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Motor Vehicles (Compulsory Insurance) Bill

Volume 820: debated on Friday 18 March 2022

Second Reading

Moved by

My Lords, this is a very straightforward Bill and I trust that it will be uncontroversial. It was introduced in the other place by my honourable friend for Wellingborough, Peter Bone, but there was, before that, an excellent debate—which I commend to anyone who wishes to read it—in Westminster Hall on 22 September last year, which was led by my right honourable friend for Chipping Barnet, Theresa Villiers, whose speech I will refer to extensively.

The essence of the Bill is that it removes EU rules that were created by an ECJ judgment in the Vnuk case. For background, if I might explain, Mr Vnuk was the victim of an accident involving a reversing tractor inside a barn in a farmyard in Slovenia. He took his compensation claim to the European Court of Justice. In the United Kingdom, an incident of this nature would be covered by our compulsory employers’ liability insurance regime, but not all EU member states have such a scheme to protect employees in the workplace.

In its 2014 judgment, the ECJ therefore shoehorned Mr Vnuk’s compensation claim into the EU’s motor insurance law. In so doing, it extended the scope of compulsory motor insurance to accidents on private land involving a very broad range of vehicles—essentially, anything with wheels and a motor that does not run on rails, no matter where it is used or for what purpose. This is, of course, manifestly different from the compulsory motor insurance requirements in the Road Traffic Act 1988, which applies to all vehicles that are permitted to be used on our streets and roads.

The UK’s approach to compulsory motor insurance has been consistent since the 1930s. It is proportionate and it works. However, Vnuk had direct effect in EU law, which means that it forms part of the retained EU law that we imported on to our domestic statute book via the European Union (Withdrawal) Act 2018. As a result of cases in the UK courts, such as Lewis v Tindale, the UK’s compensation fund for people injured by uninsured drivers will now be obliged to pay out in the circumstances covered by the Vnuk judgment. For those who are not aware, the UK compensation fund is covered by the Motor Insurers’ Bureau, to which I am grateful for its advice. Every driver who takes to our roads funds the scheme through his or her motor insurance premiums.

The combined effect of the Vnuk and Lewis cases and the 2018 Act is that the scheme now has to bear very significant costs for which it was never designed, and motorists are of course left picking up the bill. Let us be clear: we are talking about accidents on private land, in private gardens, in farmers’ fields, on golf courses, inside supermarkets, banks and offices—the list is long. These are places where what has happened, or even the fact that anything that has occurred at all, will often be difficult to establish with any clarity, which gives rise to worrying opportunities for fraud.

Now, if this ruling stands, the Government Actuary’s Department estimates that the annual costs to the Motor Insurers’ Bureau—and, therefore, to every driver in the country—could rise to over £2 billion. This equates to £50 on every vehicle insurance premium. Probably, of course, it would be more on younger drivers, who are seen as a bad risk.

This situation, and the ruling, have been heavily criticised. The EU is currently changing the rules—it is in the period of, I think, two years in which it has to change them—and changing the law, and the European Parliament’s rapporteur described the case’s consequences as “absurd overregulation”. It is a huge irony that we in the UK, having left the EU, are still stuck with a piece of law that the EU has changed. This is because it is now part of the retained EU law at the end of the transition period. It is an unfortunate and probably rather foolish omission on behalf of the UK Government.

This Bill puts that right. I want to be clear that this current law—the Vnuk law—covers mobility scooters, golf carts, sit-on mowers, quad bikes, the lot. I mention the last because a Conservative MP was fined a decade or so ago for driving his quad bike 100 yards along a public road, so the law works. He had no insurance; he was photographed by hunt saboteurs and prosecuted—I will tell people who it was if they want to ask me later.

I repeat that employers’ liability insurance is compulsory. As a farmer, for instance, I have third-party liability insurance, as do almost all farmers and as do golf courses and people like that. This Bill restores the situation, the status quo ante, before the Vnuk judgment. Various road traffic accidents will determine the insurance requirements. If we wish, at some stage, to determine that change is needed in the future, that will be achieved by proper legislation properly considered by Parliament. The Bill was not opposed, nor amended, in the other place. It has the support of the Government and, as I understand it, of the Opposition. Indeed, I shall close with the comments of the honourable Member for Bristol East—Kerry McCarthy, the shadow Minister for Transport—from 22 September:

“we have operated under the scheme set out in the Road Traffic Act for many decades. It is proportionate and it works.”—[Official Report, Commons, 22/9/21; col. 181WH.]

I beg to move.

As the noble Lord, Lord Robathan, said, the aim of this Private Member’s Bill—introduced in the Commons by the Conservative MP Peter Bone—is to reverse a 2014 decision of the Court of Justice of the European Union that expanded the types of vehicles required to have compulsory third-party motor insurance. It received government support and, indeed, the Minister has written to me—for which I thank her—confirming the Government’s support for this Bill in the Lords and encouraging me to support it likewise.

Judging by the length of the list of speakers, I think that it could hardly be described as a Bill which has got the pulses racing in your Lordships’ House. Three speakers are listed and all three of us are here because we have to be here. This Bill appears, so far, to have been met with one long yawn in your Lordships’ House.

The Road Traffic Act 1988 limits compulsory insurance to drivers of vehicles on roads and in other public places. This legal position, as has been said, was altered by a decision in 2014 by the Court of Justice of the European Union which extended the requirement for compulsory motor insurance to include vehicles used on private land and to vehicles not constructed for road use. The ruling continued to have effect after the UK left the EU as part of retained EU case law.

According to the Government, the ruling would have led to a rise in motor insurance premiums because claims resulting from the expanded range of vehicles specified in the ruling are admissible by the Motor Insurers’ Bureau, the MIB being a statutory body that operates a compensation scheme for victims who have suffered injury or loss as a result of uninsured or untraced drivers. The scheme is funded by a levy on motor insurance companies, with the costs of the levy ultimately capable of being passed on to motorists through increases in insurance premiums. The MIB is also responsible for meeting claims made by victims of accidents arising from the use of vehicles on private land, hence the significance of the ruling by the Court of Justice of the European Union as far as the MIB is concerned. As a result, an increase in the scope of claims payable by the MIB, such as that brought about by the ruling we are discussing, could increase insurance costs for motorists.

In her response, can the Minister clarify whether—and, if so, from when—the 2014 CJEU ruling has been applied in the UK? If it has—I am not sure it has—what has its impact been on insurance costs? If it has not, from when would it have become applicable had we not left the EU? The Government say that the ruling could lead to an average increase in premiums of £50 for each motorist.

In the Commons, the mover of the Bill stated that the CJEU ruling had led the EU to revise its European directive but that:

“The revisions it has made will fail to protect motorists in the EU from the associated costs of the compulsory insurance requirement on private land.”—[Official Report, Commons, 28/1/22; col. 1209.]

As the Government are supporting the Bill, can the Minister confirm that the EU’s recent revisions to its European directive do not affect the Government’s assessment that the ruling could lead to an average increase in premiums of £50 for each motorist—in other words, that the £50 figure relates to the EU directive as now revised and not as it was at the time of the CJEU ruling?

The Association of British Insurers has stated that the additional insurance cover brought about by the CJEU ruling was not necessary in the UK because the claim would already have been covered by other insurance policies, such as compulsory employers’ liability and public liability. The Minister’s letter to me states that the Bill

“provides only positives: savings for motorists without any real reduction in consumer protection due to existing protections such as employers’ and public liability”.

What is the significance of saying “any real reduction”, as opposed to the completely unambiguous “any reduction”?

Would the CJEU ruling have led to greater protection for vehicles covered by the ruling—that is, vehicles used on private land; and a potentially greater range of vehicles, including non-roadgoing vehicles—than is provided at present by compulsory employers’ liability and public liability? In the context of that question, I refer to paragraph 19 of the impact assessment, which states:

“Bespoke insurance arrangements exist in the GB (and predate the Vnuk decision), such as employers’ liability and public liability insurance policies that cover some of the risks on private land. However, these do not provide as much cover as the Vnuk decision, but we consider that these are more appropriate forms of insurance to cover these risks, rather than motor insurance.”

Maybe I am misinterpreting it, but to me that paragraph suggests that the CJEU decision would provide greater cover than the existing arrangements under employers’ liability and public liability insurance. I would be obliged for a government response on that point.

This Bill will not reduce insurance premiums for motorists. The argument is that premiums will not go up as much as would otherwise have been the case if the CJEU ruling was implemented and that the additional cover provided by the CJEU ruling is already covered in this country by other insurance policies. If that is the case—and I have asked questions on that and on other points—we are not opposed to the Bill, and that stance is in line with the position we took when the Bill went through its Commons stages.

My Lords, I thank my noble friend Lord Robathan for bringing forward this Bill, which, as he noted, has already had a successful passage through the other place, and I thank the noble Lord, Lord Rosser, for his considered and thoughtful contribution. There is not much more that could be said about the Bill, but I am here as the Government and so I will put our view on record.

This is an important issue, and the Government have been clear since 2014 that they do not agree with the European Court of Justice’s ruling in the Vnuk case. That is why the Government support the Bill. The Vnuk decision created an unnecessary extension of motor insurance to private land, as well as to a potentially greater range of vehicles that could include everything from motorsports to agricultural and light vehicles. The excessive liabilities that this would place on the insurance industry and the potential increases to motorist’s insurance premiums are simply unacceptable and unnecessary. These liabilities and potential increases are not trivial. As noble Lords have pointed out, the Government expect that it could cost the industry about £2 billion a year.

Furthermore, if Vnuk had been implemented in full, it would have had a catastrophic impact on the motorsports industry. Drivers would have been likely to be required to purchase motor insurance to compensate injury caused to other drivers, stewards and spectators. Motorsports in the UK are safe and highly regulated. Employers’ liability and public liability already provide a high level of protection. Adding a motor insurance requirement would have brought little benefit at a very high cost—some £458 million per year—had Vnuk been implemented.

Stakeholders have consistently informed us that this would have been prohibitively expensive for the sector, effectively making most of the sector unviable. The sector turns over almost £3 billion annually and generates full-time employment for around 38,000 people and part-time work for a further 100,000 people.

This is why we announced in February 2021 that we will remove the effects of Vnuk from GB law. We said that this would include removing the associated financial liability imposed on the Motor Insurers’ Bureau via the decision in the England and Wales Court of Appeal case of Lewis v Tindale.

I should note that colleagues in Northern Ireland are also progressing legislation in this area, and the Motor Vehicles (Compulsory Insurance) Bill completed its legislative passage in the Assembly earlier in March and is expected to become law by May this year.

There are other positive elements to the Bill. It will ensure that there is consistency across GB and, if the Northern Ireland Bill becomes law, which looks extremely likely, across the UK, which would be very welcome. It also heads off potentially enormous enforcement complications. Had we implemented Vnuk, the police would potentially have been required to monitor newly in scope vehicles never intended to go anywhere other than someone’s garden. The difficulty in gaining access to sites of collisions on private land may have led to the need for additional police powers and could also have had the practical effect of lowering the enforcement rate of uninsured vehicles and encouraging crime.

Implementing Vnuk would have meant that a huge range of newly in scope vehicles would suddenly have been required to be registered on the DVLA database, with license plates required—imagine having to register and stick a license plate on your ride-on lawnmower.

Turning to the questions from the noble Lord, Lord Rosser, I will write to him with further details because I sense that I probably do not have full answers to his questions, and they are very good ones. When we were a member of the EU, the Government continued to work on implementing the binding Vnuk judgment, which would have required very complex changes to our law. While the Government have always been clear about our dislike of Vnuk because of its significant negative impact, we have been equally clear that we had a legal obligation to change the law to reflect Vnuk, and we took a number of steps to respect those obligations. This included a consultation in 2016, which analysed the implications of the ruling and explored policy options. In parallel, we negotiated with the EU over what form the binding Vnuk judgment would take in its translation into the 2009 EU motor insurance directive. As soon as the transition period ended, the Government moved quickly to address this issue, but the pandemic and other challenges have combined to impose unique pressures on the Government, and resources have needed to be deployed accordingly. That is why I am so pleased that this Bill is likely to get the support of your Lordships’ House today.

On the second area that the noble Lord raised, I am afraid I will have to go back to Hansard and read his question about the £50 and whether it applies to the previous EU law or the current proposed EU law. I will write to him with more details.

On the phrase “real reduction”—rather than any reduction—of course, in any of these circumstances there will always be very small considerations. You could say, “Ah, but what about this and what about that?” That is why the Government are very pleased that we can look at those circumstances, now that we are outside the EU. We will keep our regulations relating to insurance under review, because we are always looking to improve the protection of victims and to improve safety, and will consider what else we might do should any gaps become clear. But it is the case that the Vnuk judgment resulted in an overbearing requirement for insurance in areas and on vehicles that it should not have.

The Bill does not have retrospective effect, and it will come into force two months following Royal Assent. All the provisions in the Bill will comprehensively remove the effect of Vnuk and Lewis from GB law. For these reasons, the Government support the Bill and welcome the great progress that it has made to date.

My Lords, I thank my noble friend the Minister for her detailed explanation of the Government’s position, which was most useful. I also thank the noble Lord, Lord Rosser, from the Opposition Front Bench, for what I thought were very sensible questions. I think it has all been said, so I feel no requirement to detain the House any further. On that note, I commend the Bill to the House.

Bill read a second time and committed to a Committee of the Whole House.