My Lords, I begin by declaring some interests. I am a practising barrister, and Part 2 of the Bill, relating to the personal injury discount rate, is relevant to the size of the awards in cases in which I am instructed by both defendants and claimants. In particular, I declare an interest as acting for the National Health Service and for various medical defence unions in claims of the utmost severity. I should also declare an interest as having being a Minister in the Ministry of Justice between 2013 and 2016, immediately following the noble Lord, Lord McNally, from whom we have heard. During that time, whiplash reform was frequently discussed. However, during my time in the Ministry of Justice, neither Lord Chancellor changed the discount rate.
The Bill, or something like it, has been a long time coming. Noble Lords may remember that in the Queen’s Speech a Bill was foreshadowed which would,
“ensure there is a fair, transparent and proportionate system of compensation in place for damages paid to genuinely injured personal injury claimants”.
The scope of this Bill, which is,
“to make provision about whiplash claims and the personal injury discount rate”,
is much narrower, although I anticipate that the aim of the legislation very much reflects what was said in the Queen’s speech. I hope that, at the very least, we will be able to debate the future of Section 2(4) of the Law Reform (Personal Injuries) Act 1948, as referred to by my noble and learned friend Lord Mackay and the noble Lord, Lord Sharkey.
I imagine that most noble Lords will agree that many whiplash claims have contained a strong element of a racket. There may well be a dispute as to how much of a racket, but very few of us will have escaped invitations to commit a fraud, usually on the telephone, inviting us to say that we have been involved in an accident. There is also the sort of fraud suggested to the noble Lord, Lord McNally. There is such an accumulation of anecdote that it becomes beyond anecdotal evidence. I regularly used to receive telephone calls when I was a Minister, inviting me to participate in these frauds. When I identified myself and invited further information to be provided to me, the phone suddenly went silent.
The difficulty, or perhaps the advantage, to some people with whiplash is that it is neither provable nor disprovable by any scans or investigations, and so provides an opportunity for those who wish to participate in a fraud, or simply wish to exaggerate the impact of a particular on their neck or back. I agree with the noble Lord, Lord Monks, that insurers have played their part in what has been this racket. The inclusion of pre-medical offers precluding settlement is definitely a step in the right direction and it is important that it should remain in the Bill.
Part 1 reflects a strategy to restrict the level of damages and to discourage these ambitious, or fraudulent claims. It has been criticised, and I quote the briefing from the Law Society as “arbitrary, disproportionate and wrong”. It said that the Bill ignores genuine claimants, and even that the evidence of fraud is very slender. It is true that the existence of a tariff will mean smaller claims for pain, suffering and loss of amenity, although when a scheme of this sort was originally announced, not by the Ministry of Justice, but by the Treasury, it was suggested that no damages at all would be paid for pain, suffering and loss of amenity. However, in this scheme, what are known by lawyers as special damages will be recoverable—that is, loss of earnings or medical expenses attributable to the injury. There is a power, subject to the regulations, for an uplift on the tariff for damages in exceptional circumstances. It is said that this will give rise to litigation—that the changes and the proposed increase in the small claims limit will result in a proliferation of litigants in person. I am sure these and other criticisms, which we have already heard canvassed in the course of these debates, will be debated in Committee. My view is that this part of the Bill is aimed in the right direction and is a necessary correction to the whiplash claims racket.
By contrast, I do not think that there should be much real debate about the need to change the discount rate, which was dramatically reduced as a result of a decision of the then Lord Chancellor, Ms Truss, from 2.5% to -0.75%. Even cautious wealth advisers have described this rate as “incredibly generous”, and this is borne out by relevant international comparisons. As we have heard, the Government’s proposal is to change the assumption. The result should still be a generous discount rate from the point of view of claimants and should result in fair compensation to them. The Government could in fact have gone further in relation to the assumptions, but have been rather conservative—with a small “c”.
I do, however, have a number of issues with this part of the Bill. The first is that it could be some time before it takes effect. The cost to the taxpayer of a change in the discount rate is very high indeed. The Department of Health is a particular loser. The suggestion is that the recent changes may result in a loss of as much as £1.2 billion a year. Furthermore, the cost of clinical negligence claims generally, as revealed in the recent National Audit Office report, has got completely out of hand. Every day that -0.75% remains the discount rate will be a further blow to government, both national and local, as well as to those affected by increased premiums.
There is a 180-day turnaround period between the Lord Chancellor deciding to commence a review and the expert panel reporting back. But the obligation to commence a review begins only after commencement of the Act, and we do not know when that will be. As I understand the Bill, he or she has 90 days after commencement before the 180-day turnaround period even begins, and perhaps my noble and learned friend will confirm my understanding of this. The commencement date—see Clause 11 in Part 3—is on such a day as the Secretary of State may appoint, and so the period does not begin automatically once the Bill is passed. The Lord Chancellor must be ready for these changes. Why can the initial 90-day period in which the Lord Chancellor has to commence a review not be curtailed to, say, 30 days? Surely preparation should be under way for at least some preliminary work on the composition of the panel. I hope my noble and learned friend will be able to reassure the House that the Government intend to get on with this as soon as possible.
My other main concern is the frequency of the review. My experience as a practitioner is that, pending a probable change in the discount rate, parties on both sides, particularly in substantial cases, will inevitably and legitimately seek to game the system. Indeed, I can tell the House that that is going on at this very moment, depending on when trials might take place in relation to anticipating forward changes in the discount rate. If the review is every three years, there will be a constant exercise in guessing whether the discount rate will go up or down. By complete coincidence, the period of five years that was suggested by the noble Lord, Lord Sharkey, and my noble friend Lord Hodgson, is one to which I adhere. I respectfully suggest that it should be five years. What is important is that there should be regular reviews, as opposed to no reviews at all or very infrequent reviews, which, as we have heard, has been the position since the Damages Act came into force.
I am also concerned about the recoverability of investment advice as a separate head of damages. My construction of Clause 3(3) of Schedule A1 inserted by Clause 8 leads me to think that this should not be a separate head of damages as is now the case following the decision of Eagle v Chambers—here I have to declare an interest, as I was involved in that case. Given that the discount rate reflects a degree of advice—or at least proper advice given to a claimant—then surely he or she cannot recover the cost of additional expert advice as once was customary in large cases.
Finally, I want to say something about periodical payments. I entirely endorse what a number of noble Lords, including my noble friend Lord Hodgson, have said about periodical payments. I read the Government’s response to the House of Commons Select Committee in which they said that they would investigate, either directly or with the help of a third party, whether there are any ways in which the present law and practice regarding PPOs could be improved to ensure that any avoidable obstacles to their use are removed. It seems to me that periodical payments are often much more satisfactory than lump sums and are a clear indication that a claimant is not interested in gambling on the uncertainties of the market or indeed his or her life expectancy, but simply wants to make sure that damages are available, as and when needed, for the rest of their lives.
In this context, I will comment briefly on the speech of the noble and learned Lord, Lord Hope, who was one of the judges in the case of Wells v Wells. He spoke of the power that always existed for having varying rates, according to different heads. I agree with my noble friend Lord Hodgson that some of his anxieties would be and are satisfied by the regular awards of periodical payments, particularly cases of cerebral palsy for example, where life expectancy, even in the time of my practice, varied considerably. It is now very much longer than it was, because of improvements in medical science.
I have thought carefully about whether it ultimately should be for the Lord Chancellor to decide these matters or if there should be a panel, taking it out of the political sphere entirely. Indeed, the political pressures on a Lord Chancellor not to do anything are plainly there in the existing legislative framework. Ultimately, it is appropriate that a Lord Chancellor should decide, albeit with the obligation regularly to review on advice, because ultimately it is a political matter. This was one of the difficulties that the Supreme Court faced because, as the noble and learned Lord, Lord Hope, said, it did not have all the evidence that one might have to come to its conclusion. The Supreme Court does not have what the Supreme Court in America has, so-called Brandeis briefs, with all the information enabling you to make an almost economic or socioeconomic decision. Politicians make what legal academics call polycentric decisions about the appropriate discount rate or any other factor. That is not something that courts in this country are able to do.
In my view, subject to hearing further argument, the structure of the Bill in this respect is right. We want a fair system of compensation for both sides in litigation, and one that commands public support. The Bill, though capable of improvement, should do this.
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