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Lord Meston: I had thought that the amendment was proposed as the logical way of taking forward the overall immunity from tax of structured settlements--in other words, that the impact of tax should not have to be a consideration either in the mind of the plaintiff or his advisers or in that of the defendant and his advisers and insurers. I understand the reasoning behind the answer that has been given by the noble and learned Lord. The objective of the amendment was to find some way, artificial though it might be, to reduce the overall cost of structured settlements. I am conscious that this trespasses into the area of taxation, but it is a matter on which I wish to consult further. For that reason, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Clause 5 agreed to.

Clause 6 [Guarantees for public sector settlements]:

Lord Mishcon moved Amendment No. 7:

Page 4, line 27, leave out from ("designated") to end of line 29 and insert ("by regulations made by the Minister and subject to approval by resolution of both Houses of Parliament.").

The noble Lord said: The Committee will be aware that Clause 6 deals with guarantees of public sector settlements. In subsection (3) it is provided:

    "The bodies in relation to which a Minister may give such a guarantee shall, subject to subsection (4) below, be such bodies as are designated in relation to the relevant government department by guidelines agreed upon between that department and the Treasury".
The purpose of this amendment is not to leave it simply to guidelines but to ensure that the relevant Minister has power to designate and Parliament has publicly the right to deal with it by a resolution that comes before both Houses. I beg to move.

The Lord Chancellor: The purpose of Clause 6 is to facilitate the use of structured settlements. Ministers are given this new power so that there will be no technical difficulties preventing them from guaranteeing self-funded structured settlements offered by public sector bodies for which their departments have responsibility. It is given only to allay the concern of some plaintiffs' advisers that unless such backing can be put in place they will be failing in their duties to their clients to ensure the absolute security of the arrangements being made for the clients' future needs. That is a conscientious attitude and very proper, although I believe that it is unnecessarily cautious. The Committee will be aware of the reasons why such a guarantee would never in practice be called upon. It could be called upon only in the highly improbable event of the public body for which the department had responsibility not having the funds to meet its legal obligations or ceasing to exist without provision being made for its legal liabilities.

While it is true that such settlements are most likely to be relevant in the health sector where it is not difficult to identify those bodies likely to be offering settlements, the Government fully accepted the Law Commission's advice that this provision should have the potential to cover other sectors where public bodies might face personal injury claims which could to the benefit of the claimant sensibly be settled in this way, provided that his advisers could recommend the settlement as being fully secure. There are very many public bodies where this might be the case, albeit perhaps only very occasionally, and certainly not on the scale seen in the health sector. We considered very carefully how those bodies should be identified and reached the firm conclusion that the best way of doing this was by administrative arrangements between those departments which might be concerned and the Treasury. Once the Minister gives a guarantee, that is the security. It would be clear that the involvement of the Treasury as watchdog of the public purse would ensure that there could be no inappropriate use of the power. We regarded that as a sensible safeguard.

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We also considered that it would be right to make provision for scrutiny by Parliament on a regular basis of the potential liabilities under and any payments which might have been made pursuant to guarantees by each department which had used the power. We concluded that, with these safeguards in place, it was unnecessary and undesirable to adopt any more cumbersome procedure. The Select Committee on the Scrutiny of Delegated Powers looked closely at this provision and was satisfied that it was a purely administrative procedure.

For these reasons, I hope that the noble Lord, Lord Mishcon, will agree that his proposal adds unnecessarily to the arrangements that have been put in place. Subsection (7) is the provision which requires public scrutiny. The only important matter from the point of view of the plaintiff is that the Minister should give the necessary guarantee. Parliament will be kept informed as to what guarantees have been given by subsection (7). Of course, Ministers are accountable to Parliament at all times for their actions in the public arena. In effect, it is the same as agreeing to a settlement. That is not subject to regulation. If a Minister agrees to settle an action, he or she can do so. This is part of the settlement of an action to which the Minister has agreed to give his or her guarantee in the circumstances required. We have provided these additional administrative safeguards to cover the situation.

While I am very glad to consider any proposals that may be an improvement, strictly speaking this is probably an additional administrative or regulatory burden which is not necessary in the circumstances of this case to secure adequately the plaintiff's interests, on the one hand, and the interests of the public as taxpayers, on the other. I hope that in the light of that explanation the noble Lord will feel able to withdraw his amendment.

Lord Mishcon: I am deeply grateful to the noble and learned Lord. I owe it in respect to him to consider what he has said when I read it in Hansard tomorrow. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 agreed to.

Clause 7 agreed to.

Clause 8 [Short title, extent and commencement]:

Viscount Chelmsford moved Amendment No. 8:

Page 5, line 24, at end insert--
("( ) This Act does not apply where the cause of action arose before this Act came into force.").

The noble Viscount said: Amendment No. 8 assumes that the Bill as currently drafted is passed and that my noble and learned friend the Lord Chancellor instructs the courts to use a rate of return equal to the current index-linked gilt edged rates. A larger sum will be needed initially to achieve a lifetime award than is currently necessary by discounting at the rate of 4 per cent. or 5 per cent. Put another way, a lower discount rate means a smaller adjustment for the

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investment return and therefore increased compensation. This increase can and will be taken into account when setting premiums for future policies.

However, insurance companies have many thousands of claims in the pipeline awaiting settlement. These claims will arise under policies issued in the past. If the compensation due in these cases were to be increased by this legislation the industry could not charge any further premium to reflect that increase. That would be inequitable. That is the effect of the Bill as currently drafted. Under Clause 8(3) the legislation comes into force two months after it has been passed. Pipeline claims will then be assessed under the new rules. This is legislation with a retrospective impact.

Insurers believe that the impact can be eliminated largely by ensuring that the new rules apply only to accidents and claims which occur after the Bill comes into force. This will provide certainty for all concerned: plaintiffs, defendants, insurers and their advisers. My amendment offers this solution.

Initial consultation within the insurance industry shows that the retrospective cost is at least £200 million for motor insurers alone, although a figure of between £500 million and £1 billion is probably the truer cost to the insurance industry as a whole. Even if the amendment is passed, the industry will still pay larger amounts on current policies which produce claims after the Act incepts without any chance of further amendments. Although they accept that, they ask that there should not be retrospective legislation in respect of claims which have already occurred or still await judgment. I beg to move.

Lord Meston: My only observation is that it could work the other way: in pending appeals the court could decide that a low rate of, say, 3 per cent. was appropriate and the Lord Chancellor in formulating a prescribed rate under the Bill, if enacted, could decide upon a higher rate.

7 p.m.

The Lord Chancellor: It must be correct that, as the noble Lord, Lord Meston, said, this could operate either way, depending upon how the power was exercised. That is the problem to which I referred earlier which troubles me about how precisely to go about this and why I wish to wait until the Court of Appeal, which is not in any way affected by the statute on this aspect, has decided what is the right way to go about it. When I said the Court of Appeal, I was intending to include the remote possibility that someone might think that it was not final on this matter and that a final judgment should come from the House of Lords. Assuming that the decision were appealed, I should think it right to wait for that.

The amendment would affect the whole of the Bill. I do not believe that it would be necessary for the purposes that my noble friend has explained to do more than apply it to Clause 1. I believe that the industry would be in favour of structured settlements coming in as soon as possible. They are of course in already, but there is a slight doubt about competency and that is settled by the Bill. So this applies to Clause 1 only.

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However, in relation to Clause 1 it poses a difficult question which I sought to address somewhat tangentially earlier. If the settling of the rate were to cause a general increase or general decrease--either way--it would be in the nature of a retrospective interference with the ordinary course of development of these claims.

It may well be that the court--the court has been asked to do this from time to time--could decide that the previous rate of 4 per cent. to 5 per cent. is these days unrealistic, notwithstanding Lord Diplock's commendation of it, and that a new rate should be taken as being more realistic to achieve the aim which I understand to be the aim of the law; namely, to compensate the plaintiff for the loss which he or she has suffered. If the courts did that, it would raise the total of damages which insurers might thereafter have to pay. That would not be Parliament doing it; it would be the court doing it. That is the difficulty. I believe that the aim of the power should be to try to arrive at the figure that the courts would think the right figure at the present time. Therefore, it should apply not only to causes of action accruing after this date.

This is the most difficult aspect of the matter. It applies whether or not there is a fixed rate. Even the original Law Commission proposals had this problem attached to them. I have put forward the best solution; namely, by this power I would be seeking to approximate as closely as possible with what the court says is the proper level for the purpose of not altering the level but of merely making it easier for the future to reach that level without the necessity for detailed actuarial calculations.

The other possibility of course is to apply the amendment to Clause 1 only and then to leave it, as it were, to the Lord Chancellor to set a rate which might not reflect the existing rate but some rate which he thought was better--either up or down--than the existing rate. As I said, that is not what I believe to be the right aim in this matter, which raises a difficult question. I hope that my noble friend will feel able to withdraw the amendment and consider what I have said about it to see what is the best way forward.

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