday, the violence in Gaza and the West Bank has been shocking. The loss of life and the large number of injured Palestinians, including children, are tragic, and it is extremely worrying that the number of those killed continues to rise. Such violence is destructive to peace efforts.
We have been clear that the United Kingdom supports the Palestinians’ right to peaceful protest. It is deplorable, but real, that extremist elements have been exploiting these protests for their own violent purposes. We will not waver in our support for Israel’s right to defend its borders, but the large volume of live fire is extremely concerning. We continue to implore Israel to show greater restraint.
The UK remains committed to a two-state solution, with Jerusalem as a shared capital. All sides now need to show real leadership and courage, promote calm, refrain from inflaming tensions further, and show with renewed urgency that the path to a two-state solution is through negotiation and peace.
We agree with the UN Secretary-General’s envoy that the situation in Gaza is desperate and deteriorating, and that the international community must step up efforts. We call on the UN special representative of the Secretary-General to bring forward proposals to address the situation in Gaza. These should include easing the restrictions on access and movement, and international support for urgent infrastructure and economic development projects. We also reiterate our support for the Egyptian-led reconciliation process and the return of the PA to full administration of the Gaza Strip.
We must look forward and work urgently towards a resolution of the long-standing issues between Israel and the Palestinian people. Now more than ever, we need a political process that delivers a two-state solution. Every death and every wounding casts a shadow for the future. The human tragedies should be used not as more building blocks for immovable positions, which will lead inevitably to more confrontation, but as a spur for urgent change. Yesterday’s tragedies demonstrate why peace is urgently needed”.
My Lords, all our thoughts are with those Palestinians in Gaza whose loved ones have been either killed or injured as a result of IDF action. During subsequent questions, Alistair Burt appeared to support the Secretary-General’s call for an independent and transparent investigation of these actions. He said that a team at the United Nations was working to find the right formulation, bearing in mind that a Kuwaiti attempt failed because it set out to apportion blame. What timescale are the Government working to in respect of a United Nations response, because it is clear that these matters need urgent and independent investigation?
My Lords, as my right honourable friend Alistair Burt said in another place, the United Kingdom Government support an independent and transparent process to establish exactly what happened, including why such a large volume of live fire was used. Given the importance of accountability, we want this to be both independent and transparent. On timelines, this is a UN process which needs to be agreed by all relevant parties. As that is updated, I shall inform the House and the noble Lord.
I associate these Benches with the thoughts expressed by the noble Lord, Lord Collins, about those killed and injured. Under international law, firearms can be used only to protect against imminent threat of death or serious injury. Does the Minister agree that firing on unarmed civilians in Gaza, often at a great distance, must be fully and impartially investigated and that if the law has been broken those responsible must be held to account? His right honourable friend Alistair Burt, the Minister for the Middle East, referred earlier today to the “hopeless” and “desperate” conditions in Gaza. Does the noble Lord agree that the United Kingdom should give some glimmer of hope to Palestinians held in such conditions by recognising the state of Palestine?
My Lords, first, of course, I associate myself with the sentiments of the noble Lord and the noble Baroness. Our thoughts and prayers are with all the victims of the tragic deaths that have taken place. That said, on the issue of live fire, as I said in my opening remarks, we continue to implore the Israeli Government, while we respect their right to defend their borders, that the use of live fire should be considered only as a last resort. Indeed, this has been consistently mentioned at bilateral meetings directly with the Israeli Government.
The noble Baroness referred to the sentiments expressed by my right honourable friend in the other place. I visited both Israel and the Occupied Palestinian Territories a few weeks ago and saw why it is very important that we make progress. As for providing hope, of course we continue to support UNRWA’s efforts to ensure that medical aid and assistance reaches Palestinian communities in Gaza and the West Bank. That is why we are supportive of Egyptian efforts to bring greater peace and reconciliation in Gaza and it is why we welcome the opening of the Egyptian border for a few days to relieve some of those efforts.
My Lords, I remind the House of my interests as declared in the register, especially as president of Medical Aid for Palestinians. The World Health Organization has said that the injuries sustained in these appalling events in Gaza are comparable to wartime situations. There are desperate shortages of drugs and equipment at the moment in Gaza. What are the Government doing to help alleviate this desperate situation?
Let me assure my noble friend, as I said in my previous answer, that the UK is a long-time supporter of UNRWA’s efforts in this. Indeed, we are committed to continue our funding, which does provide those very basic services that my noble friend has just referred to. It provides basic healthcare to 1.3 million people in Gaza, and I assure my noble friend we are also supporting humanitarian access, which enables basic reconstruction efforts in Gaza as well.
My Lords, I am grateful to Her Majesty’s Government for the careful yet very specific response they have given to the appalling loss of life at the border between Gaza and the state of Israel yesterday. The thoughts and prayers of this Bench are with all those affected. It is good to know that the Minister supports an independent review of what happened. At the same time, will the Minister agree that, while the United Kingdom recognises the integrity of the border—and, indeed, of all Israel’s pre-1967 borders—and the security of Israel’s prosperous and pluriform society, the defence of its interests must offer tangible hope to those with whom it hopes to engage in dialogue? The phrase, “a glimmer of hope” was mentioned a moment ago. I was in Gaza about four years ago. The situation then was desperate and deteriorating. It is infinitely worse now. What real, substantial hope can be given to those who live in what is effectively a vast open prison?
My Lords, that is why the United Kingdom Government, let me assure the right reverend Prelate, are committed to ensuring humanitarian access, as I have said already, and equally firmly convinced that the only way to bring that ultimate hope both to Israel and to the Palestinians is through a two-state solution. We continue to implore both sides that, now more than ever, it is required that they come to the table and that we see that lasting peace that we all desire.
My Lords, does the Minister remember that the living hell that is Gaza and the creation of Hamas itself are due to successive Israeli Governments, and that the offer from Hamas consistently over recent years of a 10-year truce in return for the lifting of the siege on Gaza has been totally ignored? When will he persuade our partners in the international community and the Government of Israel to consider this offer?
My Lords, ultimately it is for both parties to come to the table. The noble Baroness mentioned Hamas. A positive step forward would be for Hamas to recognise the right of Israel to exist. It has repeatedly failed to do so. That would be the most progressive step and a step forward in that process.
My Lords, I declare an interest as a former chairman of Medical Aid for Palestinians. Two days ago, we could not have imagined that 58 people would be shot, 2,000 civilians would be injured and explosive bullets—it is alleged—would be used. It is absolutely appalling. Frankly, for the Government simply to say that they are concerned is pathetic. In the face of that, they should condemn it and call for an immediate investigation, particularly into the nature of the ammunition used.
As I said earlier, we continue to implore the Israeli Government to restrain themselves from the use of live fire. I assure the noble Lord that, when I and my right honourable friend Alistair Burt meet the appropriate Israeli Ministers, we continue to call for that very approach of ensuring that alternative methods to the use of live fire are considered. On the noble Lord’s second point, of course we have already associated ourselves with calls for an independent investigation.
My Lords, the noble Lords, Lord Campbell-Savours and Lord Blunkett, can choose who is going to speak next.
The Liberal Democrats asked a very simple question: if international law was broken, should legal action be taken? Can we have an answer to the Liberal Democrats’ question?
That will be a matter for the independent investigation. Of course, the investigation will look at the principles of international humanitarian law and then report back appropriately. That is why we are supportive of this transparent and independent process.
My Lords, at the core of the Jewish religion, as with other religions, is the importance of the sanctity of life—“Kiddush HaShem” in Hebrew. I therefore mourn any loss of life. It is easy to blame one side or the other without having facts. I will give your Lordships just one fact. Yahya Sinwar, the leader of Hamas in Gaza, stated just last month:
“We will take down the border and we will tear out their hearts from their bodies”.
Also last month, Israel destroyed the largest and deepest Hamas tunnel into the territory. Will the Minister join me in condemning all violence, as well as Hamas’s continued development of its underground terror structure, its use of Palestinian civilians as human shields and deliberately sending its own people towards the border fence into danger?
My Lords, I am sure I join all noble Lords in condemning violence and the loss of innocent life anywhere in the world. We must now see progressive action to ensure that the lives that were lost recently were not lost in vain.
Smart Meters Bill
1: After Clause 1, insert the following new Clause—
“National Plan for Smart Metering
(1) Within one month of the passing of this Act, the Secretary of State must publish a National Plan for Smart Metering.(2) The National Plan must show clearly how all the objectives of the smart metering implementation programme will be delivered, and must specify an appropriate termination date.(3) When preparing the National Plan, the Secretary of State must consult—(a) OFGEM;(b) District Network Operators (DNOs);(c) The Data Communications Company;(d) energy suppliers;(e) consumer interests bodies;(f) Smart Energy GB;(g) the National Audit Office; and(h) such other relevant bodies as may seem appropriate.(4) The National Plan must respond to key findings and recommendations made by annual NAO reports on the smart metering programme and outline how the Secretary of State plans to respond to recommendations made by the NAO including but not limited to— (a) measures to reduce costs of the smart metering implementation programme;(b) measures to maximise the likelihood that smart meters will achieve their intended long-term benefits;(c) measures for improving the take-up of smart meters.(5) The National Plan for Smart Metering must set out the progress made to carry out obligations undertaken by the licensed energy suppliers and their associated organisations to deliver all the objectives of the smart metering programme and must include, but is not limited to—(a) a detailed specification for the functionality and performance required in each meter, so as to ensure reliable service life, ease of installation and maintenance, appropriate inter-operability, future upgrading capacity, and removal and safe disposal of obsolescent equipment;(b) an assessment of the future developments thought feasible and desirable for the smart meter programme, including monitoring of customer activity so as to deliver least cost tariff benefits combined with the maximum ability to engage with future appliance applications, inter-operability, compatibility with smart phones and tablets, and the encouragement of self-generated capacity in the home;(c) an assessment of the potential of smart meters to be the gateway to additional domestic energy efficiency measures;(d) an analysis of technical developments to provide alternative solutions for Home Area Network (HAN) connections where premises are not able to access the HAN using existing connection arrangements;(e) an assessment of the most effective way of dealing with the inclusion in the programme of hard-to-reach premises and multiple-occupancy dwellings;(f) an assessment of alternative delivery arrangements as between energy suppliers and DNOs which might increase the effectiveness of roll out solutions over time.(6) The National Plan for Smart Metering must set out detailed targets for each quarter of each year for each energy supplier in pursuit of the objective of complete roll out of smart meters by an agreed termination date.(7) If by 31 December 2018 fewer than 500,000 SMETS 2 are in operation in homes and small businesses across the United Kingdom, the planned roll-out of smart meters must be halted until such time as the Secretary of State has considered the effectiveness and efficiency of the plan, its realistic completion date and the costs required to complete the plan, and has made a statement to Parliament together with a revised programme for the completion of the roll out.(8) The Secretary of State must publish the National Plan for Smart Metering by 31 December 2018.(9) After due consideration and consultation, the Secretary of State must in regulations made by statutory instrument specify the final version of the National Plan for Smart Metering.(10) A statutory instrument containing regulations under this section may not be made unless a draft of that instrument has been laid before, and approved by a resolution of, each House of Parliament.(11) The Secretary of State must report annually on the extent to which the National Plan for Smart Metering is being delivered, in line with the termination date.”
My Lords, the Bill is a largely technical Bill, introducing three elements, namely: extending the Government’s powers; introducing a special administration regime for the national smart meter communication and data service provider, the DCC; and providing powers for Ofgem to deliver half-hourly settlement using smart metering data. By and large, these elements have been critically examined in the other place, as well as in your Lordships’ House. We do not particularly take issue with these measures but we recognise that Ofgem’s monitoring and powers over pricing should enable adjustments to make the possibility of a special administration regime extremely unlikely. It is fair to say that we remain concerned that consumers could ultimately pay the price either way.
However, on the analysis of the present circumstances in the rollout of smart metering, the programme is to a large extent in disarray, with enormous confusion and uncertainty in the marketplace. This inevitably leads to reticence and a lack of confidence in the mind of the consumer. We continue to highlight this in our Amendment 1 today. The technical nature of the Bill belies its national importance; it deals with critical national infrastructure, whose modernisation is crucial. We agree with the Minister that the large-scale rollout of smart meters across the UK by 2020 is a substantial technical, logistical and organisational challenge. Everyone is clear that meeting that challenge depends on collective and co-ordinated delivery. In Committee and in subsequent discussions, the Minister has been emphatic that the programme should be led by government. We have therefore altered our amendment and recognised that Ofgem has a different role to play.
The amendment puts the challenge to the Government to provide the leadership. We still believe that a national plan is required. The Government may challenge our diagnosis and claim that they have a high-level plan. However, the perception in the marketplace is very different. The mixed message—on the one hand that the consumer needs only to be offered a smart meter while, on the other, that smart meters need to be installed to a rollout target programme—has not been helpful. We need technical difficulties to be resolved, solutions to be promoted and accountability to be put into the hands of government to make this infrastructure upgrade the success that it needs to be.
The main elements of the amendment remain from our Committee discussions. The Government must galvanise the situation and be seen to be guiding the process: taking ownership of the issues, building ambition into the programme to deliver benefits and putting the consumer in control of their energy use, so that they become more informed and efficient and save themselves money. We have also put a check into the process by the addition of a subsection in our proposed new clause such that should fewer than 500,000 SMETS 2 meters be installed by the end of the year, a review and reassessment must take place. The challenge of careful management is herein included.
Energy efficiency is a crucial element of enabling the UK to meet its energy demands. The achievement of this must be put into the hands of consumers, through the transformation that smart meters will bring to their lives. A smarter, sensor-enabled network would be able to assess live power demand and current usage, transferring power from place to place as needed, reallocating or postponing charging times automatically and potentially allowing the UK to identify the ultimate source of the power through a modern, decarbonised energy mix.
Electrification is still essential to meeting long-term emission targets. It is clear that upgrades to the power network through renewables, storage and additional investment in household-to-grid infrastructure are all crucial elements. This amendment will bring visibility to the process and place responsibility in the hands of the Government. I beg to move.
My Lords, I support this proposed new clause on the national plan for smart metering, to which I have added my name. As I said in Committee, I came to the smart meter table relatively late, far more recently than most of your Lordships, who seem to have been debating it in one form or another for some years. I was shocked at the seemingly piecemeal way it has evolved, as if it were not one of the major infrastructure projects of this century, which it is. As a consequence of this approach, I have seen a lack of vision, scale and form, which is why this project has been so poorly executed. I was astounded to find that the suppliers were to be the agents of change; I did not understand why it was not the distributors.
However, we are where we are, as they say, so this new clause is proposed to give the opportunity for the rest of the scheme to be conducted in a far more responsible and farsighted way. It would allow the Government and all the players to ensure the best way forward and to deliver certainty and security for consumers, who have been expected to change—we know how difficult change is—but then have heard conflicting and different advice at different times from different people.
The proposed new clause would make sure that all parties are involved; it puts in metrics, targets and incentives to maximise take-up. It makes tracking progress on those tasked with delivering the objectives of smart meters and details what that will require. It would make sure that everything is properly reported, measured and documented. At last, we might actually have a critical path and a critical path analysis from which to work.
The proposed new clause would put this massive civil infrastructure project on a certain basis; it provides certainty for the consumer and a more sure and stable critical path for providers and all those participating in the rollout and beyond. As the noble Lord, Lord Grantchester, said, that is central to all our commitments on energy and energy efficiency in the future.
I very much hope that the Government will take a deep breath and graciously accept that they need help, and that the national plan would be a sensible and professional way forward.
My Lords, I support Amendment 1 in the names of the noble Lord, Lord Grantchester, and my noble friend Lady Featherstone, and I should also like to speak to my Amendment 2.
It is important to remind the House that this is an £11 billion programme; it is one of our major national infrastructure programmes, started in concept when I joined the House in 2006. It is now 2018—12 years later—and all of 300 meters have been installed, but we are not sure whether they work. There are another 10,000 which do not comply with the final regulations that we are trying to achieve—that is another potential problem for the future.
The one person I have really missed in this debate is Lord Patrick Jenkin on the Government Benches. He was one of the great analysts who brought together the real facts of a case, and we miss his presence.
One concern I had in Committee was prompted by my noble friend Lady Featherstone, who spoke very cogently of how, when the congestion scheme in London was rolled out, huge testing was carried out to make sure that the system worked when it was launched and that it was effective from day one. Yet when I asked the Government about their tests for SMETS 2 meters and their systems to ensure that the machines were ready for the massive rollout of 50 million meters by 2020—it is almost amusing to say that date—I got no response. The Minister looked at me as if to say, “What are you talking about?” It seems that there is no bar that has to be crossed—there is no test before we roll out these additional 40 million meters, supposedly over the next couple of years.
That is why I tabled my amendment: to tease out from the Government how they will meet the amazing timescale that they are giving themselves. It is ironic that, in Committee, the noble Lord, Lord Grantchester, tried to push the programme back, and we agreed with him that it was better to make it realistic, rather than impossible. We were trying to give the Government a chance to meet targets rather than miss them, as they are clearly going to.
My amendment asks the Government: what is your testing regime? Tell us the criteria so that we can be certain that, as the remainder of this £11 billion programme rolls out, we will have something that works. At the moment, the evidence says that it does not, or that it operates very imperfectly.
One of the main messages that has come over to me during the passage of the Bill is the total confidence of the Government that this programme will roll out on a timescale decided many years ago by 2020, whereas everyone else—the industry and the rest of the House—are saying that it is impossible to meet the targets.
We must move forward. Most of the clauses of the Bill are good and I would not want to get in their way, but we say to the Government, “Okay, you’ve said it’ll work. Get on with it. Good luck, but the rest of the House thinks that you haven’t got a chance”. I rest my case.
My Lords, subsection (5)(b) of the new clause proposed by my noble friend states:
“an assessment of the future developments thought feasible and desirable for the smart meter programme, including monitoring of customer activity so as to deliver least cost tariff benefits combined with the maximum ability to engage with future appliance applications, inter-operability, compatibility with smart phones and tablets, and the encouragement of self-generated capacity in the home”.
I shall concentrate on the word “interoperability”, which I raised in Committee.
I was with some friends last weekend and we had a discussion about smart meters. The general view was that the problem with them is that you cannot switch suppliers. Although we are assured by Ministers that we can switch suppliers, the public believe that that is impossible without losing some information. My friends said that some suppliers refuse to have anything to do with the meters provided by others.
We need today from the Dispatch Box an undertaking that under whatever arrangements are ultimately in place, there will be absolute interoperability whereby, whoever is the supplier, the meter will work and provide information on the number of units consumed, the price per unit and the total paid to that point for the power consumed. The public need the assurance that if they get a smart meter, they can switch between suppliers quite liberally without losing any of the facilities available from an existing meter. I would like that assurance from the Dispatch Box, because I am sure that it would resolve many of the existing concerns in the country on the failure of the equipment to be interoperable.
My Lords, I thank the noble Lord, Lord Grantchester, and other noble Lords for introducing their amendments. I think that it was the noble Baroness, Lady Featherstone, who said that she came late to this debate. That is true of a great many of us—but she is right to say that it has been going on a long time, through a Labour Government, the coalition Government and now under this Government. I believe we are making progress, and I want to correct the noble Lord, Lord Teverson, who implied that only about 300 smart meters had been installed. I hope that was just a slip of the tongue and he was just referring to SMETS 2. As he is aware, some 10 million smart and advanced meters are operating across Great Britain, which are being installed at a rate approaching 500,000 a month—and I hope that figure will go up, as all those first-generation meters are expected to be enrolled within the national infrastructure from later this year.
I also thank the noble Lords, Lord Grantchester and Lord Stevenson, the noble Baroness, Lady Featherstone, and the noble Lord, Lord Teverson, for the way they have co-operated on this Bill, and the constructive approach they have taken to its scrutiny. I hope that, as a result, we will fairly quickly be able to move on to other matters and then, once the legislation is finished with, get on with the programme and meet the aims shared by the noble Lord, Lord Teverson, and I. We have heard concerns about how well the smart metering programme will deliver benefits for consumers. I hope that in due course we will be able to address the point made by the noble Lord, Lord Campbell-Savours.
I am convinced, perhaps because I am one of those eternal optimists, that the programme will be a success. The noble Baroness, Lady Featherstone, smiles at me because she thinks I am too much of an optimist—or too much of a Tigger—in these matters, but it is better to be a Tigger on this occasion than an Eeyore. I shall continue to do so, and I hope the noble Baroness will accept that progress is on the way.
I recognise the spirit in which the amendments have been proposed. While I cannot accept them, I want to set out several commitments that the Government are making, which I hope will address noble Lords’ concerns.
I turn, first, to the amendment moved by the noble Lord, Lord Grantchester, which would require the Secretary of State to establish and put into regulations a national plan for smart meters with associated implementation requirements. We believe we have the right strategy in place for ensuring that the smart metering programme is delivered cost-effectively and that consumer benefits are optimised. The Bill, in seeking an extension to the duration of the Secretary of State’s regulatory powers, recognises that the Government are accountable for delivering the benefits of smart metering and that we need to maintain close oversight of implementation.
There are various aspects of what is proposed that duplicate work that the Government already have in place, which we do not believe would ultimately work in the best interests of consumers. However, we have reflected closely on the concerns that the noble Lord, Lord Grantchester, has expressed regarding the programme, and have concluded that there is more we can do to address his concerns to help the programme succeed. We have identified three actions we are prepared to commit to as a result.
I recognise that there is an appetite for the Government to do more to ensure that we are transparent with consumers and Parliament in monitoring and tracking delivery. The programme already publishes quarterly rollout statistics, and we have committed in the other place to publish more substantial reports on programme delivery. I can further commit to publishing, by the end of 2018, as part of our annual report on progress, a forward plan of activity. This will show that the Government have a clear plan for resolving the remaining technical and operational challenges to delivering the programme. The report will be placed in the Library of the House.
I sympathise with noble Lords’ desire for further assurance that the Government have a firm hand on the tiller on all aspects of the programme. I therefore commit to publishing, by spring 2019, a report that will provide a stocktake of progress towards delivering the consumer benefits of the programme. We will take evidence from consumer representative bodies and Ofgem in preparing the progress report. The planned National Audit Office inquiry on the smart metering programme, which we currently expect to report by the end of this year, will be another important strand of evidence. It is right that Parliament should have an opportunity to scrutinise the report. The Government will therefore bring forward a ministerial Statement on the final report, allowing some sort of debate in both Houses of Parliament.
We believe that smart meters will be game-changing for how consumers engage with their energy use and the market. The amendment seeks an assessment of how well the programme is future-proofed and we recognise that there are merits in undertaking an assessment of the smart meter platform in support of this. I therefore commit to publishing a paper by the end of this year that will draw out and promote the potential of the data offered by smart meters for future innovative consumer technologies and services.
The noble Lord, Lord Campbell-Savours, raised interoperability and claimed that it is difficult to switch between suppliers. It will be important for suppliers to communicate to consumers that they can switch supplier without risk of losing services. From later this year, the enrolment of SMETS 1 meters is expected to take about a year. All SMETS 2 meters will be fully interoperable from the outset. If the noble Lord requires anything further, I am more than happy to write to him.
My Lords, in the event that a second supplier takes over, will the information on the meter provided by the first supplier be equally available by the second?
I think the noble Lord is correct, but if not I will write to him on that matter.
Amendment 2, in the name of the noble Lord, Lord Teverson, relates to SMETS 2 testing. I recognise that at the heart of the amendment is a concern that the Government are pushing ahead with transition to SMETS 2 meters without adequate checks and balances. We want to transition to SMETS 2 meters as they are better for energy consumers. As I made clear, they offer full interoperability from the outset, cost advantages and support for energy network planning and investment decisions, from which efficiencies and consumer energy cost savings can flow. This is why we will put in place a SMETS 1 end date to drive the transition to SMETS 2 meters.
I reassure the noble Lord that we are not driving this transition blindly. We have thorough and mature industry-wide monitoring and governance that allows us actively to scrutinise this transition. We closely monitor energy supplier and DCC operational capability, meter availability and reliability and supply chain maturity. That is underpinned by a robust testing regime across the end-to-end system set out in the regulatory framework via the Smart Energy Code. It requires, and provides assurance, that the DCC’s systems and services meet requirements; that suppliers and other DCC users are capable of using the services that are provided by the DCC; and that the metering equipment which suppliers enrol with the DCC is interoperable with the DCC’s systems and compliant with the relevant technical specifications. This is backed by device certification via the National Cyber Security Centre’s commercial product assurance scheme.
After undertaking their own thorough testing, leading energy suppliers are now rolling out SMETS 2 meters to real customers at low volumes, demonstrating their confidence in the preceding testing. We think it is right to continue to press other energy suppliers to make the same transition, on the back of their own testing. We are in close dialogue with the DCC and suppliers, and if it was shown not to be in the interests of energy consumers, we would provide further time for the transition.
In light of those assurances, and given the substantive commitments to further government action and information that will be made available to both Houses, I hope the concerns of the noble Lord and all other noble Lords who took part in the debate have been dealt with, and I hope the noble Lord will feel able to withdraw his amendment.
My Lords, the Minister’s reply is interesting. He is understandably reluctant to accept that his department needs the force of this amendment in the Bill. It is critical that the Government meet these three vital tests for the rollout of smart meters. First, there must be a visible plan. I can accept that the Government’s commitment to an annual report, with the current status and future milestones mapped out, meets this criteria, and I thank the Minister for repeating this commitment again today.
Secondly, there must be a role for Parliament to monitor progress and take evidence that all elements in the rollout are co-ordinated into an achievable programme. It should be possible to implement this part of the plan from the Minister’s commitment to the Government’s statement in a publication early next year with a report, with evidence and a stocktake on the latest technological position on the transition from SMETS 1 to SMETS 2 meters and their capabilities, the latest cost-benefit analysis provided by the NAO, and after consultations with consumer organisations and Ofgem. Parliament will be scrutinising this on behalf of consumers. The Minister has given a commitment that the Government will come forward with a statement in the first half of 2019.
Thirdly, the ambitions inherent in a national plan must be embraced and consumers put at the heart of the programme. The Minister must make sure that his commitment to a separate paper at the end of this year goes ahead, making the data usage for smart meters available for the optimisation of consumers’ use of energy. I am encouraged by the Minister’s reply that the Government accept the thrust of the amendment as part of his department’s responsibilities. The Government will accept that they are on notice to perform to their timetable.
I welcome the Minister’s commitment to the rollout programme and the way he has responded to our challenge. It is agreed that in essence his department will conduct the national plan in all but name and that he has promised to make this available. With that secured, I beg leave to withdraw the amendment.
Amendment 1 withdrawn.
Amendment 2 not moved.
Civil Liability Bill [HL]
Committee (2nd Day)
Amendments 52 to 54 not moved.
Clause 8: Assumed rate of return on investment of damages
55: Clause 8, page 7, line 31, at end insert—
“( ) Rules of court under subsection (1) must draw attention to aspects of orders for periodical payments which may make them more suitable in cases where individuals have long-term injuries or are risk averse.”
My Lords, as we begin to discuss Part 2, I return to an issue I raised at Second Reading: the use—or perhaps the insufficient use—of periodical payment orders, particularly in cases where compensation is payable for long-term injuries.
To summarise the position, periodical payment orders are a form of annuity that ensures that a guaranteed sum, usually index linked, is paid to the injured party as frequently as he or she requires—weekly, monthly, quarterly or annually. PPOs have two particularly significant aspects. First, they transfer all longevity risk to the insurance company. The insured does not have to be concerned that he or she may live longer than is actuarially assumed, with the possibility of having to live in reduced circumstances for the last years of their life. Secondly, PPOs transfer all investment risk to the insurance company. The insured does not have to worry that bad investment decisions made on his or her behalf might result in a reduction in his or her income. Those are two significant factors.
I hope that it is common ground that one of the major purposes of the Bill is to ensure fairness—to ensure that individuals suffering life-changing injuries are properly compensated for the rest of their lives, however long or short these may be, and that these payments are made within a framework that is fair to the other insured individuals, who will have to pay their share of the expenses. I remind the Committee once again that I am not a lawyer—but a court must find it incredibly difficult from a purely practical point of view when faced with, say, the tragic case of a young man aged 25 who is badly injured in a road traffic accident, and the impossible task of ensuring fairness between the parties and deciding in such a case what the right single lump-sum award of damages should be. What is the life expectancy of such a person?
I have heard it argued that one does not need to be concerned about individual cases because average life expectancy over a number of cases can actuarially be determined fairly. However, that considers the case only from the point of view of the insured and, indeed, the co-insured. It is not much help to the individual injured party—injured, say, at the age of 25—to hear, “We thought you’d only live for 35 years, but here you are. I’m so sorry that you’re still living now and that the money is running out”. Nor is it fair to the insured and the co-insured, that when such a person, very sadly, dies early of complications aged, say, 40, a potentially significant lump sum is passed to his or her descendants, who have virtually no locus in the case.
In those situations, periodical payments would ensure fairness—so why are they not the default option in cases of long-term injuries and for people with low risk tolerance? There appear to be a number of structural reasons why that is so. First, from the point of view of the insurance company, a lump-sum payment is neater and more administratively convenient. In essence, one could put a pink ribbon round the file—or, in modern parlance, send the case to the cloud—and forget all about it. Further, PPOs are unattractive to insurers because of the method by which they are rated for capital adequacy purposes. I will not detain the Committee this afternoon with a detailed explanation except to say that, under the technical provisions of reserving, the combination of a best estimate of liabilities, the risk margin and the solvency capital requirements makes PPOs unattractive.
Secondly, from the point of view of the insured, particularly someone who is less financially sophisticated, an offer of, say, £6 million as a lump sum may on the surface appear to be more attractive than, say, a quarterly payment of around £50,000. I have also heard that it is not impossible that families might prefer the lump-sum route in the hope of some windfall, and there may be financial advisers who see a long-term stream of fees for providing investment management advice and might prefer a lump sum to a PPO.
Thirdly and finally, the individual judge considering the award might find it outwith the court’s role to opine too definitely on the method by which the award should be paid. All these influences, although individually not particularly significant or decisive, collectively tilt the balance away from PPOs.
The Government recognise the challenge in increasing the take-up of PPOs in paragraphs 48, 49 and 50 of their response to the report of the Justice Select Committee. Paragraph 48 states:
“The Government therefore sees many benefits in the use of PPOs to provide compensation in respect of future losses … particularly those who are most dependent upon the provision of long-term future care. The Government agrees with the Committee that it is not obvious why PPOs are used in relatively small numbers of cases”.
The following paragraph states:
“Perhaps even more tellingly, there was little enthusiasm for any changes to the law regarding PPOs in response to the consultation … It is therefore not clear what might be done to increase the take up of PPOs”.
For those of us who received today’s briefing from the Association of British Insurers ahead of this Second Reading debate, we can see the push-back already beginning. Under the section on PPOs, it says that they are,
“available in 99% of all cases … Insurers continue to make PPOs available for claimants when requested”.
I think that the use of those words indicates that it is not top of insurers’ lists to make sure that it is even Steven between the ways in which these awards are paid.
I have been seeking ways to redress this imbalance and move towards a position where PPOs might become the default option in cases where compensation for injuries will be paid out over the long term or where the injured party has a low tolerance of risk or is risk averse. Amendment 55 is intended to achieve this by requiring changes to the rules of court which would encourage or require judges to consider wider factors, in particular longevity risk and investment risk.
As I said a few moments ago, I am no lawyer, and I have no idea whether Parliament can require the inclusion of specific provisions in the rules of court without infringing judicial independence. It may be that, in the course of this debate, there are other, neater ways of achieving this shift of emphasis. So Amendment 55 is a probing amendment at this stage. However, I am convinced that the present position is not satisfactory, and the Government essentially agree that that is so. I look forward to hearing my noble friend’s reply. In the meantime, I beg to move.
My Lords, Amendment 92 in this group would require the Lord Chancellor to carry out a review of the impact of any new rate on the extent of the use of PPOs and to lay this report before Parliament. Our amendment has the same general purpose as Amendment 55 and as other amendments in this group.
The noble Lord, Lord Hodgson, has already spoken eloquently to Amendment 55 so I can be very brief. It seems to me that all the amendments in this group are intended to provide a gentle nudge in the direction of PPOs. Their purpose is to create conditions in which the incidence of voluntary uptake of PPOs may increase. Given the scope of the Bill, not to mention the ethical questions that would be created by any reduction in the freedom to choose or not choose PPOs, this is probably as far as we can go.
I hope the Minister will be sympathetic to the thinking behind all of these amendments, coming as they do from various parts of the House. If he is sympathetic, perhaps he would be willing to meet interested noble Lords before Report with a view to drafting an amendment or amendments that he might consider bringing forward or supporting.
My Lords, in supporting Amendment 55, I will speak also to Amendment 92A. I declare my interests as listed on the register of the House, especially those in respect of the insurance industry. I can be very brief, because there have been two brief and excellent speeches before me.
I have a couple of points to make about PPOs, taken from the training programme on the Chartered Insurance Institute website. PPOs are for future care and case management costs. Secondly, the institute identifies a third big advantage of PPOs: the management of inflation risk, quite apart from investment risk and mortality risk. Three areas are problematic at the moment for PPOs. The first is that the propensity to take up PPOs is dropping. Secondly, that drop has been accelerated dramatically by the discount rate issue which much of the Bill deals with. Thirdly, there are concerns about the indexing of PPOs. The amendments consider three sets of solutions. The amendments in this group, particularly Amendment 55 and that of the noble Lord, Lord Sharkey, try to give a push to PPOs to stop the general drift downwards in the propensity to use them. The discount rate issue is of course the target of Part 2 of the Bill, and my Amendment 92A, of which more in a second, is aimed at the third issue I identified: indexing.
On Amendment 55, the Institute and Faculty of Actuaries publishes on its website the propensity for the take-up of PPOs for large motor claims. Between 2010 and 2012 inclusive, it was 35%. By 2015 it had dropped to below 25%, and in 2016 to below 20%. That is wrong, and anything we can do to nudge that back up to the steady-state—I would hope, at least 35%—must be good news.
On indexes, the interesting leading case of Thompstone v Tameside and Glossop is mentioned in Amendment 92A. It is an Appeal Court case reported in 2008 which brought four appeals at first instance together. It was designed to create a leading case for PPOs. All four are very similar and harrowing cases where the issue was whether the indexing should be RPI or an Office for National Statistics index called ASHE 6115. The judgment, which is a long and careful one written in nice, clear language, is very strong. But in all four cases it was found that ASHE 6115 was the appropriate index, and thus it became the rebuttable presumption—in commercial terms, not legal terms, I hasten to add—that that index should be used.
Ten years on, it does not look quite as good as it did in 2008 and I have three concerns. The first relates to the progression of time. The percentage of PPO money that is used for care and home care wages shrinks, simply because we now have better equipment, amazing machinery and beds that cost £10,000. Quite simply, an increasing percentage of the money is being used for things other than wages.
Secondly, effectively, ASHE 6115 ceased to exist in 2011, and the Office for National Statistics had to create an ersatz ASHE 6115 because of the requirement to do so. At the head of today’s ASHE 6115 statistics, there is a whole sheet of paper explaining how ASHE 6115 has been recreated. Crucially, like-for-like figures are given for 2011, and they differ by 1.6%. In other words, the new format is rather less generous. ASHE 6115 in 2018 gives a very different figure from the one that judges were considering back in the case of Thompstone.
If that has been enough to make noble Lords wobble a bit, the thing that turned my wobble into something very serious was the simple set of figures showing what would have happened if someone had been awarded £100,000-worth of damages per annum at the start of 2010. By December 2015, on ASHE 6115, that £100,000 would have been indexed up to £100,495 which is an aggregate increase over six years of under 0.5%. The RPI over the same period would have indexed up to £115,225—15% more. I am again obliged to the Chartered Insurance Institute training website for those figures. It means that for that period, Mr Thompstone—the facts are very harrowing—has done pretty badly. For that reason, I feel the time has come to have a look under the bonnet and see whether what I am sure was a good decision in 2008 needs to be thought through again. The purpose of Amendment 92A is to ensure that that happens.
My Lords, we have had great help on this subject in the preceding speeches. Perhaps I should begin by giving my thanks to the noble and learned Lord, Lord Mackay, who is in his place, because many years ago he gave me the task of looking at civil justice with a view to producing a report on access to justice, which I did. Since that time the report has had a significant influence. However, when I wrote that report I could not possibly have anticipated the changes that would be needed as time went on, and what has just been said by the last speaker emphasises the fact that perhaps there are advantages in learning from experience.
There is no doubt in my mind about the problem that this Bill is intended to deal with, particularly in Part 1. Unfortunately, I could not take part in the discussion that took place on that part because I was not in the country at the time, but I shall try to avoid saying on Part 2 what I failed to say on Part 1 and thus use up the time of the Committee. However, to some extent one has to look at the whole of the situation in order to get the context. I would emphasise that although the Government’s motives here are good, they must appreciate that there are real dangers in interfering with the normal machinery used for dealing with questions around the assessment of damages which follow injuries. It is very important that justice is done in the case of small damages claims just as it is in large claims. One of the matters that I complain about in the whole of the Bill is that it is taking on responsibilities which are better dealt with elsewhere.
First, it is obvious that the assessment of damages has always been the responsibility and under the control of the judiciary. Indeed, following my report, it was initially felt that legislation was not required because the Civil Procedure Rule Committee and other methods existed which meant that changes could be made that were flexible. What one really has to do is get the culture right, and the culture is that those who are justly entitled—not those who make false claims—are given the proper award by what justice lays down for them on the circumstances of their case. I may well come back to this subject on Third Reading or on Report because Part 1 introduced principles that, as far as I saw it from what was said, were novel in so far as they distinguished between two people with very similar claims in the same circumstances by imposing artificial caps on damages. That leads to bad justice, I would say, in the sense of unfairness, as was said by other noble Lords when considering Part 1.
Coming on to what is being proposed—particularly by the noble Lord, Lord Hodgson, in his admirable remarks in support of his amendment—I want to make it clear that this matter is very important. Obviously, it is very desirable, as a matter of principle, for the courts to be given the power to make awards that will reflect the future. You cannot complain if the situation changes, so as to make the award of compensation either too low or too high, if it is able to be put right. As I understand it, the noble Lord, Lord Hodgson, has suggested machinery for doing that very thing, which is obviously a very significant change from what has happened so far in the courts. Therefore, leaving it to the courts to exercise flexibility and carry forward the principles that the legislation could support, as far as the detail in individual cases is concerned—so that they evolve with experience as well as with the change of facts—would be a very much better and more just result for the litigant. In fact, it would lead to economies in costs, which was one of the Government’s motives in the legislation.
If we have bad law, people will want to challenge it. They will argue against it and seek to lever the facts of their case into a situation that does not justify that approach. However, having a broad and wide approach that evolves in the way I said it should, and can—because of the intervention of either the rule committee or practice directions, which can be done by judges without the committee—is a much better way forward. In principle, we want to take what has been urged by the noble Lord, Lord Hodgson, and apply it. That would leave it to those who do the work day by day to do it in the best practical way.
My Lords, it is a great pleasure to follow the noble and learned Lord, Lord Woolf. We very much look forward to his participation at this stage and on Report.
At the outset of our discussion on Part 2, I want to set out the underlying approach that we on these Benches are adopting. The Bill and the problem that it seeks to address in Clause 8 represent a challenge to two groups. The first comprises those who have suffered serious injuries that, in many cases, will have a lasting impact on their well-being and will engender financial loss, expense, pain and discomfort. The second group includes the first one, but it potentially extends to everyone who will require the services of the National Health Service at some point. We ought not to protect the second group at the expense of the first by artificially limiting the compensation payable to victims of negligence, whether by the NHS or other parties. We should look at ways to fund any liabilities incurred by the NHS for clinical negligence claims as part of society’s financial responsibility to maintain the service, rather than looking to victims to do so.
Periodical payments, to which noble Lords have already referred, clearly have an important future role and we would certainly wish to see them carried forward. The amendments before us touch on a number of issues. Amendment 92 calls for a review of periodical payment orders within a period of six months of this part of the Act coming into force. That might be too tight a timetable. The work certainly needs to be done, but that strikes me as potentially rather early.
At Second Reading, the noble and learned Lord, Lord Hope, referred to new Section A1(2), which will allow a court to take,
“a different rate … into account if any party … shows that it is more appropriate in the case in question”.
He cited a case in which he had once been involved giving rise to an injustice that ought never to have been contemplated. The noble and learned Lord was reassured that the provisions to which I referred would act,
“as a safeguard against the risk of unfairness in … extreme cases”,
“without it, the Bill would risk, in the more extreme cases, giving rise to an injustice which ought never to be contemplated”.—[Official Report, 24/4/18; col. 1493.]
Will the Government undertake to report regularly on the incidence of such cases in which the courts take a different rate into account? We would endorse Amendments 55 and 92, although perhaps the six-month period referred to is too short a period for the first review.
Amendment 92B in my name and that of my noble friend Lord McKenzie would require a review to be undertaken by the Civil Justice Council, because we feel that this needs to be by a completely impartial and authoritative body, within 18 months of the impact of Part 2 and the setting of a new rate of return on the extent to which PP orders are made, with results to be published within two years of the Act coming into force. It will take some time for the system to adjust to the new regime. We need to give time for the necessary consideration of the developments that will ensue.
We think that the prospect of the greater use of periodical payment orders will be in the interests of the system and of many of those who have suffered extremely serious injuries. We would like to see that process set in being, but then properly reviewed. There are concerns—we have heard some of them already—about how it would operate. We will need a commitment to the review after a reasonable time to ensure justice is being done for those who have suffered and that society as a whole accepts its responsibility for ensuring they have adequate compensation adapted to their particular needs as far as possible.
My Lords, I too welcome the engagement and interest of the noble and learned Lord, Lord Woolf, in Part 1 of the Bill, which we will return to at certain points on Report. On Part 2, I am one of the nudgers mentioned by the noble Lord, Lord Sharkey, in seeking to promote the greater use of PPOs in assessing people’s compensation.
A large part of the compensation in serious PI cases are the costs of care. These tend to rise faster than the price index, which is all that the index-linked gilts yield approach protects against. In the PPO regime, this is allowed for explicitly by indexing care costs to an index of carers’ earnings, but this has not been carried forward into the lump sum compensation regime, although the Damages Act allows for different discount rates to be applied for different purposes. As a result, most large cases result in significant undercompensation for the claimant if they live an average lifespan.
The PPO is a much better method of compensation, since it goes on as long as the claimant lives. I understand that it is used by the NHS and government departments. Insurance companies, on the other hand, are highly resistant to settling by PPOs unless courts impose them. Only a small number of cases go to court; the vast majority are settled outside. Understandably, insurance companies do not want an outstanding liability which might last for many years. Regulators require them to reserve on a basis stronger than index-linked gilts for lump-sum entitlements.
As the amendments suggest, there is a need for regular reviews of the discount rate, as yields have fallen steadily. I hope that the Minister can respond positively to the nudging from different parts of the Committee on this important question.
My Lords, I want to draw attention to one or two other passages in the Government’s response, to which the noble Lord, Lord Hodgson, referred in his excellent introduction. Two features caught my eye. One is in paragraph 45. The Justice Select Committee had drawn attention to quite strong representation for the Civil Procedure Rules to make it a requirement that PPOs be offered; its advice was against that, because it was reasonably clear that not every case made a PPO appropriate—one has to be selective; some cases are better suited than others. The point of mentioning that is that one could adopt the approach of amending Section 100 of the 2003 Act, which is the basis for the award of PPOs, to toughen up the requirement that they be offered in every case, but that is not what is being suggested and, I think, rightly so.
The other question is whether rules of court are best equipped to deal with the problem. That is why I draw attention to what is said in paragraphs 50 and 51 of the Government’s response. In passages that are written out in heavy print and underlined, they undertake to,
“investigate the quality and effectiveness of the advice currently available”,
with a view to endorsing,
“guidance on standard practice to ensure that claimants are properly informed”.
Will the Minister expand a little on what the Government had in mind in that passage? Was it guidance rather than amendments to the Civil Procedure Rules, guidance to lie alongside the Civil Procedure Rules or guidance which will inform the committees responsible for the revision of those rules?
What comes through from that and the following paragraph is that further investigation is in the mind of the Government. A little more information may be needed before the rules are revised in the way that the noble Lord, Lord Hodgson, has in mind. If the Minister could expand a bit on that, it would be very helpful.
My Lords, I apologise to the Committee that I was not here for the first 90 seconds of what the noble Lord, Lord Hodgson, had to say, but I came puffing in as quickly as I could.
In our discussions so far, which I entirely understand and support, one feature has not yet been mentioned: the advantage of the PPO in the process from the point of view of the unfortunate man or woman who has suffered serious or catastrophic injuries. Both at the Bar and as a judge, one thing that you have to look at is how long the unfortunate individual concerned will actually live. I am sorry to say so, but when you talk to your client and say, “We have to discuss how long you will live”, or to the parents of a child who has suffered catastrophic injuries, “We are discussing how long your little boy or your little girl will live”, you are treading on what is obviously deeply sensitive ground. The answer is that it has to be discussed if you are proceeding by way of lump sum, because the calculation of damages depends significantly on whatever the medical experts say the life expectation of the man, the woman, the little boy or the little girl is likely to be.
The medical experts I dealt with were men and women of the utmost integrity. They would do their best. They would say, “Well, the best I can do is X”, or Y or Z. What you discovered after a little while doing these sorts of cases was that, actually, what they were doing—and who can blame them?—was taking an average: “We have had so many patients aged between 21 and 25 who have suffered these sorts of injuries, and they have lived for so long and then they have died”. So in addition to the sensitivities that go into a discussion of how long will the victim—the plaintiff, as they used to be in those days—suffer, be alive, and how long will the damages have to cater for his or her interests, there is also the uncertainty of the medical evidence, because no doctor can tell you.
I still remember a very distinguished surgeon from Stoke Mandeville, when I asked him this question in a conference just before I became a judge, said, “Well, we are asked the most ridiculous questions. We do our best. We offer you the best. The truth is that we do not know when this man or this woman’s will to live will go. When the will to live goes, that is when they will die. Some will wish to live and will have the will to live for longer than others, so what we are offering you is the best we can do”. He did not say, and it would not be fair to say, that it is speculative: it is the best they can do but, inevitably, it is almost certainly not going to be right. The end result is that the damages will be too much or too little. The great advantage of the PPO system is that it caters for however long this unfortunate injured person actually lives. I support the idea behind this amendment.
My Lords, I am very interested and concerned in this matter because I was very concerned about it a long time ago. The problem, I think, is to know what you should say in the rules of court, assuming you are making new rules, about this. How do you commend the PPO, because, as has just been said a PPO is more suitable in some cases than others? I would like to hear in due course what help we can get in that respect. How do you distinguish between the cases in which PPOs are going to be good and cases in which they are not? As the noble and learned Lord, Lord Judge, has just said, the difficulty of estimating life expectancy is extremely high; it is a very difficult thing to do. In a sense, whether or not a PPO is a good thing depends to a certain extent on how secure that estimate is. How you measure that is quite difficult.
As has been said, actuaries proceed on an average. The Ogden tables we used to have long ago were primarily actuarial tables which depend on averages. As the noble and learned Lord, Lord Judge, said, the one thing you can almost be certain about is that the particular case will not be average: it will either be less or more. How you determine that, unless you are a very shrewd prophet, is quite a difficult question. That is the difficulty that faces judges in these cases every day, particularly where the likelihood is that the injury will continue to have effects long into the future.
Not only do you have to consider the injuries and the effects of the injuries, but you also have to think a bit about what the noble Earl, Lord Kinnoull, pointed out, which is that what inflation is going to do to the costs of care may vary very considerably. So I appreciate the need to do what we can to encourage PPOs; on the other hand, I appreciate the difficulty of formulating the help that judges need.
Of course, ultimately this point will be determined by the judge in charge of the case, not by any rules that may be laid down in order to provide guidance. I am not very keen, I must say, on the Executive giving guidance to the judiciary. I honestly think that that is a dangerous line. I was not very keen on doing it for the magistrates. The Home Office tried to develop some way of doing that, which I did my best to discourage because I do not believe that it is for the Executive to give guidance to the judiciary. Their roles are completely different from and independent of one another. Let the Executive get on with their work, but let the judiciary alone get on with its work.
There is an answer to the problem that the noble and learned Lord raises. It might have implications for the workload of the judiciary but I think that could be handled. We should get away from the idea that a judge should assess damages in appropriate cases only at one stage. There is no reason why you cannot have a system where the matter can be restored to a judge in a case of differences of opinion to take into account succeeding circumstances. If the power existed, the courts would find that in the majority of cases, litigants—properly advised, as they are in these big cases—would come back only when there was a real difficulty between the insurer in practice and the claimant. In that way, matters could be reviewed to reflect any differing circumstances. It was not a one-off assessment that I was advocating but the ability to change the assessment. That would apply to PPOs as it would to any other laws.
My Lords, I am obliged to my noble friend Lord Hodgson for setting out the background to this matter. His Amendment 55 would require what he referred to as new rules of court to be made that highlight features of periodical payment orders which may make them a more appropriate way for a person with a long-term injury to receive an award for damages for future care costs. I understand that Amendment 55 and the other amendments in this group are essentially probing amendments.
“Rules of court” in Amendment 55 means the Civil Procedure Rules. The purpose of the Civil Procedure Rules—and, indeed, all rules of court—is to govern the practice and procedure of the court and the parties in court proceedings. This may be a technical issue but that does not detract from the importance of ensuring that claimants who have suffered long-term serious injuries are well informed as to the implications of their choice between a lump sum payment of damages and a PPO. I am conscious of the point made by the noble and learned Lord, Lord Mackay of Clashfern, about the care that the Executive must always exercise in circumstances where it may be perceived that they are giving directions to the judiciary. I will explain why the Government therefore take a more modest approach to this issue but one which they feel will be effective.
Of course, some Civil Procedure Rules have been made in relation to the exercise by the court of its powers under Section 2(1) of the Damages Act 1996 to order that all or part of an award of damages in respect of personal injury is to take the form of a periodical payment order. These rules already require the court to consider all the circumstances of the case, as well as the preferences of the claimant and defendant and the reasons for them. I appreciate that there are instances in which PPOs may not be available; for example, a mutual insurer such as the Medical Defence Union would not be considered sufficiently well reserved to meet future liabilities. I appreciate also that there have been reservations among insurers about the use of PPOs because of the way in which they are required to reserve for them and the capital requirements related to that.
PPOs are certainly in principle considered a better form of taking compensation for future loss than a lump sum because they provide strong protection for claimants who may be concerned about the return on a lump sum. This Government certainly support their use. At the same time, we must keep in mind that the person behind a claim has a choice and is entitled to make one in such circumstances. We consider it important that claimants making a choice in these circumstances should be properly informed, irrespective of whether their particular case reaches such a stage that the court has to consider whether to order a PPO. Of course, not every case will reach the court; many will be settled before that and, at an earlier stage, claimants have to be properly informed as to which option they should adopt.
I note the point made by the noble and learned Lord, Lord Judge, with which I entirely agree. It is perhaps moot to say that no estimate of life expectancy is ever precisely accurate because they are just that—estimates—and one takes that out of the equation where you have a PPO.
The Government remain fully committed to ensuring that appropriate advice is available to claimants in all cases and stand by the commitments they made to action in their response to the Justice Select Committee. To pick up on the points made by the noble and learned Lord, Lord Hope of Craighead, the point made in paragraph 50 of the response to the JSC was a concern to ensure that guidance was provided to individual claimants. It is our intention to put in place appropriate guidance and to ensure that it is available. We aim to do that by the end of 2018. In addition, we are investigating whether current advice received by claimants on the respective benefits of lump sums and PPOs is effective, and whether there are other ways in which the use of PPOs could be increased within the present system. At present, we intend to complete this work by the summer of 2019.
I hope that goes some way to meeting the concerns expressed by the noble Earl, Lord Kinnoull, on these matters. He raised a further question on indexing and I think the noble Lord, Lord Monks, touched on this. The reason that the ASHE 6115 index is taken is that it is the specific care costs index. It may be that wage costs have not increased at the same rate as the wider RPI, which may explain the discrepancy the noble Earl pointed out. However, the ASHE 6115 index is a specific care costs index, which is why that has been employed in the past.
Amendment 92 would require the Lord Chancellor to conduct a review of the impact of setting a new discount rate on the extent to which PPOs are made by the courts, but within six months of the provisions in Part 2 of the Bill coming into force, and then to publish a report of the results within 18 months of commencement. As the noble Lord, Lord Beecham, hinted, that may be far too tight a timescale to produce an effective report. We certainly do not consider that a requirement to carry out a review of this nature at the time proposed would be particularly informative. That is because the first review of the rate under the Bill would probably not have been completed by the time at which completing the review under this amendment would be required. Effectively, that would mean that the review would have to focus on any impact that had resulted from the setting of the rate as of March 2017 under the present law, which was a rate of minus 0.75%. I suppose that such a review may, however, be of limited use given that the legal framework for setting the rate would have changed but I suspect that it would tell us only something about the past, not the future.
I also observe that the settlement of major cases can take some years to agree, whether or not they arrive at the door of the court, so it might be some time before there is sufficient evidence to draw meaningful conclusions about changes in claimant behaviour. We do not yet have the statistical information about the effect of the March 2017 change in the discount rate on the use of PPOs. We therefore do not know whether the lowering of the rate has diminished the take-up of PPOs, although there is certainly some anecdotal evidence to that effect. It is logical to assume that this would occur, given the size of the change that took place in March 2017.
The evidence from the previous four years does, however, suggest that the use of PPOs is concentrated in the most serious and long-term cases, with the propensity to use them increasing with the size of awards up to about £5 million. They are not really employed in cases where the award of damages is lower than £1 million. That is largely because the use of PPOs is concentrated on provision for future care costs—long-term care costs, generally in cases of catastrophic injury. That is why there is a large percentage of cases in which PPOs are not considered appropriate. The National Health Service pays out PPOs in about 70% of awards over £1 million, while the equivalent figure for insurers is only about 36%, and there may be further work to be done. That is why we are going to look at the question of further guidance in order to encourage their use. Certainly, the take-up is far from negligible in serious cases.
On the comment of the noble Lord, Lord Beecham, this is not just about funding clinical negligence claims by the NHS. It goes far deeper than that; it is about ensuring fairness between claimants and defendants in the difficult process of assessing damages, particularly damages awarded for future care. I do not accept the noble Lord’s general point that we are simply trying to move the cost of future care from victims to somewhere else. That is not what we are about; this is concerned with ensuring fairness between claimants and defendants.
I have spoken about the way in which the amendments would require some sort of review. Amendment 92A would also require such a review to assess whether the fact that a PPO may be uprated by reference to an inflation index other than the retail prices index is having an impact on the relative merits of PPOs versus lump sums in the context of a revised discount rate. That would go beyond a consideration of the impact of the discount rate to the overall level of damages award, and how individual elements may be indexed for inflation. At present, the index used for PPOs is a very specific care cost index rather than the RPI.
We will, as I have indicated, be taking forward a range of initiatives to encourage the use of PPOs and to ensure that claimants are properly advised when choosing the form of their award. We hope to have the first part of that process completed by the end of 2018 and the wider investigation completed by the summer of 2019. We believe that those practical steps will encourage the use of PPOs where appropriate—we will, of course, monitor that—and create a situation in which a review requirement, such as that envisaged by the amendments, will not be necessary. Indeed, it would be more appropriate to move in this direction rather than find ourselves in the somewhat invidious position of the Executive sending out directions to the judiciary about how it should approach the award and determination of damages in such serious cases.
With that explanation of the Government’s position, I hope the Committee will be reassured that we are committed to effective action to encourage the use of PPOs. On that basis, I invite the noble Lord to withdraw the amendment.
Before my noble and learned friend sits down, I understood the noble and learned Lord, Lord Woolf, to have suggested that a PPO could be reviewed as the instalments were going ahead. That would be something of an innovation but it might be worth considering. I do not know whether my noble and learned friend has that in mind.
We do not have that in mind. One of the concerns about such a proposal is the impact it would have on the insurers and their inclination to embrace PPOs. At present they are concerned about their reserving liability and their capital requirement on the basis of risk when it comes to a PPO. If we were to add to that equation the possibility of the PPO being revived at some indeterminate point in the future, I believe it would have a counteractive effect on the employment of PPOs by insurers. I have noted what the noble and learned Lord, Lord Woolf, said; I will take it away and consider it further, but my initial reaction is that it could act as a disincentive for the operation of PPOs.
My Lords, I thank my noble and learned friend for that extensive reply and other noble Lords for their contributions to this debate.
I take issue with my noble and learned friend on two matters. First, it is perfectly possible for us to deal with the question of PPOs for mutuals by setting up a proper reinsurance programme. That could be done quite easily. Therefore, to say that we would like to do this but we cannot because mutuals cannot provide it is inaccurate. We can sort that out with a certain amount of technical help.
Secondly, the noble Lord, Lord Sharkey, said that we were engaged in a nudge. Personally, I am engaged in a bit of a shove, and I hope that the noble Lord, Lord Monks, will join us in in that shove. I am not sure that my noble and learned friend has given a shove; I think it is a very delicate pressure on the arm of the industry, which I am not sure will be effective.
We heard from the noble Earl, Lord Kinnoull, about how PPOs are declining in use and from the noble and learned Lord, Lord Woolf, about the culture and question of fairness, which must be at the heart of all our discussions. I was encouraged to think that such an eminent jurist as him should think that the rules of court could provide the flexibility to enable the issues covered by my amendment to be incorporated. We are in an era where things are moving fast, and we do not want to find ourselves stuck in inflexibility.
My noble and learned friend Lord Mackay of Clashfern referred to the question of interference by the Executive with the judiciary. I made clear that I was concerned about that in my opening remarks. The amendment is designed so that Parliament, the legislature, makes its view clear. It is nothing to do with the Executive. It is giving judges a steer, but after that, it is over to them how they proceed. My worry about my noble and learned friend’s comments is that the best remains the enemy of the good. We have a system that is not working very well, but we are saying, “This is frightfully difficult, so we should not change it; we are likely to cause more trouble by changing it than we solve, let sleeping dogs lie”.
The system is not working very well. The transfer of investment and longevity risk away from the individual has to be a key part of making matters fair. It deals with important and difficult cases of the sort raised by the noble and learned Lord, Lord Judge. I hope that the Minister will agree to meet some of us between now and the Bill’s next stage, because I do not think we have got to the bottom of this. We are missing an opportunity to do something seriously helpful for people who suffer long-term, life-changing injuries. In the meantime, I beg leave to withdraw the amendment.
In response to my noble friend Lord Hodgson, and a point raised by the noble Lord, Lord Sharkey, I would be perfectly content to meet them before the Bill’s next stage to discuss this. If they contact my private office, that can be arranged.
Amendment 55 withdrawn.
56: Clause 8, page 7, line 34, at end insert—
“( ) In deciding whether it is appropriate to take a different rate of return into account, the court should consider—(a) the particular nature of the loss in respect of which damages are sought; and(b) any offer by a defendant to agree a periodical payments order.”
My Lords, I begin with my declaration of interest, one I gave in Committee and at Second Reading. It is perhaps of some relevance to the debate that we are currently engaged in that I have for some years been involved in claims of the utmost severity and I am to this day instructed for defendants, particularly the National Health Service, the Medical Defence Union and insurers, but also claimants.
I move Amendment 56 in my name and that of the noble and learned Lord, Lord Hope of Craighead, who is not in his place because he had an unavoidable engagement. He knows essentially what I shall say. I cannot claim a total endorsement of any comment I may make in advance, but I can say that he supports the general tone of what I shall say in support of the amendment.
The desirability of periodical payments is clear, and has been well articulated around the House today—but not, I agree with the Minister, in all cases. The Government have very much acknowledged the need to encourage them but have so far not included in the Bill any specific provisions which would have that effect. The noble and learned Lord, Lord Judge, explained the difficulties of estimating life expectation, and he is of course right—although it may have passed his experience and practice that there is an enormous amount of literature now, particularly from the United States of America, in which very refined estimations of life expectation are provided to the court, particularly in the case of the most seriously disabled, so that you are able to enter an algorithm to see the likelihood of reaching a certain age. Having said that, it may well be the case that there is a spurious accuracy about that documentation, in view of the fact that the expectation of life of a seriously brain-damaged child, for example, has radically increased over the time when I have been in practice. An estimation made 20 years ago would simply not be right now for a child with exactly the same injuries.
Section 2(1) of the Damages Act 1996 gave the courts a power for the first time to order periodical payments, but could not do so unless the parties consented. That was preceded by a structured settlement agreement that had been reached in a particular case; it had attracted much attention and, therefore, Parliament intervened to give judges in appropriate circumstances a power of that sort. Then by Section 100 of the Courts Act 2003 the courts were enabled to order periodical payments, if they thought it appropriate. However, my experience is that they do not generally do so. In fact, I have never heard of the courts ordering periodical payments where a defendant is a secure provider but one side or another objects to such an order.
One consequence of the drastic lowering of the discount rate is that periodical payments have become much less attractive. With such a generous discount rate and the consequent rise in lump sums, there is very little incentive on a claimant to seek periodical payments when he or she can do better even by cautious investment in the market. We do not know what adjustment to the discount rate may be or, indeed, when any such adjustment may be made. Even if there is an increase to +1% as opposed to -0.75%, it may not be enough to discourage lump sums as opposed to periodical payments. It should be remembered that before the case of Wells v Wells in 1998, and for many years, the discount rate was +4.5%. It was lowered to 2.5% in 2001 to reflect the decision in Wells.
Amendment 56 is intended to provide some legislative encouragement to a party to seek periodical payments. The assumption by the courts currently is of a claimant as an incredibly cautious investor; in future, he will be regarded as a slightly less cautious investor by virtue of this Bill. Surely, if an investor is really anxious to avoid the uncertainties of the future, the best way in which he or she can do that is by an order for periodical payments with appropriate indexation. It used to be said, and indeed it has been said this afternoon, that the one thing that one knows about a lump sum is that it is either too much or too little. Inevitable uncertainties about life expectation mean that the degree of inaccuracy may be profound. Surely, then, if a sensible offer of periodical payments is made by a defendant and turned down by a claimant in favour of a lump sum, it indicates that the claimant is not nearly so risk averse as the legislation and the discount rate presumes that he is.
It is, of course, entirely a matter for the claimant what he or she wants to do with his money, subject only to the unlikely intervention of the courts to order periodical payments. It seems to me, therefore, that it should be open to the court to vary the discount rate to reflect the fact that, by turning down a reasonable offer of periodical payments, a claimant has evinced an intention to be rather more adventurous than the legislation presumes that he will be. This could either have the result of reducing the overall sum, thus making periodical payments more attractive in the light of a different discount rate, or of promoting settlements, factoring in the possibility of a court varying the discount rate in the light of sensible offers of periodical payments. One way or another, it may go some way to redressing the tendency away from periodical payments in favour of lump sums. I do not think it falls foul of what the noble and learned Lord, Lord Woolf, indicated: that Parliament should not tell judges of great experience precisely how to reflect these principles in an individual case.
The other part of the amendment concerns the particular nature of the loss in respect of which damages are sought. In substantial claims, there are a number of different heads of damage, and it may be that with some heads a different discount rate is appropriate. At the moment, the Bill talks of “classes” of case, not of different types of loss within the same case. In large claims there will be many heads of loss. They will include the cost of future care—usually the largest amount—the cost of specialised equipment; adaptations to accommodation; therapeutic and other medical treatment and loss of earnings, to name some of the main established heads of damage. Different considerations as to the appropriate discount rate may apply to different heads of loss.
In 2010, sitting in Guernsey, Jonathan Sumption QC, before his elevation to the Supreme Court, applied different discount rates to loss of earnings claims from those which he applied to other heads. That decision is not, of course, binding on our courts but it does illustrate that it may be appropriate to vary discount rates depending on the type of loss. This is done in a number of other jurisdictions.
My amendment originally contained a further factor to be taken into account in varying the discount rate, namely if a court concluded that a claimant would not in fact seek to recover a particular cost privately but would rely on the state. Very often, an award is made on the assumption that a claimant will, for example, seek to have his medical treatment and care provided privately, when that may not in fact be the case. In certain extreme cases, one is much better off receiving care for complex conditions through the state rather than, as it were, setting up a private hospital. This part of the amendment was initially accepted by the Table Office, but I was then told that it was outside the scope of the Bill. I am bound to accept that ruling but, as other noble Lords have said—and may say again—it is important that an outmoded provision, namely Section 2(4) of the Law Reform (Personal Injuries) Act 1948, is reviewed, and probably repealed, as soon as possible. I beg to move.
My Lords, I will speak extremely briefly on Amendment 57. This is merely a drafting suggestion on an issue where there is common ground with the Government. Trouble arises if you use the word “classes” to an insurance-based person like me, for whom it has a different meaning. To me, it means things like motor insurance, medical negligence or employer’s liability. I want to make sure that it is clear that one can not only follow the jurisprudence of Jonathan Sumption sitting in Guernsey—as has just been pointed out by the noble Lord, Lord Faulks—and vary things a little bit by head, but also in terms of what I call the yield curve. The yield curve is a very simple thing: the longer you invest the money, generally, the higher the interest rate you get.
For instance, if you invest the money for a month with the US Government at the moment you will get -0.25% or so; if you invest it for 10 years you will get 3% or so. On the whole, there is a gentle yield curve. That is reflected in Hong Kong and in Ontario, where they have a system of discount rates. In Hong Kong, if you will have future needs for between nought and five years in the court’s assessment, the discount rate used is 0.5%, between five and 10 years it is 1%, and over 10 years it is 2.5%. In Ontario they split it into two rather than three, and again it is based on the number of years of your future needs, which is assessed by the court: between nought and 15 years it is 0% at the moment, and over 15 years it is 2.5%.
I therefore wanted to ensure in this amendment that the Lord Chancellor could set differential rates for something wider than classes, according to my meaning of classes: on the basis of the number of years of future needs, thereby following the successful Hong Kong and Ontario discount rate regimes.
My Lords, I have Amendment 57A in this group, which would add the anticipated scale or amount of the sums in question. It is worth mentioning that the amount in question may affect the rate of return.
My Lords, I apologise for not having been able to speak at Second Reading. I will briefly intervene on these amendments, because I find the content of all of them quite persuasive. The mover of Amendment 56 touched on an important point: who owns the risk if you accept a lump sum payment instead of periodic payments? If, hopefully, the routine is that in most circumstances, one finds out what a periodic payment would look like, one needs to consider this: if you prefer to have a lump sum and take the investment risk, the person who makes that choice owns it, which in turn reflects upon how you would make presumptions about their investment strategies. I intended to touch on this when we come to my amendment in a later group, but as this is the other side of the argument, I wished to raise that point now and to say that I am in the “shove” rather than “nudge” brigade.
My Lords, the noble and learned Lord, Lord Mackay, referred at Second Reading to Clause 8(3) and the assumptions to be followed in determining the rate as set out in, notably, paragraph 3(3)(a) of proposed new Schedule A1, in which the Lord Chancellor must assume that the relevant damages are payable in a lump sum rather than under an order for periodical payments.
Paragraph 3(3)(d) of proposed new Schedule A1 prescribes an assumption that the relevant damages are invested using an approach that involves,
“more risk than a very low level of risk, but … less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims”.
The noble and learned Lord observed that the Lord Chancellor would have to have,
“a certain element of the prophet about him”,
“Getting an expert panel to agree … will be very difficult” .—[Official Report, 24/4/18; cols. 1504-05.]
Perhaps the Minister could confirm this, or make it clear that this a not-for-prophet provision.
The decisions that will be made will impinge heavily on the innocent victims of negligence or breaches of statutory duty over a wide range of circumstances, hence the noble Lord’s amendment that would provide that an order may distinguish between different classes of case by reference to the description or anticipated scale of future pecuniary loss involved. But the amendment to Section 1 of the Damages Act 1996—in Clause 8, lines 29-34—which states that the provision of the preceding subsection requiring the court to,
“take into account such rate of return (if any) as may from time to time be prescribed by an order made by the Lord Chancellor”,
is qualified such that it,
“does not however prevent the court taking a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question”.
This seems to create the possibility of the courts departing significantly in individual cases from the Lord Chancellor’s prescribed tariff. This would be welcome, but can the Minister confirm that that is the intention behind the Bill in that context?
I certainly endorse the noble and learned Lord’s Amendment 57A and I hope the Government will adopt it.
My Lords, in speaking to Amendment 56 I will speak also to Amendments 57 and 57A.
Amendment 56 would require the court to consider certain factors when deciding in an individual case whether it would be appropriate to take into account a discount rate or rates different from that prescribed by the Lord Chancellor. Under new Section A1(2), introduced into the Damages Act 1996 by Clause 8(1), the court is not prevented from taking a different discount rate into account if any party to the proceedings shows that it is more appropriate in the case in question. This reflects the current law in the Damages Act 1996, although in practice the courts in England and Wales, following the decision of the Court of Appeal in Warriner v Warriner, have chosen not to exercise the current power to depart from the prescribed rate.
The effect of the amendment would be to direct the court to consider the two different sets of circumstances listed in the amendment when deciding whether to apply a rate different from the prescribed rate or rates in an individual case. How the consideration of the factors would operate to assist the court in reaching a decision in practice is unclear, but it appears that the factors mentioned are not intended to be exhaustive.
The overarching effect of the amendment would be considerably to complicate individual proceedings as it would open up the potential for a different rate to be applied much more frequently than at present. This would be likely to encourage disputes between the parties—for example, over whether a reasonable PPO offer had been made. This would create uncertainty in the law and could prolong litigation and impede settlements, as the parties in any individual case would be unclear as to what discount rate would be appropriate and might be unwilling to settle without a court ruling.
When in the March 2017 consultation we asked whether the court should retain a power to apply a different rate if persuaded by one of the parties that it would be more appropriate to do so, 96 of the responses to the question supported the retention of the existing power, with 23 against. These, in general, were concerned about the problems of uncertainty, inconsistency and delay if the power were to be expanded. These difficulties would only be increased if the amendment were adopted. We believe that it is desirable for the Lord Chancellor to set a rate that is generally applicable and is not constantly called into question in individual cases. This is the core benefit of a prescribed rate and it should not lightly be set aside.
Amendment 57 would specify that, in addition to the ability of the Lord Chancellor to specify different discount rates for different classes of case, different rates could also be specified for different periods and for descriptions of future pecuniary loss. We do not consider that the amendment is necessary. New Section A1(4) already prescribes that the Lord Chancellor may distinguish between classes of case by reference to, among other things, the description of future pecuniary loss involved and the length of the period during which future pecuniary loss is expected to occur. The Explanatory Notes state:
“Subsection (4) makes clear that the power in subsection (3) to prescribe different rates of return for different classes of case includes the power to set separate rates for different sorts of future loss or for different durations of award. For example, under this power one rate might apply to damages for the first ten years and another rate to damages for subsequent years”.
I therefore reassure the noble Earl that the Bill already addresses the point he has raised.
Amendment 57A would ensure that the Lord Chancellor’s power to prescribe different rates of return for different classes of case could be applied to specify different rates for classes of case defined by reference to the anticipated scale of the award. New Section A1(3) provides that different rates of return may be prescribed under new Section A1(1) for different classes of case. New Section A1(4) clarifies that this power extends to defining classes by reference to heads of loss or duration of loss. This clarification is not exhaustive of the categories that the Lord Chancellor might adopt.
The power to set different rates of return for different classes of case is, however, already provided for, and the Lord Chancellor will decide whether to use the power to set different rates in the way that best delivers the objective of setting a prescribed rate. Such cases could indeed extend to the situation envisaged by the amendment, although this may be a difficult distinction to define and apply in practice. However, they could also be classed by reference to numerous other classes of case. It is, however, unnecessary to define what the classes may be. Given this, I do not think that the amendment proposed is necessary. On the basis of the explanation I have given, I hope that my noble friend will feel able to withdraw his amendment.
I am very grateful to all those who took part in the debate and to the Minister for her informative reply. I have to say, however, that I did find that it went two ways: on the one hand, we do not need the amendment because it is already there; on the other hand, the amendment, if effected, will cause uncertainty. That may not wholly do justice to the subtlety of the argument, but it did seem essentially to be that.
As I understand it, my noble friend said that the Lord Chancellor can choose different rates but a judge cannot, because the decision is made. That is, of course, at odds with the decision made by Jonathan Sumption and with the view of many. I respectfully submit that, although it will not be a regular occurrence, it is better for there to be a degree of flexibility for judges to order a different rate depending on the particular head of loss—as was done in the case in Guernsey and in many other jurisdictions. But I can see that I have not yet persuaded the Government of that.
As to the other part of the amendment, which relates to the consideration of an offer of periodical payments, with respect, I do not understand how that causes confusion, difficulty or uncertainty. It is a factor that a court can take into consideration—it is entirely a matter for the court. It is also, I submit, something that will assist in bringing about a settlement, because a claimant who is in receipt of a sensible offer of periodical payments may say to him or herself, “If I don’t accept this offer, there is a risk that there will be a less favourable discount rate”. That should promote settlement, which seems to be an aim that everybody concerned with these debates shares. So at the moment I am not satisfied that that would cause any difficulties.
I share with all noble Lords the desire to somehow include in the Bill or elsewhere more encouragement to use periodical payments. Therefore I would like to be included on the CC list for the meeting with the Minister so that I can bring what limited wisdom I have to try to encourage this. In the meantime, I shall consider carefully what my noble friend said. For the time being, I beg leave to withdraw my amendment.
Amendment 56 withdrawn.
Amendments 57 and 57A not moved.
58: Clause 8, page 8, line 12, leave out “within the 90 day period following” and insert “on”
My Lords, Amendment 58 and the others to which I will speak would alter the timing of the review of the discount rate, as set out in the Bill. Amendment 58 seeks to cut the timing of the start of that review from within 90 days of commencement to nil. Amendment 72, which I am afraid appears in another group but is worth talking about now, says that the review period will be 180 days. Amendment 94, which interferes with the commencement part of the Bill in Clause 11, says that commencement will be on the day that the Bill passes and not just when the Secretary of State decides to publish regulations. I am trying to cut down the timing of the first review appearing from 270 days plus however long it takes for the Secretary of State to commence the Bill to 120 days flat from the Bill passing.
The reason is simple. It is found in the latest annual report of NHS Resolution, which makes it clear that moving the discount rate from plus 2.5% to minus 0.75% has meant that the cost of medical negligence to the NHS, every year, will be an extra £1.2 billion. That means that every day £3.3 million is not being spent on the NHS front line. If the rate does not go all the way back to 2.5%, but is like the rate in France of 1%, that adds up to £2 million a day. So that is somewhere between £2 million and £3 million a day, which is quite a lot of money. That is why am trying to cut the review period from 270 days-plus down to 120 days. I hope the people in charge of getting the discount rate review done have on their desks, in front of their screens, a Post-it note saying, “I need to get this done quickly. It is costing the NHS £2 million to £3 million a day”. In a nutshell, that is the reason for this set of amendments.
I must advise noble Lords that if Amendment 58 is agreed to, I cannot call Amendments 59 and 60 because of pre-emption.
My Lords, my amendment is Amendment 59. Everything that I would have said has been said very well by the noble Earl. It is clear that we need to get on with this. The cost is extortionate. There was general agreement at Second Reading that any day’s delay was too many. I accept that there are things that have to be done, but not so many things and over such a long time as is currently within the terms of the Bill. The Minister made some encouraging noises at Second Reading and I hope he can go beyond those in response to this amendment.
My Lords, we have Amendments 60, 64, 67, 68 and 71 in this group. They all have the same purpose. All are aimed at bringing forward the date of the first review of the PIDR and I want to thank the MDDUS for its help in drafting.
Amendments 60, 64, 67 and 68 each bring forward, in the appropriate place in the Bill, the start date for the first review of the PIDR to 30 days from commencement, which now seems rather timid in light of the proposals put forward by the noble Earl, Lord Kinnoull, and the noble Lord, Lord Faulks. However, as things stand, the Bill specifies a 90-day period from commencement within which the first review must start. The likely timing for the new rate determination to take effect is set out on page 3 of the Minister’s letter to us of 30 April. He said:
“Assuming the Bill receives Royal assent this year and that the provisions are brought into force within two months, the statutory timetable means the first review would be completed before the end of 2019”.
That is to take too long. Specifically, the 90-day period from commencement to the start of the first review is too long, so is the 180 days from the review start to its conclusion, and so is the unsatisfactory commencement provision in Clause 11(1), which allows the Secretary of State to choose any commencement date that he likes.
Our Amendment 71, which I will come to an a moment, deals with the 180-day period and the noble Earl’s later amendment in this group, Amendment 94, to which he has already spoken, deals with the commencement date issue. For the moment, I will speak only to the amendments that deal with the period within which the rate review must begin after commencement. The Bill specifies 90 days. We see no reason why it should be as long as that and our amendments reduce that period to 30 days.
The protracted timetable imposed by the Bill is unnecessary and inflicts real damage. Most noble Lords would agree that the current PIDR is causing real commercial harm. It is also causing real and irreversible financial damage to the NHS. For each month that the current rate operates, the NHS must accrue an additional £300 million against future clinical negligence claims. Those are enormous sums that would be much better spent on front-line activity in the NHS.
Amendment 71 also aims to bring forward the date of the first review. It addresses the length of the consultation period, who must be consulted and the length of the whole review period. Amendment 71 replaces paragraph 2 in new Schedule A1, inserted into the Damages Act 1996 by Clause 8(2) of the Bill. Paragraph 2 as it stands sets out the various elements of the timetable for conducting reviews of the PIDR and the timetable applies to the first and subsequent reviews. New paragraph 2 also sets out who must be consulted in the course of the reviews. It stipulates that the determination of whether to change the rate must be within the 180-day review period. That period must start no later than 90 days following commencement, which is left entirely to the discretion of the Secretary of State.
Amendment 71 replicates new paragraph 2, except that it addresses itself only to the first review and makes the following changes: it shortens the review period from 180 days to 90 days; it shortens the 90-day consultation period to 60 days; and it restricts the consultation for the first review to the Government Actuary—or his deputy if the office is vacant—and the Treasury. In other words, there is no consultation with the expert panel defined in paragraph 5 of new Schedule A1. Actually, it follows the original proposal made in the September 2017 Command Paper. Amendment 71 then goes on to restore all the existing provisions of paragraph 2 so that they no longer apply to the first review but to every subsequent review.
Our amendments in this group, together with Amendment 94 of the noble Earl, Lord Kinnoull, would significantly bring forward the review. By the Minister’s estimate, the Bill would produce the first review by the end of 2019 if all goes well. Our amendments, taken together, would produce the first rate review by mid-2019, at least six months earlier. This is what we should do and I commend these amendments to the Committee.
My Lords, if we are to establish an expert panel for the review, and the Lord Chancellor has not yet done so, might it be a good idea for him to decide whom he wishes to invite to join it? Unless something is done about that, just finding the panel will itself add to the time taken.
My Lords, I declare my interest as set out in the register, particularly as a partner in the global commercial law firm DAC Beachcroft. I completely agree with the words of the noble Earl. I understand that it is a favourite expression of officials in the Ministry of Justice that they are proceeding “at pace”. This group of amendments and the important concept of a shadow process prior to Royal Assent at Amendment 89, which we will look at a little later, give the Minister a range of options from which to choose to demonstrate that he intends to do just that.
I will focus on and entirely support Amendments 58 and 94. The Bill allows a number of different periods, which could lead to delay. The amendments ask the Minister to consider better and more rigorous options. The idea of any delay between Royal Assent and commencement is of particular concern because it is open-ended and uncontrolled. As has been mentioned, in his letter of 30 April to noble Lords the Minister suggests that a period of two months may be needed, but there is no indication why. No regulations are needed. The decisions that need to be made to constitute the expert panel, as just mentioned by the noble and learned Lord, Lord Judge, are obvious ones, and even if they have not been made already, the Minister still has a few months before Royal Assent in which to consider them.
My concern is that there is nothing to keep it to two months; it could turn into two years or more. I recall that the Third Parties (Rights against Insurers) Act 2010 was an uncontroversial statute, so much so that it was first considered in this House under the accelerated procedures for Bills proposed by the Law Commission, and indeed I participated in those debates. It received Royal Assent on 25 March 2010 but was not brought into force until 1 August 2016, more than six years later. I am sure that that will not happen in this case, but it is an example of how open-ended periods can give rise to all sorts of uncertainty and problems.
I am personally attracted to the idea of removing any possible delay between Royal Assent and commencement or between the commencement of Part 2 and the start of the first review. I therefore earnestly encourage the Minister to find a way of accepting these two amendments.
My Lords, I simply wish to confirm that we on this side agree with what noble Lords have suggested, so the quicker we can get things moving, the better for everyone.
My Lords, I believe that we are as one in our desire to see these provisions brought into force as rapidly and as sensibly as possible, and all of these amendments stem from the entirely reasonable, and indeed strongly argued, wish for the review to be carried out in order to minimise the impact that the present discount rate is having—disproportionately, one would venture—on defendants and in particular on NHS Resolution.
As I explained in writing to noble Lords following Second Reading, to which the noble Lord, Lord Sharkey, referred, the Government remain fully committed to beginning the first review of the rate promptly after Royal Assent and to completing that first review as soon as is practicable in 2019. To that end, I indicated that although the expert panel cannot be appointed before the power to do so has been created, preparatory work on the setting up of the panel is already under way and the Government will progress the appointment process as far as they properly can before Royal Assent. I hope that that goes some way to meeting the point made by the noble and learned Lord, Lord Judge. As part of that preparatory work, the Government intend to publish the draft terms of reference for the expert panel in time for the Report stage of the Bill in this House. However, the appointment of the expert panel cannot take place until after Royal Assent and thus the completion of the appointment process cannot be predicted with absolute certainty.
The effect of Amendment 58 and its related Amendments 63 and 66 might be to force the Lord Chancellor to delay commencement or risk the time to conduct the review being eaten into, thereby reducing its effectiveness. We have in mind the stages that have to be gone through. Amendment 59 would reduce the period of time within which the first review of the discount rate must be started following commencement from within 90 days of commencement to 10 days of commencement, and other amendments specifying 30 days have been referred to as well.
What I would emphasise is the word “within”. These are outliers, but we are determined to carry out the process as swiftly as we reasonably can. Having regard to that, however, we have to make provision for any uncertainties that may emerge, and therefore to fix too stringent a period might impact adversely upon the whole process that we want to carry out. In other words, while it is important to move quickly, it is also important to ensure that any review is completed fully and properly and is not going to be the subject of untoward challenge.
As I have said, the appointment of the expert panel to advise the Lord Chancellor simply cannot take place until after Royal Assent and even then it may still take a little time, despite the preparations that are ongoing even now. If the review starts without the panel being ready to start work, the whole task is going to be thrown into some difficulty.
I turn now to Amendment 71 which would amend the provisions in proposed new Schedule A1 that prescribe how a review of the rate is to be conducted. In particular in relation to the second and subsequent reviews, as I read it, the amendment repeats the provisions of paragraph 2 of Schedule A1 without any substantive change. However, the changes proposed to the conduct of the first review are much more significant. The principal change is that the expert panel is removed from the first review. Instead of being required to consult the panel, the Lord Chancellor is required to consult the Government Actuary and the Treasury.
This approach would clearly have the benefit of enabling the review to proceed free of the complication of setting up the expert panel, and indeed it follows a model that has been tried and tested. That is because not only is the Lord Chancellor required to consult the Government Actuary and the Treasury under the present law, but the provisions of the proposed amendment relating to the first review, subject to an important point of detail, very substantially repeat the text of the equivalent paragraph in the draft clause published by the Government for pre-legislative scrutiny in September 2017.
I acknowledge that initially this was the Government’s preferred approach because of the issue of timing, but we considered the comments and recommendations of the Justice Select Committee and as a consequence adopted a different approach. We brought the involvement of the panel forward from the second and subsequent reviews into the first review. This was done on the basis that the advantages of having the expertise of the expert panel involved in the first review would outweigh any possible delay that might arise in creating the expert panel for the purposes of that first review.
However, having heard the arguments on this subject, I acknowledge that there may be benefits to using the established statutory consultees to apply the new principles for the first time, and that this might offer a sensible way to bring the new and fairer basis for setting the rate into operation more quickly. I will certainly reflect on the views of noble Lords, although at present the Government believe that the panel ought, if practicable, to be involved in the first review. Nevertheless, I hear what has been said with regard to Amendment 71 and I acknowledge that it would reflect the Government’s original proposal in the draft legislation.
Amendment 71 would shorten the permitted length of the first review from 180 days to 90 days, and as a result the amendment would permit only 60 days for the Government Actuary to respond to the Lord Chancellor’s request. Again, these changes appear to be based on the reasonable assumption that the Government Actuary and the Treasury ought to be able to provide their advice more quickly than an expert panel which has not previously existed. I infer that that is why the period is reduced in terms of Amendment 71. Again, although we are concerned about these time limits, I will give them further consideration in the context of Amendment 71 to the question of these time limits.
In addition to the commitments which have already been given, the Government are determined to proceed promptly with the first review. I believe that that is reflected in our response to the Justice Select Committee report. There is the question of a further call for evidence to obtain any additional relevant information, as well as the need to commission the Government Actuary’s Department to carry out further research and analysis of the assumptions to be made with regard to inflation, tax and management costs, although I believe that we will consider the question of management costs later in the context of a different amendment, and of course we have looked at the responses to the original draft legislation.
The solution proposed in the amendment to the question of how to get the panel working at the earliest possible date is imaginative, but it assumes that there will be a material difference in the time by which the proposed shadow panel and the real panel will be able to carry out their work in relation to Amendment 71. I am not sure that that is necessarily the case.
Coming back to the panel itself, there are also considerations about the appointment of the panel in the context of it being in accordance with the principles of public appointments and the need for the review process itself to be open and transparent. Therefore, the reference to a shadow panel carries potential difficulties. As I have said, there can be no appointment of the real panel until after Royal Assent. Only then can the panel’s real work begin. I am grateful for the suggestions that have been made, but I am concerned that, in the light of the potential difficulties over the panel’s appointment, it would not be appropriate to go further than we have indicated at the present time.
Finally, I want to turn to Amendments 93 and 94, which supplement Amendment 58, relating to the commencement of the provisions. Clearly, as we have indicated before, we are determined to see the provisions commenced as soon as possible. The view has been expressed that we should perhaps take that a step further and have it reflected in Clause 11. Again, I will give that further consideration going forward. In the light of my response, I invite the noble Earl, Lord Kinnoull, to withdraw his amendment.
My Lords, I thank all those who have taken part in this short debate—only 22 minutes, but we have discussed an awful lot of money. In good news terms, I am delighted to hear that at least some preparatory work is going on in appointing the panel, and that it will arrive in 2019.
It was good to hear praise of Amendment 71—I congratulate the noble Lord, Lord Sharkey—and what I thought were warm words about Amendment 94. However, I have quite a lot of experience with discount rates and I simply do not buy that this is so complicated that it will take 180 days. An awful lot of people here are familiar with discount rates. I am looking at one: the noble Baroness, Lady Vere, sitting next to the Minister. I find what was said plausible but thoroughly unconvincing. I wonder whether a couple of extra teabags can be put into the teapot so that we can come round when the Minister is at home, discussing the Bill, and talk about how we could trim days off. Every day that we can chop off is a big win for the country. With that said, I beg to ask leave to withdraw the amendment.
Amendment 58 withdrawn.
Amendments 59 and 60 not moved.
61: Clause 8, page 8, line 14, leave out “within the 3 year period following the last review” and insert “if the procedure set out in sub-paragraph (3A) applies.
(3A) The expert panel under paragraph 5 must advise the Lord Chancellor to undertake a review of the rate of return when it considers that the nature of return on investment has changed sufficiently to justify such a review.(3B) Where a review under this paragraph has not taken place for a period of 12 months, the expert panel must report to the Lord Chancellor as to why it considers that no review is necessary.”
My Lords, I rise to move Amendment 61 and speak to Amendments 65, 69, 86, 90 and 91, which are consequential.
These are probing amendments, designed to tease out the Government’s thinking on the methodology for carrying out reviews of the discount rate. As I understand it, the Government intend that each review of the rate must commence within three years of the last review, irrespective of whether there have been changes in the underlying investment climate that would affect the varying rates of return on the sums awarded. I would suggest that time is not the right metric by which to settle a requirement for carrying out reviews. I agree with my noble friend Lord Faulks, who has an amendment in this group, that three years is too short in any case. I would respectfully suggest that a five-year period suffers the same strategic defects. Fixed or maximum periods will inevitably lead to an increase in attempts to game the system. My noble and learned friend the Minister will, I am sure, point out that three years is a maximum and reviews can take place more frequently.
In the world of practical politics, things will not work out like that. Changing the discount rate is a significant and potentially controversial decision. We only have to look at the immediate history, with the discount rate remaining unchanged for over 15 years during one of the biggest financial booms and busts that the world has ever seen. I believe that Lord Chancellors will be reluctant to implement the changes until forced to do so, so there will be a bunching of claims as the fixed period nears its end—whether it is three or five years—as defendants and claimants reflect on whether the upcoming review is likely to be to their advantage.
Perversely, a fixed-term system requires a review where there is no obvious reason to undertake one. If the Bill is planned to achieve fairness, a key objective must surely be to ensure that rate changes are made to reflect changes in the underlying available rates of return on investments as quickly and efficiently as possible. This group of amendments suggests a different approach, making the expert panel established under paragraph 5 of proposed Schedule A1 a permanent feature. At present, it is not: it is dissolved after each review under paragraph 5(3), which is deleted by my Amendment 90.
Amendment 61 imposes a new advisory duty on the panel to,
“advise the Lord Chancellor to undertake a review of the rate of return when it considers that the nature of return on investment has changed sufficiently to justify such a review”.
The decision to initiate the review remains with the Lord Chancellor, but he or she is given the comfort of a third party advising that a review is advisable. To ensure that paralysis does not overtake the panel, the second part of Amendment 61 requires that,
“where a review under this paragraph has not taken place for a period of 12 months, the expert panel must report to the Lord Chancellor as to why it considers that no review is necessary”.
How the expert panel would make that judgment is up to it. Bearing in mind that in the new world, investment should be assumed to be in lower-risk categories, there are multiple indices: gilts—not index-linked gilts, I hasten to add—or prime corporate bonds, which together can provide indication of changes in the likely available rates of return. All the other amendments in my name in the group are consequential.
To conclude, these probing amendments seek to move the undertaking of reviews of the discount rate from an arbitrary, time-based system to one that reflects events in the relevant real world—namely, changes in the available rate of return on investments. I beg to move.
I must advise your Lordships that if the amendment is agreed to, I cannot call Amendment 62 for reasons of pre-emption.
My Lords, I rise to support Amendment 91, tabled by the noble Lord, Lord Hodgson, which is in this group. The offending part of paragraph 8 is the legislative equivalent of putting the genie back in the bottle or un-casting the die.
Let us be clear: the option of the Lord Chancellor setting no rate does not mean leaving the current rate alone, or even setting a rate of 0%. I want to outline the sequence of events that will occur: having set the rate at least twice, the Lord Chancellor will decide that it is no longer appropriate for the Lord Chancellor to set the rate at all, that he should repeal all previous rates and that the whole matter should be thrown back to the courts. The effect would be to create a maelstrom in which no one can settle a case, because no one knows what the rate would be.
These sub-paragraphs, which Amendment 91 would remove, would in effect allow the Lord Chancellor to repeal the entire discount rate review mechanism, via secondary legislation, simply by deciding that he or she has had enough. I am surprised that the Delegated Powers Committee did not raise an objection, but the meaning of the sub-paragraphs is pretty opaque. It simply cannot stand up.
My Lords, I support the noble Lord, Lord Hodgson. A standing panel would be a great advantage to a Lord Chancellor. Quite apart from the hassle of trying to reassemble a panel every whatever the periodicity is and the cost of assembling one—I assume a firm of suitably expensive headhunters would be involved—you would then have to take the panel up a learning curve as to exactly what is required of it, which would take some time. We do not need to go there.
The biggest thing, though, is that if I was the Lord Chancellor and Black Wednesday happened for a second time I would like to ring someone up and say, “Do I need to do anything here?” I would assume that, as Lord Chancellor, I would not be super-familiar with discount rates and things like that because my expertise would lie somewhere else. Having a standing panel that could answer curveball questions and interact as and when would not be expensive. It would probably cost the same as the periodic panel because of all the start-up costs associated with it, and it would be very helpful for a Lord Chancellor if something really bad happened.
I have in this group Amendments 74, 87 and 88. Amendment 74 is a probing amendment. It provides the Committee with an opportunity to debate the value of the Lord Chancellor having a decisive role in determining the PIDR. As things stand, that is what he or she has—a decisive role. It is true that the Bill will create an expert panel to advise him and that it sets out the assumptions on which he must make that determination, but it is the Lord Chancellor who makes the decision. This poses the obvious question—why? What are the merits of having a politician making this judgment? What merit is there and what dangers might there be in having this decision in the political arena?
It is true, of course, that the rate decision has many serious consequences—for claimants but also for insurers and for the NHS, as we have discussed. These consequences are far reaching—but so are the consequences of changes to the Bank of England base rate. Changes in the base rate affect everyone who has a mortgage, every borrower and every saver. Some recent changes to the base rate have had dramatic effects on millions of people and continue to do so. For example, millions of people with savings have been dramatically disadvantaged by rate changes since 2007. Equally, millions of mortgage holders have benefited enormously from these changes. But these decisions on the base rate were taken not by politicians but by the MPC—an expert panel. If decisions on such wide-reaching and consequential matters can be taken by an expert panel without political involvement, why have political involvement in the PIDR? Why have the Lord Chancellor involved?
I raised this question when I met Ministers to discuss the Bill. The noble and learned Lord, Lord Keen, commented that the Lord Chancellor’s role was a matter of government policy. I understood that. However, we did not have time to go into the question of why it was government policy or whether there were better alternatives. We did not discuss what grounds the Government might have for maintaining the policy or whether any assessment had been made of alternative arrangements. We now have a little more time to discuss the issue and the merits of removing this role from the reach of politicians for reasons analogous to removing control of the base rate from them. I look forward to the Minister’s reply.
Amendments 87 and 88 are straightforward. They deal with the expert panel itself, as set up in paragraph 5 of the new Schedule A1 to the 1996 Damages Act, inserted by Clause 8(2). This panel is to be consulted by the Lord Chancellor in determining the rate. The Bill specifies the members of the panel as the Government Actuary, or his deputy if the office is vacant, who is to be chair, and four other members appointed by the Lord Chancellor, one of whom must have experience as an actuary, one experience of managing investments, one experience as an economist, and one experience in consumer matters relating to investments. All these roles seem pretty well defined, except possibly the last one. Could the Minister flesh that out a little? Can he give examples of the kind of persons who might qualify as having,
“experience in consumer matters … relating to investments”?
It seemed to us that the panel might benefit from an additional member with different expertise. Amendment 87 would add a member who is medically qualified and has experience of changes in medical science and their effects on life expectancy. The PIDR has a very significant effect on the damages awarded against the NHS for clinical negligence, as we have mentioned. Payouts last year amounted to £1.7 billion and the amount has been rising steeply in recent years.
Awards for clinical negligence frequently have to take into account estimates of life expectancy. The Committee will know that the PIDR has a very significant effect on damages awarded against the NHS for clinical negligence. As I said, payouts amounted to £1.7 billion last year, and much of this was determined by reference to life expectancy. Of course, actuarial methods can and do give an estimate of life expectancy, but for the most part this will be based on extrapolations of current trends. What might not be taken into account is the likelihood of discontinuous change brought about by the speed of advances in medical science. We live in a golden age of medical research. It is not a total exaggeration to say that one hears nowadays almost daily of some remarkable medical breakthrough that will in due course benefit patients by curing disease, improving quality of life and prolonging life itself.
It seems to us that the expert panel would benefit from having first-hand, direct experience of these new treatments and their likely effects. A member with such experience would make a valuable contribution to any assessment of the role played by life expectancy in determining awards. I look forward to the Minister’s thoughts on the matter.
Amendment 88 would impose a duty on the Lord Chancellor to secure that,
“each of the appointed members approaches the work of the expert panel as an expert with the object of recommending a rate of return that is fair to … both claimants and defendants”.
It could be argued, for example, that the last change to the PIDR was not fair to both claimants and defendants in that it produced a huge rise in the amounts awarded to claimants. And it works the other way: there might be rates that a panel thought unfair to claimants. If so, it would be important that that view helped form the recommendations. We see our amendments as allowing a dispassionate view of the effects of a change to the PIDR for both claimants and defendants, and this should have an explicit role in informing the panel’s recommendation. I hope that this is not controversial. In fact, I rather hope that the Minister will be able to demonstrate that the amendment is unnecessary and that the requirement for fairness is somehow already built into the procedure.
My Lords, the question of whether this should be a political decision or one taken by the panel is difficult. I thought carefully about this, as I am sure other noble Lords did. Ultimately, I respectfully submit that it should be a political decision taken by the Lord Chancellor. Of course, that decision will be critically informed by what the panel tells him or her. The provisions in the Bill provide that, when a Lord Chancellor makes a rate determination, he or she must,
“give reasons for the rate determination made, and … publish such information about the response of the expert panel established for the review as the Lord Chancellor thinks appropriate”.
My noble and learned friend will correct me if I am wrong, but, if the Lord Chancellor were to take a perverse view, ignoring all the advice or not giving sufficient reasons for it, he or she would potentially be liable for judicial review. Ultimately on the question of accountability, this is a political decision and a politician should be answerable for it.
Of course I yield to no one in my admiration for doctors—we have a number of distinguished doctors in your Lordships’ House, and they are the experts who can assist the House on questions of life expectation. However, with great respect, that is not quite the question that the panel is there to answer; it is there to answer the question of yield for investment having regard to an investor of reasonably cautious nature. While some doctors might have a view about this, I am not sure that questions of life expectation have anything to do with what is essentially an actuarial or financial calculation. Therefore, I am afraid that I am unable to support that suggestion.
My Lords, the Act which this Bill amends gave the Lord Chancellor this power. I suppose that, at that time, the Lord Chancellor had intimate relations with the judiciary—but he also had the responsibility of accounting to Parliament if there was a question about the matter. The connection between the Lord Chancellor and the judiciary has somewhat diminished since that time, but the Lord Chancellor still has a primary duty in relation to the judiciary that other members of Government do not.
It is also important to have accountability in this matter. As my noble friend has just said, if the Lord Chancellor ignored the advice of the panel, he might have good reason for doing so, but it would be very difficult for him to explain it, because one would assume in this case that he or she would accept the judgment of the panel and he or she would be answerable to Parliament.
I share my noble friend Lord Faulks’s difficulty in relation to medical help. It is for the judge to decide on the length of time or the nature of the requirements for care, treatment and so on that a person may have. This particular exercise is primarily for those expert in the matter of investment.
I have perhaps understood the new schedule to which the amendment applies rather too generously. I assumed that there would be different rates of return fixed for different classes of case and that it might therefore be possible to change them on review—for example, to have no rate of return for a particular class or to enlarge the class that another rate of return applied to. It would be extraordinary if one could abolish this duty by the exercise of paragraph 8(2)(a). I do not think that that was intended—but my noble and learned friend may say that it was.
My Lords, perhaps I may add a footnote to the point made by the noble Lord, Lord Faulks, in favour of the Lord Chancellor having the decision. Paragraph 6(2) of the new schedule, on the way in which the panel is supposed to work, states:
“In the event of a tied vote on any decision, the person chairing the panel is to have a second casting vote”.
We then look at who is to chair the panel and see that it is the Government Actuary. I would much rather the Lord Chancellor assumed ultimate responsibility than the matter be determined in the event of a tied position by the Government Actuary. So the structure as set out supports the line taken by the noble Lord.
My Lords, I have two amendments in this group. They are fallback amendments, because noble Lords will see that I have joined the noble Lords, Lord Sharkey and Lord Marks, in signing up to Amendment 74. That is certainly my preference; these are fallback positions which at this stage I would not like to advance over the amendments in the name of the noble Lord, Lord Sharkey, although we may have to see how it goes on Report. It may be necessary to have a fallback position in light of today’s debate. I am sceptical, to put it mildly, about treating these critical issues as matters for political decision. Despite what some noble Lords have said, I would have been happier to see that replaced, but we will have to wait until Report before we come to a conclusion about that.
Was the noble Lord speaking to Amendment 77 or to Amendment 74?
I was speaking to Amendments 74, 77 and 84.
In that case, I shall speak in support of Amendment 77 and cover Amendments 82A, 85A and 90A, which are tabled in my name as probing amendments.
I do not want to make a Second Reading speech, but will open with three points. The first is on the context of the amendments in my name, which is that we are talking about a one-off payment. It has to last the recipient the rest of their days, which is a pretty daunting prospect. Will it keep pace with inflation? Will the recipient die before or after the money runs out? Will the UK and global economies do any good in the next 10, 20 or more years? What returns will be achieved each year from now until the recipient’s death? No matter how clever the Lord Chancellor or expert the panel, these will remain unknowns or, at best, haphazard guesses.
The one thing we do know is that if the discount rates rise, which this Bill is intended to achieve, returns to recipients will fall. By raising the discount rate, we are saying that the investor must—they have no choice—take on more risk. We oblige them to do so. This calls into question the underlying principle of achieving 100% compensation.
Let us not take false comfort from the idea of an expert panel. This is a group of five people who will have to come up with a series of “best guesses” and then seek to arrive at a “best guess of those guesses” to suggest to the Lord Chancellor. The Lord Chancellor remains free to override them.
My concern is that, in its enthusiasm for reducing costs to the NHS and others, the panel will be encouraged in various ways to impose risk on recipients which they are not equipped to gamble with. If the panel does not do so, the Lord Chancellor may. I expressed my concerns about the make-up of the panel at Second Reading, so I will spare your Lordships a repeat of that. We should not forget that the Chancellor is acting for the Government in many of the highest-value cases. That seems a conflict of interest.
What should we do? If the panel is trying to determine a rate on which so much life-altering importance hangs and if we are allowing the Lord Chancellor potentially to vary that rate, we need to be assured that, as far as possible, the rate arrived at is the result of a transparent process and not some magic number produced from a black box and then applied.
My amendments seek to achieve three things: to oblige the Lord Chancellor to a greater extent than the Bill suggests to take account of the panel’s deliberations; to make the panel more transparent in its deliberations and conclusions; and to enable the panel to take into account the realities that the recipient will face in the real world—taxation, inflation and management charges. In the Bill, it is the Lord Chancellor who may take these things into account.
Anyone who has worked in investments knows that such costs are a key determinant of actual returns. With RDR and MiFID II, such charges—for example, management charges—are becoming far less opaque than they used to be. Surely the panel should present the Lord Chancellor with a fully baked rate, not a half-cooked one that has significant ingredients missing.
Turning to the specific amendments, Amendment 77, to which my name was added, obliges the Lord Chancellor to take proper account of the panel. It relates to Amendment 78 in a later group, but that requires matters not to be left simply to the Lord Chancellor’s opinion. I anticipate others speaking to Amendment 77, so I shall leave it there and speak to Amendments 82A, 85A and 90A which are in my name. On Amendments 82A and 90A, the expert panel are supposed to be the experts but they are denied the opportunity to consider the rate in the round, rather than give the Lord Chancellor the half-baked suggestion I referred to a moment ago. The Bill as drafted just provides the Lord Chancellor with opportunities to select his or her own rate. Amendments 82, 82A and 90A place the making of key assumptions where they belong: with the expert panel. Amendment 90A also requires a reasoned explanation by the panel of its decision. This is vital for transparency and understanding. It is also the basis, one hopes, for its voting and for discussion with the Lord Chancellor, including any override that he or she may choose to impose.
Finally, Amendment 85A in my name is again about transparency. Under the Bill as drafted, the Chancellor must give reasons for and publish,
“such information about the response of the expert panel … as the Lord Chancellor thinks appropriate”.
No, my Lords: the Lord Chancellor should publish what the expert panel advises and give a reasoned explanation if he or she departs from its advice. Echoing the point made by the noble Lord, Lord Sharkey, a few moments ago, just as the Bank of England publishes the voting pattern, so the voting pattern cast by this panel should be published. Only then will we have a clear basis for understanding how the rate has been suggested, whether the Lord Chancellor has altered it and, if so, why. The setting of the rate, we should remember, will have fundamental effects on the lives of people in very distressing circumstances. Surely, they and we have the right to an understanding of what has gone on. My amendment builds on what is already proposed in the Bill but will, I suggest, lead to clearer and more transparent outcomes that are therefore more meaningful, more useful and less open to the temptations of distortion.
My Lords, I want to say just one thing about the nature of the Lord Chancellor’s judgment in this case. The noble Lord, Lord Cromwell, said that the Lord Chancellor is acting on behalf of the Government, but that is not the nature of the decision: it is the Lord Chancellor’s decision as representing the Lord Chancellor himself. He has the responsibility of a personal decision in this matter, in the way this Bill is drafted. Certainly, when I had responsibility for these matters it never occurred to me that I should consult the Cabinet about it.
My Lords, I begin by acknowledging the point made by my noble and learned friend Lord Mackay of Clashfern. The Bill makes perfectly clear that this is a decision of the Lord Chancellor as Lord Chancellor, and it is in that context that it has to be seen and understood.
Amendment 61 would replace the proposed three-year maximum review cycle for the second and subsequent reviews of the rate with a system under which the need for the rate to be reviewed would be determined by the expert panel by reference to changes in returns on investment. Of course, there are then consequential and supplementary amendments. The effect would be to add a new and distinct responsibility to the role of the panel. It would in effect, as I believe my noble friend Lord Hodgson acknowledged, require a standing panel to be created. If more than a year had passed since the rate was reviewed, the expert panel would be required to assess the need for a review and then to advise the Lord Chancellor to review the rate if it considered that the nature of return on investment had changed enough to justify a review. If the panel decided that this condition had not been satisfied, it would have to report its reasons for this view to the Lord Chancellor.
The concept of a review based on changes in investment returns was canvassed as an alternative to a fixed review period in the Government’s 2017 consultation on how the rate should be set, and it was supported, let me be clear. However, basing the review requirement on changes in investment returns would, we believe, create more uncertainty and be less predictable than a regular fixed-date review. The introduction of a requirement for the panel to consider the need for a full review annually could further fuel such uncertainty.
I appreciate the concerns raised by the noble Lord and others at Second Reading about the potential for a fixed review period to prompt undesirable litigation behaviour and the possibility of what is sometimes termed the gaming of the system in anticipation of a change to the rate. However, this problem would not be avoided by the system which the amendment proposes. Litigants would still know when the panel would be required to consider whether the rate required reviewing. Indeed, such occasions would be more frequent under the amendment than under the three-year cycle proposed in the Bill. One can imagine a stop-start mentality emerging leading up to the time when the panel was expected to report.
A further consequence of the amendment would be that the expert panel would have, in practice, to exist independently of the review of the rate, rather than being convened by the Lord Chancellor for each review, as the Bill currently provides. In effect, a standing panel would be required, which would have to exercise judgment as to the timing of reviews, rather than confining itself to the technical matter of advising the Lord Chancellor on the factors that may considered in the setting of the rate, which is the purpose of the expert panel. The amendment would therefore make a very significant change to the proposals in the Bill regarding when the rate should be changed. The Government’s proposals for a fixed-period maximum cycle for the review of the rate have, as I say, been developed through consultation and been the subject of pre-legislative scrutiny, and we consider that they provide a simple and certain method by which reviews can largely be predicted.
Amendment 74 would require the Lord Chancellor to adopt any recommendation from the expert panel as to whether the rate should be changed and, if so, what the rate should be. Clearly, such a change would diminish significantly the responsibility and accountability of the Lord Chancellor for any review outcome—indeed, it would essentially remove it. Amendment 74 would also remove the requirements on the Lord Chancellor, the panel and the Treasury set out in paragraph 2(6) and (7) of new Schedule A1 to comply with or to take into account the duties of the Lord Chancellor in relation to the setting of the rate that are set out in paragraph 3 of new Schedule A1. What we would have is the elevation of the panel from an advisory role to essentially an executive role. That would be a major change and clearly greatly alter and increase the role of the panel.
The creation of the expert panel to advise the Lord Chancellor is, of course, one of the most important changes introduced by Clause 8. The panel is central to the Government’s proposals for the way in which the rate is set, introducing new expertise and transparency. The panel will play a very important role in providing assistance to the Lord Chancellor in setting the rate, but it would not in our view be appropriate for the panel’s recommendations to bind the Lord Chancellor in deciding whether the rate should change and what it should be. The setting of the discount rate requires the weighing of different potential outcomes for individuals in relation to a range of possible rates. An element of value judgment will ultimately be required. It is important, therefore, that the decision-maker should be politically and publicly accountable for decisions on the rate. That is why the Lord Chancellor is, in our view, the appropriate person to make that choice. Indeed, this was recognised by the Justice Select Committee, which stated in its report that:
“Setting the discount rate has repercussions on the taxpayer through Government expenditure and also consumers through its impact on insurance premiums and inflation; therefore we think it is right that the decision to set the discount rate lies with the Lord Chancellor”.
We agree with that assessment.
In addition to being influenced by the pre-legislative scrutiny carried out by the Justice Committee, the proposals we have put forward have been developed through the public consultation process. In response to the question of by whom the rate should be set, the largest single group of support was for the rate to be set by the Lord Chancellor following advice from an expert panel. I note the support for that which has been given, in particular, by my noble and learned friend Lord Mackay of Clashfern, expressing his experience as Lord Chancellor and underlining the distinct role of the Lord Chancellor in this context.
The Minister talks about the consultation and the preferences expressed there. As I think I mentioned at Second Reading, there was no majority in favour of the Lord Chancellor being involved. There was a majority for other methods, not the Lord Chancellor.
I acknowledge that. As I said, the greatest number of responses were in support of that particular proposal. I reiterate that.
I understand that Amendment 74 is a probing amendment but it would at a stroke remove many of the benefits that the proposed reforms in the Bill are seeking to achieve. This is because paragraph 3 of the new schedule governs how the Lord Chancellor is to decide what the rate should be, and Amendment 74 would remove paragraph 3 from the schedule. The essential change made by paragraph 3 to the present law is that in future the rate is to be assessed on returns reasonably expected to be achievable from a diversified low-risk portfolio of investments. This has regard to how claimants actually invest and the returns available to them. This evidence-based process of assessment will replace the hypothetical approach of the present law, which leads to the rate being set largely by reference only to returns from UK index-linked gilts.
Our evidence is clear that claimants simply do not invest all their awards in UK index-linked gilts; in other words, claimants do not pay Her Majesty’s Government to look after their money. Our research indicates that setting the rate on this basis leads to awards of compensation that are expected to produce on average around 135% of the funds anticipated to be necessary to meet the claimant’s losses, although this drops to 120% to 125% after taxation and the costs associated with the management of investments have been accounted for—a point that I will return to in a moment. The new system will put the setting of the rate on a far more realistic basis and bring the average closer to the target of 100%. This will be fairer for both claimants and defendants.
In support of this process, the paragraph sets out a number of key assumptions that the Lord Chancellor must adopt in deciding what the rate should be and a number of supporting factors he or she must take into account. It also enables the Lord Chancellor to identify and apply further assumptions and to take into account further factors in determining what the rate should be. Amendment 74 would remove the entire framework provided by the Bill for the basis of the setting of the rate. The effect would be that, unless the Supreme Court were to decide to adopt a different basis for the setting of the rate in a future case, the rate would continue to be set on the basis of the present case law, principally the 1998 decision of the House of Lords in Wells v Wells, which was referred to by the noble and learned Lord, Lord Hope, at Second Reading; it is a case on which I believe he sat. This would remove the central aim of the reforms to provide a fairer, more certain and more sustainable system for both claimants and defendants, and would remove any possibility of overcompensation and its impact on the National Health Service.
Clearly, we want seriously injured individuals to be fully compensated for all the losses caused by their injury. They should receive the full and fair compensation that is legally due to them. We do not seek to change the overriding objective of 100% compensation. The problem is that at present the rate has to be set largely by reference to UK index-linked gilts. But our evidence is that this is not how such claimants actually invest and therefore we have to move on.
I add that it might be a little odd to adopt the noble Lord’s Amendment 74 in light of his Amendment 71, which encourages us to have the Lord Chancellor fix the first rate without recourse to the panel at all. There seems to be a slight tension between the two amendments. I have expressed my view on Amendment 71, and we are going to look at that again, but I do not find it easily reconcilable with Amendment 74, albeit I acknowledge that it is a probing amendment.
I simply observe that I do not think lawyers have an exclusive right to exercise and run conflicting arguments.
Generally speaking, they are alternative arguments.
Amendment 77 would add an obligation on the Lord Chancellor to take into account the response of the expert panel in determining what the rate should be. Of course, that is exactly what the Lord Chancellor will do. Indeed, why would the legislation require the Lord Chancellor to consult the panel and require the panel to respond if the Lord Chancellor was not required to consider the panel’s response? Of course, there may sometimes be merit in stating every detail of a process in primary legislation but I suggest that it is not necessary in this case.
Amendments 82A, 85A, and 90A, spoken to by the noble Lord, Lord Cromwell, relate to the procedures and responsibilities governing the operation of the panel. Clearly, the expert panel has an important advisory role but it is not appropriate or desirable to load it with the additional responsibilities suggested in the amendments. Paragraph 2(7) of new Schedule A1 already requires the panel to take into account the duties of the Lord Chancellor under paragraph 3. Paragraph 4 requires the Lord Chancellor to give reasons for his or her decision and to publish information about the response of the panel. As the noble Lord, Lord Faulks, observed, ultimately the Lord Chancellor’s decision on the matter, as it is disclosed, will be amenable to judicial review. It is not a case of the Lord Chancellor receiving the expert panel’s views and simply ignoring them. Clearly, such a perverse course of action, which one would not anticipate, would leave his decision-making power amenable to review.
The obligations are expanded by the commitments that we gave to the Justice Select Committee to consult the panel about the allowances to be made for taxation, investment management charges and inflation in the setting of the rate and, over and above that, to publish the panel’s report to the Lord Chancellor at each review. It is not a case just of disclosing what the panel’s advice may have been but of undertaking to publish the panel’s report and then to give reasons for the decision that the Lord Chancellor has made.
As I touch upon that, I recollect that the noble Lord, Lord Sharkey, raised the question of the experts on the panel. I will come on to the question of a medical expert in a moment but I note that with regard to the position of someone concerned with consumer investments, one would be interested there in the context of someone who acted as a financial adviser to those who made investments as consumers at various levels. That, I understand, is what is contemplated at that point.
As I have sought to underline, the overall thrust of the amendments is that the panel should, in effect, carry out a pre-review of the rate. This is not the intended role of the panel. The panel’s role is advisory. It will be consulted by the Lord Chancellor and it will provide the Lord Chancellor with its views. The report of the panel and the Lord Chancellor’s decision and his reasons for the decision will be published. But the role of the expert panel is not to take away from the role of the Lord Chancellor. It is not the role of the panel to make a decision on what the rate should be. Its role is to provide expert support to the Lord Chancellor.
At the end of the day it is the Lord Chancellor who will make the necessary determination and will be publicly answerable for the determination he makes. Therefore, we consider that the decision must be for the Lord Chancellor, who will take that decision in his role as Lord Chancellor and be legally and politically accountable for it. The process of the setting of the rate is going to be transparent. The panel has been created for a very important purpose—namely, to bring new expertise to the process of setting the rate—but it is not its role to second-guess the outcome of the final review by the Lord Chancellor.
Amendment 84 would require the Lord Chancellor to base the allowances to be made for taxation, inflation and investment management costs on recommendations from the expert panel. The Lord Chancellor is already required by paragraph 3(5) of new Schedule A1 to make appropriate allowances for each of these three items. This will be an evidence-based exercise requiring judgment as to what the standard allowance should be against the range of possible individual circumstances that might be foreseen. The expert panel forms an integral part of the Government’s proposals. It will introduce additional expertise but, at the end of the day, the final decision must be for the Lord Chancellor. The amendments proposed by the noble Lord, Lord Cromwell, would in my submission take the role of the panel way beyond that of an expert consultative role.
I turn to Amendment 87, which was spoken to by the noble Lord, Lord Sharkey, and would extend the membership of the expert panel to include a medical representative. Here I concur with the view already expressed by my noble friend Lord Faulks. On one view, the effect of this amendment would be to broaden the general expertise within the panel, but I should explain that its role is intended to focus purely on matters relating to financial rates of return, in order to provide advice to the Lord Chancellor. The Bill therefore provides for the panel to be chaired by the Government Actuary and that the other members should have experience as an actuary, a manager of investments, an economist and, as I indicated earlier, in consumer matters relating to investment—for example, as a financial adviser.
The Government consider that this range of expertise is the most relevant for providing advice on what the relevant investments and rates of return are likely to be, and will be the most useful source in formulating advice for the Lord Chancellor. While medical expertise is relevant when determining a lump-sum amount of compensation to which the discount rate is to be applied, or in estimating the life expectancy of a claimant, these are separate issues to the setting of the discount rate and would be outside the remit of the panel, as an expert panel advising the Lord Chancellor. We do not see that a medical expert would contribute to the process of the expert panel.
I turn next to Amendment 88, which was also spoken to by the noble Lord, Lord Sharkey, and would require the Lord Chancellor to use the power to appoint the four appointed panel members to secure that each of those members approaches the work of the panel as an expert with the object of recommending a rate of return that is fair to the interests of both claimants and defendants. The appointed panel members are indeed intended to be experts in their fields. The expertise that they will bring to the process of setting the rate is one of the most significant reforms introduced by the Bill. The Government made it clear in their response to the Justice Select Committee that they intend to recruit experts who will act as independent experts in providing their advice, not as representatives of specific interest groups. This is not a representative panel; it is, I emphasise, an expert panel.
The appointed panel members will be required to disclose potential conflicts of interest and, under paragraph 3(2) of new Schedule A1, to take account of the duties imposed on the Lord Chancellor as to how the rate is to be set in deciding what response to give to the Lord Chancellor’s consultation. The mix of expertise stated in the Bill strikes, we suggest, a correct and fair balance between the various areas of knowledge that would be required. The proposed additional requirements on the Lord Chancellor in Amendment 88 are therefore unnecessary.
This amendment, however, also seeks to indicate what the objective of the work of each of the appointed panel members should be. The panel as a whole will play a very important role in providing advice, as I say, to assist the Lord Chancellor in setting the rate. It is very important that this advice is fair, which is why the Bill sets out the range of expertise referred to. However, the role and objective of the panel is to advise the Lord Chancellor on matters relevant to the setting of the rate by the Lord Chancellor. The role of the individual appointed members will be framed accordingly. We consider that the requirements on the Lord Chancellor under the terms of the legal framework for the setting of the rate, coupled with the advice from the panel of experts, who will bring a balanced range of expertise, and the requirements in the Bill which provide that the Lord Chancellor will give reasons for his or her decision, underline the way in which the decision-making process will be accountable and transparent. It will also have the objective of being impartial.
Amendment 91, which I believe was spoken to by my noble friends Lord Hodgson and Lord Hunt, who is still with us, would remove the provisions in paragraph 8 of new Schedule A1, which interpret provisions in relation to the setting of the discount rate to cover the possibility of the Lord Chancellor deciding on the occasion of a review to set no rate or no rate for particular classes of case, on the one hand, and changes from that situation, on the other. In fact, that new paragraph would reproduce the provisions in the Damages Act 1996 which indicate that the court must take into account such rate of return—if any—as may from time to time be prescribed by an order made by the Lord Chancellor. This wording implies that the Lord Chancellor might decide to set no rate under the present law. The provisions in paragraph 8(2) to (4) are intended to clarify how this power would operate.
Amendment 91 would remove the possibility of the Lord Chancellor deciding not to set a rate. While it is of course unlikely that the Lord Chancellor would decide on this course of action, we do not consider that it would be appropriate to narrow the Lord Chancellor’s options beyond what is prescribed in the present law, as circumstances could arise in which a category or class of rather unusual cases occur that call out for individual assessment of an appropriate discount rate. That, I believe, is why it was provided for in the 1996 Act. A no-rate provision, such as we think is possible under the present law, would enable the parties to avoid having to convince the court that it should depart from the prescribed rate under new Section A1(2).
I mention again the case of Warriner v Warriner in the Court of Appeal, in 2008, I think, where the court said that it would not be appropriate to depart from the prescribed rate unless very particular reasons were advanced. This removes that presumption in the context of a class of cases where it is believed that the discount rate might have to be addressed on an individual basis. It is only for that purpose; it may be extremely unlikely, but the power is there at present in the 1996 Act. We do not consider that it should be removed and I do not contemplate that as a means by which the Lord Chancellor would seek, in effect, to repeal the provisions of the Bill when it is an Act. I have no doubt that my noble friend Lord Hunt would have something to say if any attempt were made to that extent.
In the light of these explanations and while understanding that these are generally probing amendments—Amendment 74 is just that, as the noble Lord, Lord Sharkey, observed—I invite noble Lords not to press these amendments.
My Lords, I am grateful to all noble Lords who have taken part in this wide-ranging debate. Perhaps I might return to Amendment 61, where we began 54 minutes ago, and say to my noble and learned friend on the Front Bench that the purpose of this amendment was to assist the Lord Chancellor, not to undermine him. It was designed to give him some air cover by somebody saying, “Oi! You need to be doing something about the rates of return”. There was no fixed term to this; they could turn up at any time and say that. The idea was that they would somehow do it every year, but it would not be. It could be more frequently if interest rates changed sufficiently to justify the rate going up and down.
A permanent panel would have a role. The noble Lord, Lord Sharkey, talked about the MPC, which is not the same sort of thing but it has a collective institutional memory. If you dissolve the panel after each time it sits, and start again de novo with the next review, that seems a waste of the experience, knowledge and know-how of making these things work that would be built up in the operation of a panel. My noble friend Lord Faulks said that it is a political decision and I agree. It is, which is why Amendment 61 says:
“The expert panel under paragraph 5 must advise the Lord Chancellor to undertake a review”.
It does not say that he must; it says that it must advise him and at that point the Lord Chancellor may say, “No thank you” and make his own decision.
Let us consider this situation. The Lord Chancellor has a wide range of duties so somebody will have to tip up one morning and say, “Lord Chancellor, it’s time you had a review of the rate”. Somebody in the MoJ will have to survey the rates of return available and the unlucky official who has to do that will know that it will be an unpopular thing to say because the Lord Chancellor will not want to get into the controversy of having to establish and justify a new rate. That will not be a popular moment, so the much more likely time for it to happen is when the unlucky official comes along and says, “Lord Chancellor, the three-year period”—or five-year period—“is coming to an end and you’ve got to do something”. We will have this series of events at the end of the period prescribed, depending on whether the Government accept my noble friend Lord Faulks’s amendment to have five years as opposed to three. I suggest that, from the point of view of efficiency, applicability and fairness, an expert panel being able to say to the Lord Chancellor, “It’s time we had a review” is a much better way to proceed and much more in keeping with the arrangements and purposes behind the Bill.
We shall obviously go no further on this tonight, but perhaps I can put it on the shopping list for when my noble and learned friend is kind enough to say that we can come and talk to him. In the meantime, I beg leave to withdraw the amendment.
Amendment 61 withdrawn.
62: Clause 8, page 8, line 15, leave out “3” and insert “5”
My Lords, we have had a debate effectively asking the Government to get on with the process of fixing the discount rate. We have now had a debate about who should be on the panel and how they should go about exercising the function of deciding the discount rate. This group of amendments is to do with a shorter, but very important, issue—namely, the regularity of reviews.
It is plain, I suggest, that there must be regular reviews, and much more regular than in the past. One of the problems that existed, and still exists until the law is changed, is that there was no particular period in which the Lord Chancellor had to exercise his or her power to alter the discount rate. It was very rarely done, not least because of the potentially significant political consequences of the decision. When, finally, the then Lord Chancellor, Ms Truss, altered the discount rate in 2017, it had the most dramatic effect. While more regular reviews are desirable, the question is: how regular should they be?
The problem about having a review every three years is that parties to litigation will have a quite understandable tendency to try to guess the outcome of the determination of the new discount rate and to game the system. I do not wish to imply anything inappropriate about such gaming; it may well be done by either side in a dispute, and is simply a factor in the uncertainty involved in negotiations, where a party thinks it would be to their advantage either to wait until after determination of the discount rate or to ensure that a trial or settlement is concluded before the discount rate is altered.
Large claims take some time to get to court. A brain-damaged baby does not have to begin a claim—or, at least, a claim does not have to be begun on their behalf—until after he or she attains their majority at the age of 18. The normal limitation period for personal injuries is three years, but there are exceptions in terms of date of knowledge and, under Section 33 of the Limitation Act 1980, there is the power to disapply the limitation period in certain circumstances.
In a complicated criminal negligence case, it may be a number of years before there is clarity in terms of causation and, indeed, prognosis, once all the various experts’ reports have been assembled and exchanged, and there have been meetings of appropriate experts. There is then the problem of finding a court date for trial.
There is thus plenty of time and room for manoeuvring. In my view, a three-year period is definitely too short. I would have favoured, if I had been asked, a seven-year period, but I suggest in this amendment five years as a compromise. If any evidence is needed of the gaming of the system, it is apparent now. That evidence may be anecdotal, but there is such an accumulation of this anecdotal evidence that it simply cannot be ignored. Parties are either anxious to conclude their cases before the putative date of the variation of the discount rate or to delay matters. There is much speculation as to when this Bill will become an Act. I fear that such manoeuvring will take place almost continuously if the three-year period is maintained.
I therefore ask my noble and learned friend the Minister seriously to consider altering the period to five years, which will mitigate to some degree the uncertainty that prevails on discount changes. Uncertainty, I accept, is inevitable in litigation, but where there is such a degree of uncertainty, with potentially large consequences in the size of a claim, it militates against settlement. Settlement of claims avoiding court hearings is surely desirable and unless the Government change the frequency of the review, I fear that there will be a very real increase in the number of claims that do not resolve themselves. Alternatively, there will be a number of applications to court to try to adjourn matters or accelerate them to reflect some perceived advantage to one side or another. I beg to move.
My Lords, I shall speak very briefly to Amendments 72, 73 and 75. Essentially, the points I made about the initial review apply here as well, and I shall not repeat them. But it seems to me that the sparking off of a review within a review period —not right at the end—because something has made the Lord Chancellor feel that there had better be a review now indicates that there is probably a need for one, either up or down. Therefore, I feel that we should trim the period of the review down. This is only a discount rate—it is not a very big thing and can be done relatively quickly. The three amendments merely suggest a way of trimming it down. Perhaps I may suggest to the Minister that when we have that very large cup of tea, we kick this around as well. It would be a great shame if future trimming reduced the rate heavily. There may be people whose cases are being settled at the wrong rate, so we have a duty to try to do things at a reasonable pace.
Does the noble Earl not accept that there is a risk that if there is such a frequent review, those who are parties to litigation will simply feel that they are in a permanent state of uncertainty about what the discount rate may be? They have to rely, for at least a reasonable period, on a certain discount rate.
I am sorry if I have confused the noble Lord. I am merely saying that once the review has been sparked off by the Lord Chancellor’s decision—it does not matter what the periodicity is; I was very interested in the arguments advanced by the noble and learned Lord—it should take place at a reasonable pace, because somebody is suffering if it is done slowly. That is the purpose of trying to trim the rates. This is not difficult; one discount rate has been set by a group of people who will have exactly the right sort of skills. I therefore think it can be done a bit quicker but, as I said, it is probably best discussed not in the Chamber but with the Minister.
I am not really persuaded by the logic of the amendment of the noble Lord, Lord Faulks. It is not as if all claims will be faced with a five-year period. If a case is brought two years before a review, the courts will be dealing with a more recent determination than if it had been five years. I do not see the advantage of the noble Lord’s proposition. There will be some cases that will obviously be closer to that date than others.
May I help the noble Lord? When you are coming up to a review period, whenever that is—whether of three years or five—there will be an element of one party or another seeking to guess the outcome. My point is that you do not come up to that cliff edge so often if it is five years rather than three.
Yes, but if you bring your case a year or two before a review, whether it is a three-year or a five-year review, your position is not changed, is it? I just do not see the logic of the amendment, and I will not be supporting it.
My Lords, the amendments in the group alter how often reviews of the rate take place and shorten the timing of the review period. Some of the points I shall make have been touched on in previous groups but, I feel, are worth repeating in this context.
The three-year period adopted in the Bill represents a compromise approach based on the responses to the March 2017 consultation. A wide range of views were expressed as to how often the rate should be reviewed, from automatic reviews at short intervals to every 10 years. The most popular options among the substantial majority who favoured fixed-period reviews were: one year, with 28 responses; five years, with 23 responses; and 21 favouring something in between.
In adopting a three-year period, we were conscious that any fixed period will at some stage influence litigation behaviour. In our view, three years strikes a reasonable balance between the risk of continual, or at least over-frequent, anticipation of rate changes associated with a shorter period influencing litigation behaviour, on the one hand, and the risk resulting from a longer period of more dramatic changes to the rate, on the other.
We believe that the more frequent reviews under a three-year cycle should lead to smaller adjustments in the rate on each review than that under the five-year cycle proposed in Amendment 62. This should reduce concerns about the size of any change in the rate as a result of the review, which should also reduce any temptation to distort the litigation process in the hope of benefiting from a significant advantageous change to the rate. We continue to believe that a three-year maximum review period represents a reasonable compromise between the different views held in this House and outside it.
Amendments 72 and 75 would shorten the period within which a review of the discount rate must be completed, from 180 to 120 days. Amendment 73 would shorten the time available to the expert panel to deliver its response to the Lord Chancellor from 90 days to 75 days. We fully recognise the need to ensure that reviews are conducted promptly and do not take up an excessive amount of time. However, it is equally important that sufficient time is available to enable the review to be properly informed and to give the expert panel and the Lord Chancellor an adequate period to consider all the issues that may arise.
We have drawn on the experience of reviewing the rate under the present law in proposing the time periods now in the Bill. It may be helpful to explain how the 180-day period allowed for in the Bill is made up. Turning to the first 90-day period, each review will require the analysis of up-to-date evidence on investment returns and investment behaviour to ensure that a fully informed decision is reached. The expert panel will need to consider this evidence in detail and prepare a thorough report for the Lord Chancellor. We consider that the 90-day period allowed for in the Bill represents a challenging but reasonable deadline for the panel to provide this. Turning to the second 90-day period, the Lord Chancellor will in turn need to consider the panel’s report and, as is the case under the current framework, consult HM Treasury. As the panel will be introducing new expertise into the review process, it is important that the other parties involved have the benefit of its considered views. Again, we consider that the 90-day period allowed for in the Bill is reasonable for this part of the review.
We therefore consider that the overall period of 180 days is reasonable to ensure that proper preparation of the review and careful consideration of the issues can take place. A significantly shorter period, such as that proposed in the amendment, could reduce the thoroughness and effectiveness of the review process. On the basis of the explanations I have given, I hope that my noble friend will feel able to withdraw the amendment.
I am grateful, or fairly grateful, to all noble Lords who spoke in this debate. I am sorry that the noble Lord, Lord Beecham, is entirely at a loss to understand the purpose of my amendment. Quite a number of other people seem to favour five years, so it is not a complete outlier. In fact, as many seem to favour five years as three years or any other period.
As my noble friend conceded, whatever period is selected is in a sense a compromise. It must be arbitrary. I am grateful to my noble friend for answering not only this group of amendments but an earlier group when dealing with the mechanism of the time limits for the Lord Chancellor to go through the process of conducting the review and appointing a panel. We have already been told that our suggestions are inappropriate in that respect, but it is nice to be told again. That was clearly in the speaking note.
As to the question of why three years, my noble friend said that there may be smaller adjustments after three years rather than five. With great respect, that depends on the economic climate. There may be some enormous economic event—we are not unfamiliar with those, sadly—which means that there could be a dramatic change in a short period. I am unconvinced by that argument.
My main point was gaming. I have personal evidence and experience that it is going on at the moment. Clearly, it is anecdotal, but I suggest that three years is definitely the wrong period. I will withdraw my amendment now. I shall do my best to accumulate better evidence to try to convince the noble Lord, Lord Beecham, among others, and the Government, that five years is a better period. In the meantime, I beg leave to withdraw the amendment.
Amendment 62 withdrawn.
Amendments 63 to 75 not moved.
Amendment 76 had been withdrawn from the Marshalled List.
Amendment 77 not moved.
78: Clause 8, page 9, line 21, leave out “, in the opinion of the Lord Chancellor,”
My Lords, I beg to move Amendment 78 and shall speak to our other amendments in the group: Amendments 82, 83, 85 and 80A. I should stress that, like much else that we have debated over the past two days in Committee, these are probing amendments. Amendment 78, together with Amendment 77, just debated, strengthens the role of the expert panel in setting the discount rate. Although the Bill provides that the Lord Chancellor must consult the expert panel, nothing in the legislation provides a link between the panel’s report and the Lord Chancellor’s final version on the discount rate after each review.
Amendment 82 removes paragraph 3(4). It is this provision which gives the Lord Chancellor unfettered discretion when setting the discount rate, and we believe it should be removed. It has been pointed out—a point made by the noble Lord, Lord Cromwell—that the Lord Chancellor has a conflict of interest when deciding the discount rate, as the Government are a defendant in many high-value claims. This would constrain the Lord Chancellor’s involvement. Perhaps we can hear from the Minister on that point.
Amendment 83 would ensure that the Lord Chancellor is not influenced by any other external issue. The Bill provides that, in addition to the advice given by the expert panel, the Lord Chancellor can take account of other anecdotal evidence on investment behaviour. Amendment 83 would prevent that.
Amendment 85 deletes the Bill’s provision that does not limit the factors which may influence the Lord Chancellor when making a rate termination. This is an extremely wide power. Perhaps the Minister can tell us why it is considered to be necessary and give us examples of how it might be used.
Amendment 80A would remove the provision which allows that the investment of relevant damages involves,
“more risk than a very low level of risk”.
I recognise that this is a fundamental issue, and we offer it at this stage as a probe. In doing so, I would like to share some of the advice that we got from APIL, which said:
“The first thought of someone who receives compensation following a catastrophic, life-changing injury is not ‘how can I make the most of this fantastic windfall?’. It is instead ‘how can I eke out my compensation payment to make sure it lasts long enough to look after me and my family for the rest of my life?’ Or ‘will my compensation payment keep pace with inflation in the long term?’”.
Injured people need a fair system which recognises the fact that people with life-changing injuries should not have to gamble with the compensation which is carefully calculated to last for the rest of their lives. The fact that many people are so risk averse that their compensation investments may not even keep up with inflation is often overlooked.
They are right to be risk adverse. The compensation they are given is all they will ever have. When undercompensated, they survive—rather than live—in fear of what will happen when the money runs out and cannot see a way forward. Damages must, therefore, be calculated on the assumption of very low risk investments and the system should be reviewed on a regular basis. This is an issue of need: the actual concrete needs of people who have been injured through negligence must be met in a fair and just 21st century society.
The basis of the Government’s legislation is that claimants should invest in “low risk” rather than “very low risk” investments. It relies on analysis from the Government Actuary’s Department and, in particular, the outcome of an assumed investment strategy basedon a portfolio of “low risk” investments.
We understand from the Ministry of Justice that portfolio A forms the basis of the Government’s thinking. An investment strategy which relies heavily on hedge funds and equities cannot possibly be considered “low risk”.
In addition, the GAD analysis has identified that a significant number of claimants would not receive 100% compensation under the favoured model: they would have a 30% chance of being undercompensated by 5% or more if the discount rate were set at plus 1%; they would have a 19% chance of being undercompensated by 5% or more if the discount rate were set at plus 0.5%; they would have an 11% chance of being undercompensated by 5% or more if the discount rate were set at zero per cent.
Where does that leave the principle of Wells v Wells? Is that still the Government’s thinking and, if so, how is it consistent with that data?
The proposal by the Government to move from “very low risk” to “low risk” is inherently unfair for claimants and it is fairness to injured people which has to take precedence here. Nothing has changed since Lord Scarman said in Lim Poh Choo v Camden and Islington Area Health Authority:
“There is no room here for considering the consequences of a high award upon the wrongdoer or those who finance him. And, if there were room for any such consideration, upon what principle, or by what criterion, is the judge to determine the extent to which he is to”,
be supported on the grounds of compensation payable? How does the Minister respond to that point?
It is, surely, the duty of society to ensure that vulnerable people are treated fairly, according to their needs. In such a society, people whose lives have been shattered by negligence, should never be put into the position of having to take chances with their compensation on a volatile stock market. Someone who has been through probably the worst thing ever to happen to him should be allowed to be a risk-averse, safe investor. The person whose life has been shattered because someone else was negligent should not have to worry about whether his funds will run out before he dies.
I shall comment later on some of the amendments in this group, but I just refer to Amendment 79, which is in the name of the noble Lord, Lord Faulks, which seeks to deny the costs of investment advice being recoverable by way of damages. That seems to me to be a particularly heinous provision to seek to include in the Bill. I make the point because I know that one of my colleagues wishes to develop the theme. We assume throughout the discussion that we have had today that the individuals are sophisticated investors. It may well be that they have access to regulated advice. Whether they take it or are in a position to take it is another matter. We wish to probe the extent to which people who may have large sums come their way as compensation effectively access advice and are able to act on it.
The House of Lords Select Committee on Financial Exclusion looked at the issue. One of its conclusions was that the degree of financial education and understanding in this country was actually quite low. How that matches with the sort of considerations and assumptions that have flowed from some of these discussions today and last week needs explaining. I beg to move.
My Lords, I was about to warmly welcome the noble Lord, Lord McKenzie, to our Bill until he described my amendment as “heinous”. I do not seem to be going down very well with the Opposition Front Bench this evening. It reminds me of happier days when I was on the Government Front Bench and met with a similar lack of enthusiasm.
I would like to speak to Amendment 79, which raises a rather different point from others in the group, although I have not sought to decouple it. The point is that claimants’ lawyers are, understandably, imaginative in finding different heads of damage to include in schedules to enable them to recover on their client’s behalf the maximum possible by way of damages. One growth area that emerged was the cost of investment advice. When the discount rate was 4.5%, there might have been some basis for that claim for investment advice, particularly in the case of large sums recoverable by way of a lump sum as opposed to periodical payments. However, the approach of the court in Wells v Wells in 1998 assumed an extremely cautious investor who invested his or her money only in gilts—ILGs. That rather removed the justification for any specific and additional claim for investment advice. Following Wells, the Lord Chancellor in June 2001 changed the rate to 2.5 %, where it remained until 2017.
It always seemed to me that, if the assumption in Wells was of a highly risk-averse investor, it made little sense to award damages to reflect the cost of investment advice on the assumption that he would, in fact, be rather more adventurous in his investment strategy. I am glad to say that this was the view of the Court of Appeal in the case of Eagle v Chambers in 2004, 1 Weekly Law Reports 3081, a case in which I acted for the defendants. I can see a potential argument being advanced that, with the change in the assumption that damages are invested using a slightly less cautious approach, it may be argued that Eagle v Chambers is no longer good law and that the cost of investment advice could be removed.
I do not in any way seek to decry the point made by the noble Lord, Lord McKenzie, about financial exclusion generally. However, I suspect that bulky reports from financial investment advisers will be submitted to the court, suggesting what the cost of investment advice might be. Even with the benefit of MiFID II, that advice may not be as transparent as one would like; it will certainly be expensive, particularly when intended to cover a long period. The cost of the advice, perhaps being obtained on both sides, will significantly add to the burden on the part of a defendant, whether that defendant be an insurance company, the National Health Service or another public body. One way or another, ordinary members of the public will be paying for this.
One construction of the rather opaque paragraph 3(3) of new Schedule Al, inserted by Clause 8, is that the rate has been fixed on the assumption of proper advice on the investment of damages, in the sense that advice is understood to have been taken or not taken in fixing the rate but it is not to be the subject of a separate claim. In other words, in fixing the discount rate the investment advice is understood to have been done by the Government. My amendment seeks to make what may be the proper construction of the Bill explicit to prevent an additional cost of litigation, and to make it clear that the decision in Eagle v Chambers remains good law. I look forward to hearing the Minister’s response on this issue.
I have one point to add to the remarks of the noble Lord, Lord McKenzie, on the effect of the different approach to the level of risk. One factor which was mentioned by Lord Lloyd of Berwick in Wells v Wells was the need to have a relatively stable, constant fund from which funds could be drawn as the need arose over a long period of time. The risk he was contemplating in that part of his judgment was not that of the funds running out, just that the value of the fund would diminish as the stock market went down. In its turn, this would prejudice the viability of the fund to maintain itself at the appropriate level as time went on. The risk we were contemplating then, in looking at the appropriate rate of return, was differentials in performance which would affect the ability of the fund to meet ongoing costs which would not fluctuate. They were the constant costs of equipment maintenance or nursing services which the injured person had to meet from time to time: a level rate of costs, against a fluctuating value in the fund available to pay for them.
There is much to be said for reducing the level of risk to the minimum possible compatible with the aims of the Government, to avoid the problems of fluctuation which affect the viability of the fund. I mention this because it is another factor which lies behind the point made by the noble Lord, Lord McKenzie. As the noble Lord, Lord Faulks, has pointed out, the advantage of the Wells approach is that investment advice was not needed. I am not quite sure how these things are structured, but if the fund were to be put in the hands of an adviser, there is usually a performance factor taken out of the management of the fund. It is not so much investment advice as the cost of managing the fund. The larger the fund, the more likely it is that the best way of handling it is to put the whole fund into the hands of an investment adviser who would simply manage it accordingly.
It is rather difficult to extract from that a recoverable figure of the kind that the amendment in the name of the noble Lord, Lord Faulks, is directed at. There is a lot to be said for just taking that factor out of the award altogether and leaving it up to the individual to decide how best to have the money managed. If it is a management figure, then that is all right: it is just part of the choice that the injured person makes. It should not be added in as an additional element of damages.
My Lords, I will speak briefly to Amendments 80 and 81 in my name. I congratulate the noble Lord, Lord McKenzie, on his heart-rending speech, but it seemed only to go back to saying, “My goodness, PPO is a good idea”. So many of the risks which the noble Lord identified would be sorted out by that, but that is in the past.
New Schedule A1 to the Damages Act is inserted by Clause 8(2). At Second Reading, I said that I was worried that paragraph 3(3) did not give sufficient clarity to what was being asked for in the investment. I was concerned that, without that clarity, there could be a plethora of new Wells v Wells cases, with people trying to grapple with what was actually meant. Amendment 80 probes the word “investments” in the phrase,
“the assumption that the recipient of the relevant damages invests the relevant damages in a diversified portfolio of investments”.
We should at least be clear that those investments were debt securities, not equities.
Secondly, I thought it would be helpful to try to define a “very low level of risk”. That does not actually mean anything to me, with my background, and I suspect it does not mean anything in law. I have tried to define it as the level of risk you have when you buy UK Government debt security. These are probing amendments and I regard this as a discussion, but clarity in this area of the Bill would be greatly to the advantage of everyone concerned.
My Lords, we are dealing with sensitive issues here. Nobody wants claimants to get a raw deal, but we need to examine presumptions that we appear to be writing in, especially in the light— as has just been mentioned again—of the possibility of periodic payments. In his reply to the first group of amendments, the Minister seemed to say that the possibility of periodic payments was a lot more open than it appears to be, due to the statistics.
Amendment 80B is another probing amendment. I tabled it because the language of paragraph 3(3)(d)(ii) of new Schedule A1—it is much easier to say “the last three lines at the bottom of page 9”—does not seem quite right. The wording concerns how it is to be assumed the relevant damages are invested and says to assume,
“less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims”.
My amendment deletes the whole sub-paragraph, but it is a vehicle for probing and there are less extreme ways to fix it.
I understand the intention of the words: the claimant should be reckoned to invest in a cautious and advised way, perhaps more cautiously than an individual who does not have the same vulnerability. Paragraph 41 of the Explanatory Notes explains it as,
“less risk than would ordinarily be taken by a prudent and properly advised individual investor (who is not a claimant) with similar investment objectives”.
Those investment objectives clearly need to be the purposes set out in paragraph 3(2) of new Schedule A1, at lines 25 to 31 of page 9, which includes, for example, that the damages,
“would be exhausted at the end of the period for which they are awarded”.
However, the actual wording in the three lines at the end of page 9 does not seem to say the same thing. The first two lines—
“less risk than would … be accepted by a … properly advised individual investor”—
are broadly okay, but it then says,
“who has different financial aims”,
which is very different from the “similar investment objectives” of the Explanatory Notes. I am therefore slightly puzzled. Was the intention to state that they are different because they are not a claimant, is it a mistake, or have I missed some other point?
Different financial aims could, for example, include capital preservation, which would then conflict with the capital exhaustion purposes of paragraph 3(2). Which one prevails? What difference is covered? This could be fixed simply by deleting the last line,
“who has different financial aims”,
by replacing it to correspond with the Explanatory Notes, or by referencing back to the paragraph 3(2) purposes, as it is a sort of adjunct to that anyway. I am not sure that referencing a notional non-claimant investor helps, but noble Lords who have experience in the litigation aspects may be able to say whether it is helpful. Or is it there to help the financial adviser so that they have a defence if sued, by being able to say, “I advised in a similar way to the way I did for that other investor, but with a bit more caution”?
Having got that far in my thought process, I then wondered whether the provision added anything other than confusion, sandwiched between the criteria or purposes I have already mentioned and which are elaborated in paragraph 3(2), and the further factors specified in paragraph 3(5), which could also be in conflict as it goes on to reference taking account of actual investments, which is very different from looking at what this prudent investor—who has to be a bit more prudent than that prudent investor—might have done, and it refers to the advice of the expert panel. Having these three nested purposes, assumptions and extra factors makes it a confused layout, and they are not necessarily properly nested.
Going still further—I am probing, so I will probe further—I wondered whether the balance was right. Is it justified to embed additional caution over and above what you have to do to fulfil the basis purposes? We have already touched on this slightly: it is the other side of encouragement of periodic payments. You do not want to discourage them by overtly encouraging too-generous lump sums—more generous than might be 100% compensation.
When looking at long-tail risks, it is hard enough to find a formula that works for institutions, where the pluses and minuses of differing longevity have a chance to balance out, as will, to some extent, the ups and downs of the discount rates. However, as has been said, at the granular level of an individual there will always be winners and losers with a lump sum. But if you take the view that we want to encourage periodic payments, claimants are, at least theoretically, opting to take a risk if they choose a lump sum over an arrangement with periodic payments; they should therefore perhaps own that risk. There is a delicate balance to be made between full and fair compensation and additionally compensating for risks that the choice of settling for a lump sum entails. Harsh as it sounds, we have to consider who owns that risk and whether it is right for it to be further hedged against, at least as the initial presumption. Thus, given the safeguarding flexibility in the Bill that the court will have to deal with individual circumstances, I question whether the presumption of extra caution is necessary or whether it should be reserved explicitly for when periodic payments are not available. As Amendment 80A has already been introduced, I point out that I am not sure I want to go back to the situation where you are always looking at UK debt, or even debt in general, as the only possible investment. The world of finance is now far too dependent on that. I am sure that at the time of some of the cases that have been cited, the extraordinary measures of central banks and quantitative easing, which have been pretty devastating to the owners of bonds, were not envisaged. Therefore, to close down and be prescriptive about options is dangerous, just as it is dangerous to have bank capital reliant on that—but that is another matter.
As I said, I am probing; the most basic point is the discrepancy between “different financial aims” in the Bill and “similar investment objectives” in the Explanatory Notes—it seems to me that the Explanatory Notes have got it right. Then there is the additional confusion over what happens because you also have the implications of the purposes in paragraph 3(3) of new Schedule A1 and the factors in paragraph 3(5). It would be useful to have an elaboration, or even some sorting out, of how that is all supposed to work.
My Lords, I will briefly support the noble Baroness, Lady Bowles of Berkhamsted, in what she just said. It is easy for us to overlook what quantitative easing has done to the returns on savings and fixed interest. It has been a much longer-running saga than was anticipated, and it is still carrying on. If we are to set up a system that precludes people investing in equities, which gives some protection against that, we will be doing no service to the people who need this money as part of the way to recover from terrible injuries they received. The last line on page 9,
“who has different financial aims”,
does not add anything at all to the situation and will merely provide fuel and funds for lawyers to discuss exactly what that means in cases in future years.
I am obliged to all noble Lords for their contributions. The noble Lord, Lord McKenzie of Luton, began by referring to the briefing from APIL—the Association of Personal Injury Lawyers. I am familiar with it, and indeed, the association invited me to speak at its annual conference, where I confirmed that we would take the Bill through Parliament. I have not cleared my diary for next year. Much of what they had to say, which was repeated by the noble Lord, was, as the noble Earl, Lord Kinnoull, pointed out, met by the need to encourage the uptake of periodical payment orders. We are committed to that and we will take it forward in various ways. They need to be embraced more thoroughly, not only by claimants but by defendants —insurers—as well. Nevertheless, I make that point.
The noble Lord referred to the case of Wells v Wells, which has been mentioned before. There we saw the reference to what was essentially construed as “very low risk investment in UK gilts”, and we are moving away from that. However, there is an additional element in that, which is volatility: you have an investment portfolio which may be subject to volatility, and you may find that it is at a low point at a stage when you need to withdraw capital funds. That has to be factored in as well, and we appreciate all that.
On the suggestion that we are somehow inviting people to invest their savings, or a majority of them, in hedge funds, that will not do at all. The portfolio A that was examined included 13% UK equities, 15% overseas equities, and 18% of alternative investments which could be modelled as hedge funds. We have to see all this in context. We took clear evidence on the nature of a low-risk portfolio, and there was reference, for example, to widows and orphans, but we are in a different climate in this context. We are not seeking to move away from the idea of 100% compensation. I will come on to the probing amendment of the noble Baroness, Lady Bowles, on setting the rate by reference to not only a floor but, I suggest, a ceiling—there are reasons for that—and the question of investment objectives, as distinct from different financial aims.
Amendment 78 seeks to amend paragraph 3(2) of new Schedule A1 by removing the words,
“in the opinion of the Lord Chancellor”,
from the requirement that the Lord Chancellor must decide the rate on the basis that,
“the rate of return should be the rate that, in the opinion of the Lord Chancellor, a recipient of relevant damages could reasonably be expected to achieve”,
if he invested the relevant damages for the purpose of the assumed objectives. The effect of the amendment would be to prevent the Lord Chancellor seeking to justify a rate on the basis that it seems perfectly reasonable in his subjective opinion when, by any objective assessment, the rate proposed is not supportable.
The noble Lord referred to an “unfettered discretion” and conflict with a political interest, but we are talking about the Lord Chancellor making the decision in his capacity as Lord Chancellor. He does not have an unfettered discretion. He is subject to public law duties in the exercise of his functions. Any decision of the Lord Chancellor as to what the rate should be must be rational, and any failure in rationality can be challenged by way of judicial review. I have already touched upon that and the question of disclosure, and I shall not repeat it.
It is necessary to have reference to the opinion of the Lord Chancellor in relation to setting the rate because the setting of the discount rate is not now, and will not under the proposed legislation, be a precise science—it cannot be. The decision to be made on the rate will require the weighing of different potential outcomes for individuals in relation to a range of possible rates. An inevitable degree of subjective assessment is involved in this process. That is why it is appropriate that, although there is an expert panel, that subjective assessment is made by the Lord Chancellor, albeit with the reasons being given and explained, with a rational analysis of the information submitted to him.
Amendment 78A would require the Lord Chancellor to assume, when considering the damages to which the discount rate would apply, that the relevant damages would be payable as a lump sum or partly as a lump sum. The current wording of the Bill requires the Lord Chancellor to assume that the relevant damages will be payable wholly as a lump sum. We do not consider that this amendment is necessary. The discount rate will only ever be applicable to damages payable as a lump sum, and in setting the rate the Lord Chancellor will have regard to that.
Amendment 79 would include the requirement to assume, among the assumptions which the Lord Chancellor must make under paragraph 3(3) of new Schedule A1 in determining the discount rate, that the cost to the claimant of investment advice shall not be recoverable by way of damages. I appreciate the point made by my noble friend Lord Faulks about the need to be clear about how investment management costs are to be treated in setting the rate, but we do not consider that this amendment is necessary.
Paragraph 3(5) of the schedule provides for the Lord Chancellor to make such allowance for “investment management costs” as he thinks appropriate. This provision has been included on the basis that under the current law the cost of investment advice is not, for the reasons explained by my noble friend Lord Faulks, recoverable as a head of damages and therefore needs to be taken into account as a factor in setting the discount rate. Should the law change, an allowance in the setting of the discount rate would then become unnecessary, as the claimant would already have the benefit of the compensation for the costs. However, we understand that paragraph 3(5) reflects the current law and can adapt to changes in the law. Therefore, we do not consider that it casts doubt on the present law regarding the unrecoverability of investment costs as a head of damage. That is a feature of fixing the discount rate.
Amendment 80, tabled by the noble Earl, Lord Kinnoull, seeks to change one of the assumptions that the Lord Chancellor is required to make under paragraph 3(3) of the new schedule. Under the amendment, the recipient of the relevant damages would be assumed to invest in a diversified portfolio of investment grade listed debt securities rather than a diversified portfolio of investments. The range of investments to be assumed to be made and included in the diversified portfolio under the amendment is clearly narrower than that under the proposed assumption in paragraph 3(3)(c) at present.
The Bill does not restrict the investments that are to be assumed, save that the overall investment approach must be assumed to fall within the range of risk described in paragraph 3(3)(d). We consider that this approach avoids the rigidity of tying the assumptions to a single type of investment. The Lord Chancellor and the panel can therefore assess what the appropriate investments should be in the circumstance of the review. In making their assessment, the Lord Chancellor and the panel will have to have regard to evidence of how claimants actually invest and the returns actually available to investors. We consider that to be a more sustainable system for the future.
Amendment 80A would change the assumptions which the Lord Chancellor must make in relation to the assumed risk appetite of a hypothetical claimant when setting the discount rate. Paragraph 3(3)(d) currently provides for the assumption to be that the relevant damages are invested using an approach that involves more risk than a very low level of risk—that is the floor—but less risk than would ordinarily be accepted by a prudent and properly advised investor who has different financial aims. This is according to evidence on how claimants invest in reality.
The amendment would replace this range of approaches to investment risk with a very low-risk approach to investment. It would, in effect, return the setting of the rate in this respect to the present law, which would lead to the rate continuing to be set largely by reference to the return on UK index-linked government stock. For all the reasons I have explained, we do not consider that to be an appropriate or sustainable approach.
Our research and analysis indicate that setting the rate on this basis leads to awards of compensation that are expected to produce, on average, around 135% of the funds anticipated to be necessary to meet a claimant’s losses. That might be reduced to 120% to 125% once due allowance is taken of taxation and the costs of managing investments. Our evidence shows that it is simply not the case that claimants invest in index-linked gilts. They invest in low-risk diversified portfolios, and that is the approach that will be taken. It is realistic and it is sustainable.
That brings me on to Amendment 80B, tabled by the noble Baroness, Lady Bowles. This would also change the assumptions that the Lord Chancellor may make about the approach to risk. It would essentially leave us with a floor but without a ceiling, which we would not consider to be appropriate.
As regards the question of who owns the risk, the noble Baroness makes a very good point. Where a claimant and his advisers have the option of taking a periodical payment order but choose instead to take a lump sum—for example, in respect of future care costs over 30 or 40 years—then in a sense, without perhaps using that terminology, they are making an assumption as to the risk that they are willing to meet instead of taking the periodical payment order, and that will no doubt be reflected in the way in which the rate is approached in due course.
As to a potential conflict between paragraph 41 of the Explanatory Notes and the terms of the Bill, two parties might have the same investment objectives—namely, to maintain a low-risk portfolio—but they might have different financial aims. The claimant might be prepared to treat that investment portfolio as he would an annuity, with the result that at the end of his expected lifespan there would be zero capital left, whereas another investor who is not in that situation but has the same investment objective of maintaining a low-risk and perhaps low-volatility portfolio will wish to maintain the value of the capital at the end of his life expectancy. So there might be differences between the two. However, I have taken on board the noble Baroness’s observations and will give them further consideration as we move on to the next stage of the Bill.
Amendment 81, tabled by the noble Earl, Lord Kinnoull, seeks to define the term,
“a very low level of risk”.
As I have indicated, while that amendment seeks to define that level of risk as being the level of risk equivalent to the risk associated with UK debt securities, we consider that that would potentially raise the floor of the range of investment approaches that should be taken. In a sense it would anticipate the role of the expert panel, and therefore we do not feel that it is necessary to take that approach.
In our view the interpretation of the relative risk levels of the approaches to investment is best left to the expert panel and the Lord Chancellor to consider on a review-by-review basis, rather than attempting to tie the definition to a single type of investment in perpetuity, which would lack flexibility. I acknowledge that the term “very low risk” is not susceptible to a precise and specific definition. However, it is a relative concept under which different types of investments may, from time to time, fall to be compared. Therefore, we suggest that it is an appropriate floor from which to work. The changes proposed in Amendment 81 are too prescriptive, and we consider that a better approach is to be more flexible and to provide the Lord Chancellor with a broadly defined range to bookend the range within which he will apply his mind.
Amendment 82 is intended to remove the power of the Lord Chancellor to make additional assumptions as to the setting of the rate over and above those already stated in paragraph 3(3). This stems from concern that this power could create an element of uncertainty as to the basis on which the exercise would be carried out. The power to make additional assumptions is surely beneficial. It avoids the possibility that the assumptions specified in paragraph 3 are the only ones that may be taken into account. The Lord Chancellor might, for example, make assumptions about the amount of investment management advice that is to be deemed necessary or about the duration of the assumed awards to be invested. The need for a particular flexibility may not be apparent in present circumstances, but we have to allow for future developments. I also point out that the power to make additional assumptions does not override the express assumptions already stated in paragraph 3(3) or the overall objectives of setting the rate specified in paragraph 3(2) of the schedule. The power cannot therefore be used to change the fundamental basis for any review.
Amendment 83 would remove the obligation of the Lord Chancellor in setting the rate to have regard to the actual returns that are available to investors and to the actual investments made by investors of relevant damages. The reforms proposed are intended to put the process of setting the rate on a clearer statutory footing and to provide full compensation to claimants in a manner that is fair to both claimants and defendants. In the Government’s view, it is fundamental to achieving this objective that the rate is set in a way that has proper regard to the investments that claimants actually make rather than relying on hypothetical assumptions as to what the returns should be. The requirement on the Lord Chancellor to have regard to actual returns and actual investments will, and is intended to, reinforce a more evidence-based approach. This approach will replace the present approach, which, in practice, is linked to returns on UK index-linked gilts. The requirements in paragraph 3(5) are important to ensuring that the rate is evidence-based.
Finally, Amendment 85 would remove the provision in paragraph 3(6) of the new Schedule A1 that provides that the factors that may inform the Lord Chancellor when making the rate determination are not limited to those specified in paragraph 3(5). That provision is intended to provide flexibility and to avoid the possibility of argument that the factors mentioned are the only ones that can inform the Lord Chancellor’s decision. That would be an unfortunate position; it could result in challenges to the Lord Chancellor on the ground that he had taken account of factors that he was not entitled to take account of in fixing the rate. Removing paragraph 3(5) by Amendment 85 would be contrary to the effective evidence-based approach that we want to take to setting the rate, which is central to Clause 8 and to the amended Section A1 of the Damages Act 1996.
I appreciate that these were essentially probing amendments and, at this stage, I invite the noble Lord to withdraw his amendment.
My Lords, I thank the Minister for that very detailed reply and all other noble Lords who have spoken in this debate. On a small point of detail, I think the noble and learned Lord referred to 80% hedge funds. I do not think that is the figure I mentioned, but even at 18% it seems surprisingly high—but there we are.
One outstanding issue is that of how those who are compensated actually make their investments. I draw a parallel with the pensions system. We have just spent quite a long time in this House and at the other end looking at default arrangements for people who have a pension pot and want to transfer it or cash it in on some basis. Encouragement to try to get those individuals to take advice of one sort or another is exercised quite extensively. I raised the same point in relation to people receiving compensation for injury and damages. What happens when they get the cheque? Is there any encouragement for them to get independent guidance on where they should get such advice from? That is still a bit of a mystery to me, even after the debate. I do not know whether there is anything more the Minister can say on that point. The presumption is that individuals will make their own arrangements with presumably regulated advisers. But what about those who do not? What is the process and system that encourages them to avail themselves of investment advice?
I do not know whether the noble Lord wants me to respond to that but I will, very briefly, if I may, with the leave of the House. Where you have major claims for catastrophic injury, the lawyers involved for the claimants are highly sophisticated. One clear message that I received when discussing this with claimants’ lawyers was that they are concerned not only with the processing and pursuit of the claim itself but with establishing a framework within which the claimant will be able to live. I imagine that almost invariably involves the provision of suitable investment advice, albeit no one is obliged to accept it.
My Lords, in practice, when these cases come before a court, particularly where there is a party who lacks capacity, a judge, before approving one of these orders—they have the right to approve or disapprove a settlement—must be satisfied that appropriate advice has been taken on the split between periodical payments and a lump sum and that, generally, it is a satisfactory settlement from the court’s point of view. If they are subject to the Court of Protection, the court will then be able to manage investments according to the best interests of the protected party. If I may say so, the noble Lord has a good point on what happens to those who do not need the approval of the court or who are outside the protected party, and who are like anybody else who comes into a large sum of money in any other context. They will be well advised to take advice: some do; some, I fear, do not.
I am grateful to the Minister and to the noble Lord for that education and further information. I still take away the point about where those who do not take advice end up. There is a difference between people receiving compensation for damages—where in most instances it is a one-off arrangement to last them for the rest of their life—and somebody who wins the pools and has a stash to invest, which they may do wisely or foolishly.
The genuine point is this: it is important to be comfortable that people will be as encouraged as they can be to take advice—I know you cannot force them—and to know that any gaps have been covered in our deliberations on the Bill. That is particularly important in this era of scammers and cold-callers. We know the impact that they can have on people’s pensions and there is a real parallel here. Having said all that, I think I have probably said enough, and I beg leave to withdraw the amendment.
Amendment 78 withdrawn.
Amendments 78A to 88 not moved.
89: Clause 8, page 10, line 36, at end insert—
“( ) For the purposes of this paragraph, the Lord Chancellor may adopt the membership and work of an expert panel already established by the Lord Chancellor prior to this Schedule coming into force.”
My Lords, this is another “hurry up and get this thing done” amendment, as we discussed extensively earlier today, particularly on the group beginning with Amendment 58. During the course of the responses that my noble friends on the Front Bench gave in that debate and others, my horse was shot—not once but twice. Or at least it was wounded, so I will be very brief.
I suggest merely that as a Committee we agree that we wish to see the new system brought into effect quickly as possible. This amendment is designed to empower the Lord Chancellor to begin preparatory work on setting up the expert panel and putting it to work before Schedule A1 comes into effect. My noble friend Lord Hunt of Wirral, who unfortunately was unable to stay for the rest the debate, has written to my noble and learned friend on the Front Bench about this, citing precedents of where it has proved effective in the past to get things moving quickly, and the Minister has acknowledged those particular suggestions.
I hope that the Government will work in parallel and not end-to-end, because that will enable us to shorten the period by bringing this new system into effect. The whole discussion around Amendment 58 was about the length of time that it could take. The quicker we can find ways to shorten the proceedings the better, and this amendment might take a couple of months off that procedure if we can get the expert panel in place now. I beg to move.
My Lords, we support the thrust of this amendment. Matters would have been helped had there been a stand-in panel in the first place.
My Lords, Amendment 89 would allow the Lord Chancellor to establish a panel informally before the Bill has received Royal Assent. As we indicated in responding to earlier amendments, the Government share the objective of ensuring that the first review of the rate is begun and completed as promptly as is practicable. With that in mind, we have committed in response to the Justice Select Committee report not only to issue a further call for evidence to obtain any additional relevant information but to commission the Government Actuary’s Department to carry out further research and analysis.
The solution proposed in the amendment to the question of how to get the panel working at the earliest possible date is certainly imaginative, but it assumes that there will be a material difference in the time by which the proposed “shadow panel” and the “real panel” will be able to carry out that work. That is not necessarily the case. The panel will need evidence and analysis to carry out its work. That will take time. There are also the considerations that the process of recruitment should be in accordance with the principles of public appointments and that the review process must be open and transparent.
I am grateful to my noble friend for his suggestion, but I do not think that in a subject as sensitive as the setting of the personal injury discount rate I can accept it. I can, however, reassure him that the necessary steps will be taken to ensure that the first review of the rate following the passage of the Bill will be conducted as swiftly as possible, while also on as fully informed a basis as it possibly can be. In the light of this, I hope that my noble friend will feel able to withdraw his amendment.
I am grateful to my noble friend, but I am less reassured—my horse has got up and started moving around again. I thought it had been shot but in fact it has not. “As soon as possible”, “as quickly as possible”, “we shall be working on it”, “we’ll do everything we possibly can”, “there’s no question of delay”, and, “we have procedures to go through and we’ll have to take evidence”—all this sounds like things are being slowed down again and the very thing that we were driving at in the amendment has been run into the rails, to continue with my horseracing metaphor. However, the hour is late and I beg leave to withdraw the amendment.
Amendment 89 withdrawn.
Amendments 90 to 91 not moved.
Clause 8 agreed.
Amendments 92 to 92B not moved.
Clauses 9 and 10 agreed.
Clause 11: Commencement
Amendments 93 to 95 not moved.
Clause 11 agreed.
Clause 12 agreed.
Amendment 96 not moved.
Bill reported without amendment.
Data Protection Bill [HL]
Returned from the Commons
The Bill was returned from the Commons with amendments. The Commons Amendments were ordered to be printed. (HL Bill 106)
House adjourned at 8.07 pm.