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Lord Hunt of Kings Heath: The noble Earl refers to the bodies which under this section are exempt from the requirement to have compulsory insurance, including the police, the NHS and the Armed Forces.

Perhaps I may refer the noble Earl to the basic premise of the Bill; namely, to collect existing charges, but to do it better. There is no intention in the Bill to extend the scheme or to introduce new charges. The existing charges are due only when compensation is paid by an authorised insurer in respect of a claim against a motor insurance policy. The bodies listed in Section 144(2) of the Road Traffic Act 1988 are not required to carry compulsory insurance. On that basis

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we have no intention of extending the scheme to bring those bodies within it. On that basis I invite the noble Earl to withdraw the amendment.

Earl Howe: I am grateful to the noble Lord, and shall of course withdraw the amendment. I am not quite clear from his reply whether the Government have excluded those who have driven exempt vehicles and subsequently found themselves in an accident from the calculation in arriving at the figure or whether they have included them.

Lord Hunt of Kings Heath: My assumption is that they have been excluded; however, I shall write to the noble Earl to make sure that that is on record.

Earl Howe: I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 5 not moved.]

Earl Howe moved Amendment No. 6:


Page 2, line 24, leave out ("compensation payment made") and insert ("injury or death occurring").

The noble Earl said: In moving this amendment I shall speak also to my Amendment No. 7. I understand that these amendments have been grouped with two amendments in the name of the noble Lord, Lord Clement-Jones.

Another of the Bill's little iniquities is its retrospective nature. We understand that the Bill is likely to become law on or about 5th April this year. However, the provisions of the Bill are set to bite with effect from 2nd July 1997. That was the date when the Chancellor first announced the Government's intention to introduce these new measures. The amendments seek to ensure that the new tariff of NHS charges will start to apply only when the Bill has passed into law. They therefore follow a standard point of principle; namely, that unless there is very good reason to do otherwise, new law should not be retrospective in its effect.

The Minister will doubtless argue that the insurance industry is well prepared for this change, and that as we are now 18 months down the track from the original announcement the actual cost to the industry will be small. But two points should be made. First, the retrospection in the Bill is bound to result in an additional cost to insurers, who are required to meet claims made under policies sold before 2nd July 1997--claims that were not priced in to those policies at the time of sale. Obviously, those costs will have to be met. Motor policies typically run for a period of 12 months, so any policy written between 2nd July 1996 and 2nd July 1997 included an element of cover which is affected by the 2nd July 1997 announcement.

In practice, even policies written after the announcement will have been affected. Insurers need time to digest the implications of an announcement like that and recalculate premiums accordingly. The effect on insurers who are no longer writing motor business will be particularly severe, as it is most unlikely that any insurer in what is currently a very competitive market

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could recoup such costs. Premiums can of course be raised to reflect the new costs in the future, and that will affect the whole market. However, that does not apply to historic costs which are charged retrospectively.

The second point is one of principle. I fully accept that there are occasions when retrospective legislation is both necessary and unavoidable--when, for example, there is a need to put right a glaring anomaly, or where it is suddenly discovered that the existing law is deficient in some way. But this occasion is not like that. This is a case of the Chancellor looking to see how he can garner in as much money as he can for the NHS, even to the extent of anticipating the repeal of existing law and the regulations that will ensue from that repeal. The effect of what he seeks to do relates back to events that took place before the present Government were elected. That does not constitute a good enough reason for retrospection. In fact, it is a wholly inadequate basis for taking such a course and it should be deplored. I shall be very interested to hear what the Minister has to say. I beg to move.

Lord Clement-Jones: I join with the noble Earl in supporting this batch of amendments. He put the matter well. This is indeed a Bill that incorporates retrospection. I have learnt that the correct word is "retrospection". Throughout my remarks at Second Reading I referred to "retrospectivity". However, thanks to the Hansard writers who corrected me, no one ever knew that I got the word wrong--so "retrospection" it is. It stares one strongly in the face in this Bill.

The principle surely must be that insurance companies should be liable to pay out only amounts that were known at the time the premiums were paid by their insured. Otherwise, the situation arises whereby, without any indication or notice of the amounts involved, they have to dip into funds which they believed were otherwise available for the purposes of their business. I cannot see that that is a fair principle. I see it as equivalent in many respects to retrospective taxation.

As regards the amendments, between us we have provided the Government with a menu of possibilities. There is the ability to change the basis of the provision, so that the amount of charges is fixed by reference not to the date the settlement is made but to the date when an accident took place. I believe that that is ultimately the fairest since it gives the most notice. We then have a situation, which may or may not be acceptable, in which the relevant date will be the date from which the Bill comes into effect but in which, as under the Bill as drafted, NHS charges would apply when compensation is paid and not, as proposed in Amendment No. 6, on the occurrence of injury or death.

I believe that my amendment enables the difference to be split between the manifestly unfair date of July 1997 and the date of coming into effect of the Bill. That may be more acceptable to the insurance industry than the July 1997 date and gives the government a range of possibilities in order to avoid a manifestly unjust situation. The July 1997 date enshrined in the Bill did not give the insurance industry sufficient indication of the precise amount of charges that it would be required to pay from settlements made to insureds. Those

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insureds paid premiums on a wholly different basis. Surely that must be a good enough reason to eliminate this element of retrospection from the Bill.

Lord Hunt of Kings Heath: I start by reminding the Committee that over the years the NHS has lost many millions of pounds through its inability to collect the charges that have been due. The amendments would limit the new scheme to accidents happening after the Bill comes into effect or, in the case of the amendment in the name of the noble Lord, Lord Clement-Jones, to another time altogether.

It is important to recognise that compensation claims in respect of accidents take on average about two years to settle. That means that the NHS would have to wait an average of two years to receive repayment of costs. As the rest of the Bill will deprive NHS trusts not only of the ability to collect the emergency treatment fee but also to collect any charges under the existing law, the amendment would leave hospitals without any income at all from this source. In the meantime, insurers would be able to gain from the provision which they would have made in order to meet those charges.

The Bill is intended to put right a situation in which hospitals have for many years not recovered anything like the sums to which they have been entitled. Insurers have known that recovering charges is something of a lottery, depending on the efficiency of the particular hospital in which the accident victim was treated. In addition, the amounts which can be claimed by a hospital have lost touch with the real costs of treatment. Insurers have known this and must have heaved a sigh of relief when an accident victim has been treated by the NHS rather than by the private sector. Let me make clear that insurers always may have been required to pay the full cost of treatment received in the private sector.

It is not realistic to expect us to allow this situation to drag on. The Law Commission suggested that there should be a new method of recovery of NHS costs in 1996 and the announcement of our move to recover actual costs was made in July 1997. The date from which new charges will apply, 2nd July 1997, was set following consultation with the insurance industry. It was the insurance industry itself which suggested, in a face-to-face meeting with the Secretary of State, that 2nd July 1997 would be a reasonable starting point for us to collect the full cost of treatment.

If insurers were not doing so before, they have had time--nearly two years--to begin to allow for forthcoming NHS charges when setting premiums. Changing the starting date for new higher rate charges to April 1998 would mean that full costs would not be properly fed through to hospitals for another full year. That is because the average length of time taken to settle a personal injury compensation claim is two years. NHS trusts would be deprived of the additional income and insurers, who would have already factored in the new developments, would keep the difference.

By the time the new scheme starts on, we hope, 5th April 1999, the insurance industry will have had a full 21 months to accustom itself and its business practices to the new charges. In addition, the new

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higher rates will not apply to all claims which are settled under the new arrangements but only to those where the accident happened within the past 21 months.

No one would expect the insurance industry to welcome increased charges with open arms, but I believe that there has been plenty of time between announcement and implementation and I ask the noble Earl if he will withdraw the amendment.

4.15 p.m.

Earl Howe: I am grateful to the Minister for what he said. I understood him to say that the effect of Amendment No. 6 would be to deprive the NHS of the ability to reclaim any charges at all between 2nd July 1997 and the date of Royal Assent for the Bill. That was not an intended effect and I shall have to look at the amendment again. Clearly I did not have in mind that the current collection system should be negated. I am grateful to the Minister for pointing that out.

The second and perhaps more substantial point relates to what the Minister said about consultation with the insurance industry. As I understand it, when the consultations took place, the insurance industry was not exactly over the moon with the idea of 2nd July 1997 being the effective date and has pointed out to me that it will involve insurance companies in additional costs for which they could not possibly have budgeted, and in that sense the Bill is retrospective.

I think that when the Bill receives Royal Assent the insurance industry will have to accept the position, but it will do so very reluctantly. The amendment in the name of the noble Lord, Lord Clement-Jones, proposing an effective date of 1st April 1998 may provide a fair compromise. It may well be that we shall want to revisit the question of the effective date at Report stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 7 not moved.]

Clause 1 agreed to.

Clause 2 [Applications for certificates of NHS charges]:


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