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.
7.15 pm
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.