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The Lord Chancellor moved Amendment No. 4:

Page 2, line 13, at beginning insert ("as was intended to compensate him").

The noble and learned Lord said: This is a minor drafting amendment to correct an error which crept into the final preparation of the Bill. It is not absolutely essential, but the original draftsman intended to have it in and regrets that it did not appear in the final version. I think it adds to the clarity of the Bill. I beg to move.

On Question, amendment agreed to.

Clause 3, as amended, agreed to.

Clause 4 agreed to.

Clause 5 [Meaning of structured settlement]:

Lord Mishcon moved Amendment No. 5:

Page 3, line 41, after ("value") insert (", including adjustment in respect of the reasonable costs of financial advice sought by the plaintiff on the investment of the award").

The noble Lord said: I nearly needed a structured settlement myself as I walked very casually into your Lordships' House some five or 10 minutes ago believing, as I was led to believe, that the business of the Committee stage of this Bill would not be taken before seven o'clock. I have partially recovered and therefore propose to move this amendment but with the courtesy of apologies to those who moved previous amendments and to the noble and learned Lord that I was not present at the very beginning of the Committee stage.

This is a worthwhile amendment. Your Lordships will well know that the costs of investigating potentially structured settlements or of advising an accident victim

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on the investment of a lump sum by way of damages can be a very significant sum, particularly in the case of a young severely injured victim who receives an award of perhaps £500,000 or £1 million, which will need very careful husbanding over many years to ensure it produces sufficient income for the victim's ongoing needs and does not run out in the lifetime of the person concerned.

I understand that conventionally it has been accepted that any fees payable to the Court of Protection which invests damages awards for patients are recoverable from the defendant as part of a claim, but there is no similar convention or statutory provision which applies to the cost of investment and financial advice incurred or likely to be incurred by a plaintiff in other circumstances. Indeed I understand that there have been conflicting decisions of the courts in this respect. Given that these costs are incurred by a plaintiff accident victim only because of his or her injuries, it would be entirely logical to make statutory provision that the reasonable costs of investment advice should be recoverable from the defendant tortfeasor. The Bill could provide an opportunity to tidy up this anomaly. That is why I move the amendment.

The Lord Chancellor: I believe that our dinner hour must have started early this evening because the noble Lord, Lord Mishcon, noticed that it was expected that this particular matter would be dealt with at that time. However, the Scots are so expeditious that the Education(Scotland) Bill was dealt with extremely quickly. I hope that the Scots involved in this matter will show the same expedition.

I do not completely understand why the noble Lord, Lord Mishcon, wishes to put in a matter as regards the relationship of investment advice to structured settlements because it is primarily to avoid the need for a capital investment in respect of the periodical payment element that this particular arrangement is made. I suspect that the amendment may have been intended to have a somewhat wider scope than this particular situation. Where it appears in the Bill means that it has very limited scope. I am not aware of any reason why a structured settlement under which the periodical payments are adjustable to take into account the cost of subsequent financial advice taken by a plaintiff should not in fact attract the same protection as settlements without that feature. Neither can I see any reason why a settlement should contain such a feature because one of the major benefits of structured settlements for a plaintiff is that he is not to be concerned with investment matters and that aspect of his award. He will not be investing an award because the settlement is tailored to provide the income and the capital needed to meet his particular requirement.

Indeed, the Committee may consider that this amendment anticipates that the negotiations for a structured settlement may have gone somewhat wrong if this provision were to be required. The noble Lord may be glad to know that the position as regards the cost of financial advice in relation to the settlement of damages as a whole, and not structured settlements, is one of the matters now under consideration by the

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Law Commission in its examination of the law of damages. It will be covered in a forthcoming consultation paper. As the Committee knows, the work that we are dealing with in this Bill is only part of the total, and the Law Commission is looking at quite a number of heads that ought to be considered in this regard. I fully anticipate that this particular subject matter, not in relation to structured settlements, but generally, will be the subject of its consideration. I hope that, with the encouragement that the matter will be looked into thoroughly and will be the subject of a Law Commission recommendation, the noble Lord, Lord Mishcon, may feel able not to press the amendment at this juncture.

Lord Mishcon: I hope that the Committee will not think that I have been unduly subtle since that is a quality I have never possessed. I was of the opinion, and the noble and learned Lord has confirmed it, that had I tried to deal with this matter under the general head of damages I would have been ruled out of order and very properly so, because this Bill deals with structured settlements and not with the general issue of damages.

I have had the opportunity of raising the matter. With his usual courtesy, the noble and learned Lord has told me that it will be considered by the Law Commission under the general head of damages. Therefore, I hope that I have at least pointed the way. I ask the Committee's leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.45 p.m.

Lord Meston moved Amendment No. 6:

Page 4, line 3, at end insert--
("( ) Without prejudice to the other provisions of this section, the funds held by an authorised insurance company to provide payments from an annuity purchased from that authorised insurance company pursuant to a structured settlement may be held by that authorised insurance company as part of a pension annuity fund.").

The noble Lord said: The encouragement in this Bill of structured settlements has been widely welcomed. The Government had already taken steps to reduce the tax burden so that the flow of income received by a plaintiff from annuity-based arrangements is not subject to income tax, nor any other taxation, in the hands of the recipient. That has the benefit of reducing the gross cost to the defendant. This amendment seeks to deal with one aspect of structured settlements where tax still impinges and where, although it is not widely appreciated, there is still a burden on defendants.

The majority of structured settlements are provided by one or more annuities purchased by the defendant's insurer from a life office to provide regular income for the plaintiff, tax free. However, the income from which those payments are made is liable to tax before it reaches the plaintiff because life offices must maintain annuities for structured settlements as part of their life annuity fund, which annuities are taxed at 20 per cent. That tax burden has therefore to be incorporated into the overall lump sum required to fund a structured settlement. That imposes a higher burden on the defendant and may be a disincentive to an otherwise desirable solution to a particular case.

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If annuities can be maintained by life offices as part of their pension annuity fund, the 20 per cent. tax on income would not arise. I understand that life offices would have no problem in segregating such an annuity within the pension annuity fund and I suspect that there would be a fairly minimal difference to the revenue. Having said that, I am conscious that this amendment may be thought to trespass on the financial privilege of another place and, therefore, I emphasise that at this stage it is only a probing amendment. I beg to move.

The Lord Chancellor: I am grateful to the noble Lord for explaining the purpose of this amendment. I had not been able to recognise precisely the term he had in mind. I have consulted with the Association of British Insurers on the matter. I understand that it is normal practice for insurance annuities to be covered by an insurance company's pension fund, although in some circumstances it may be covered by the long-term fund. However, as far as I am aware companies do not operate, nor have they asked to operate, special pension annuity funds. In any case, this differentiation is immaterial because in the event of a failure liabilities arising from both the long-term and pension funds would be covered by the Policyholders Protection Act.

However, having listened to the noble Lord this evening, I anticipate that he is asking for the treatment given to funds which arise under pension arrangements which enjoy special tax privileges on investment. That is clearly a Finance Act-type provision. Therefore, I will not be in a position to deal with that aspect of the matter if some special tax relief is wanted, not only in the hands of a recipient, but also in the basic funds which are used to provide it. That is a different matter.

The obligation of the annuity provider is to provide it out of whatever fund is considered appropriate. There would not be a need for an allocation. The tax treatment of pension funds which are derived from, for example, the self-employed arrangement, leads to a fund derived from the original taxpayer. The taxpayer is allowed to put in money which is earmarked from that stage and it enjoys certain benefits. The annuity which has to be provided is not of that character exactly. As I say, my consultations so far have not produced any real basis for this measure, but I understand what the noble Lord says. He would like some further tax privilege for some fund as yet not completely identified.

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