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‘(1) In this section, the “PI small claims limit” refers to the maximum value of a claim for damages for personal injuries for which, in accordance with Civil Procedure Rules, the small claims track is the normal track.
(2) Civil Procedure Rules may not increase the PI small claims limit in respect of relevant injury claims to an amount above £1,000 for the first time unless—
(a) the Lord Chancellor is satisfied, and has certified in writing, that on the day the rules are to come into force, the value of £1,000 on
(b) the rules increase the PI small claims limit to no more than £1,500.
(3) Civil Procedure Rules may not increase the PI small claims limit in respect of relevant injury claims on any subsequent occasion unless—
(a) the Lord Chancellor is satisfied, and has certified in writing, that on the day the rules are to come into force, the value of £1,000 on
(b) the rules increase the PI small claims limit by no more than £500.
(4) In this section—
“CPI” means the all items consumer prices index published by the Statistics Board;
“relevant injury” means an injury which is an injury of soft tissue in the neck, back, or shoulder and which is caused as described in paragraphs (b) and (c) of section 1(4) (negligence while using a motor vehicle on a road, etc.);
“relevant injury claim” means a claim for personal injury that consists only of, or so much of a claim for personal injury as consists of, a claim for damages for pain, suffering and loss of amenity caused by a relevant injury, and which is not a claim for an injury in respect of which a tariff amount is for the time being prescribed under section 2.’—(Gloria De Piero.)
This new clause would limit increases in the whiplash small claims limit to inflation (CPI), and allow the limit to increase only when inflation had increased the existing rate by £500 since it was last set.
Brought up, and read the First time.
With this it will be convenient to discuss new clause 2—Small Claims Track: Children and Protected Parties—
‘(1) The Small Claims Track Limit in relation to claims made by children and protected parties for whiplash injuries may not be increased unless the increase is to an amount which is not more than the value of £1,000 on
(2) In subsection (1),
“children” means any person or persons under 18;
“protected parties” means any person who lacks capacity to conduct the proceedings;
“lacks capacity” means lacks capacity within the meaning of the Mental Capacity Act 2005’.
This new clause would limit increases in the small claims track limit for those suffering whiplash injuries to inflationary rises only, for people who are either children or people lacking capacity to make decisions for themselves (as defined in the Mental Capacity Act 2005).
We are again confronted with the reforms in the Bill, which will cost the NHS at least £6 million a year and taxpayers at least £140 million a year, the Government admit. Even they accept that it will result in more than 100,000 injured people not pursuing a legitimate claim that they could pursue now; we say the figure is far higher. Insurers, meanwhile, will get an extra £1.3 billion of profit every year. The Government say that they will hand 80% of that to consumers in the form of reduced premiums, but they have said that before, and insurers have saved over £11 billion since the last Government reforms in this area, in the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Despite a brief dip in 2012-13, premiums are now higher than ever.
The Government have moved a little on the Bill, and in Committee the Minister confirmed what he intimated on Second Reading: that vulnerable road users will be exempted from both the Bill and the small claims limit. That is welcome. As Labour has done repeatedly throughout the process, we will attempt today to make the Bill fairer still by setting out some key amendments.
New clause 1 would ensure that the whiplash small claims limit could be increased only in line with inflation based on the consumer prices index, and it follows Lord Justice Jackson’s recommendation that increases should come in £500 increments and only when inflation justifies them.
One of the most disappointing aspects of this package of reforms is the Government’s attempts to sneak through key changes to the small claims track limit through the use of statutory instruments. Today we want to give those changes the scrutiny they sorely deserve and put them in the Bill.
Whereas the threshold for getting legal representation for personal injuries is currently £1,000, the Government are trying to raise it to £2,000 or £5,000, which will make a massive difference to someone injured through no fault of their own. That position is supported by a raft of experts, including some in the Minister’s own ranks—the Tory Chair of the Select Committee on Justice for one. The White Book, which I took the trouble of sharing with the Minister in Committee, shows that there was an effective 20% increase in the small claims limit in 1999 when special damages were removed from the calculation of the limit. I note that the Lord Chancellor conceded in his letter to the Chair of the Justice Committee dated
It is worth pausing at this point, since the Government now accept that there was a significant change in 1999, to understand what that change meant. An example is given in paragraph 26.6.2 of the White Book:
“a claim for £4,000 for loss of earnings and other losses, plus a claim for £800 for damages for pain and suffering, is a claim which would be allocated to the small claims track”.
In layman’s terms, a claim may be made for under £1,000 for pain and suffering, but when losses and expenses are added in it could be considerably greater. The example in the White Book suggests that, if an £800 pain and suffering award has a losses and expenses claim of £4,000, although the total value of the claim is £4,800, it still falls into the small claims track. We are talking about claims far in excess of the small claims limit.
Lord Justice Jackson, in his review of civil litigation costs, all the recommendations of which the Government accepted and implemented in the 2012 Act, said in paragraph 1.3 of chapter 19 of his 2009 review:
“Personal injuries litigation is the paradigm instance of litigation in which the parties are in an asymmetric relationship.”
In words that we all understand, this is David versus Goliath. Sir Rupert Jackson went on to say that
“the only reason to increase the Personal Injury small claims limit would be to reflect inflation since 1999” and that
“I propose that the present limit stays at £1,000 until inflation warrants an increase to £1,500”.
He could not have been clearer, yet the Government appear to have plucked the proposed £2,000 limit out of thin air.
The new clause states that the CPI, which is used for the uprating of pensions and benefits paid to injured workers, should be used to calculate the small claims limit. Even the Chief Secretary to the Treasury agrees that CPI is the way to go. She said earlier this year to a House of Lords Committee:
“CPI is a much better measure of inflation…we are seeking to move away from RPI”.
The Governor of the Bank of England agrees, too. He has said:
“We have RPI, which most would acknowledge has known errors. We have CPI, which is what virtually everyone recognises and is in our remit.”
It is perfectly clear what we need to do: enshrine CPI as the key measure in the Bill.
I congratulate my hon. Friend on getting the Government to admit that the increases are arbitrary and not linked to inflation in any way. Is it not the case, therefore, that the only reason for the increases is to prevent injured people from getting representation and thereby preclude people with meritorious cases from getting the damages that they deserve?
My hon. Friend is absolutely right. Even if we use RPI, the Government still do not get to their proposed £2,000 new small claims limit. Instead, using the flawed RPI from 1999 would take the £1,000 to roughly £1,700. That is what we on the Labour Benches suspect is going on here.
The hon. Lady is making an argument about whether RPI or CPI should be used, but is there not a bigger point here? For almost all claims generally, outside this area, the small claims track limit is £10,000. If we are to be consistent, is there not a case for making it £10,000, the same as everything else?
Exactly. I do not think anybody in this House will want to shed a tear for those insurance companies whose profits are going up and up. In 2017, profits for Direct Line went up 52% to £570 million and Aviva recorded a profit of £1.6 billion—and I have not even talked about the packages that some insurance company bosses take home.
The Government appear to have rounded this figure up. We say base the figure on the advice and recommendations of countless experts and follow the evidence. Even if Chris Philp does not listen to me, I wish he would follow the evidence of the experts. New clause 1 does just that. It would increase the limit only by CPI since 1999 and limit any increase to £1,500. That way, injured people with significant injuries and potentially even more significant losses will get the representation they need and deserve.
Does my hon. Friend agree that in the case of an accident at work it is even more important that an injured employee is able to get legal representation to take a case against their employer? The employer will be armed with lawyers and their employers’ liability insurance company. That is stacked up against an individual whose task will be hard enough. They will be feeling victimised enough as it is.
My hon. Friend is absolutely right. It is not an easy thing to take a case against your boss. You need a lawyer to hold your hand, an expert to talk you through, and the Government’s proposals are going to make that so much more difficult. She makes an appropriate point.
New clause 2 would ensure that children and protected persons, for example those lacking mental capacity, are treated the same as other vulnerable groups by excluding them from the small claims limit increase for whiplash injuries. Having made a welcome concession on Second Reading, and clarified in Committee that they would exclude vulnerable road users from the impact of the Bill and secondary measures on the small claims court limit, the Government appear to have forgotten others. Horse riders, pedestrians, motorcyclists and cyclists are rightly to be excluded from the changes, but some of the most vulnerable in our society, who are currently recognised by the courts as requiring special status, will be left, with everybody else, facing a new small claims limit of £2,000 or £5,000. As it stands, any settlement awarded to those who lack capacity to conduct their own proceedings, such as children or someone suffering with a mental disability, must be rubber-stamped by a judge because of the claimant’s recognised vulnerabilities. That will continue to be the case after these changes are introduced.
The law requires children and other protected people to have a litigation friend to conduct proceedings on their behalf. In the small claims court, those who provide this required representation are not and will not be paid for their time. Yet by increasing the small claims limit, there will be a significant increase in the number of people coming through the small claims court with higher-value and more complex cases, where they need a lawyer more than ever. We are asking a litigation friend to take on potentially complicated matters for those most in need, on their own, in their own time, for no pay. Injured horse riders, cyclists and pedestrians and motorcyclists will not be subject to a tariff. The small claims limit for them will remain at £1,000, meaning that they will get a lawyer to act for them for free in any case over that value.
Can the Government not see that children and protected persons need this support, too? How on earth can the Government justify protecting one vulnerable group but not another? Why is the horse rider worthy of exemption, but not a child or a person without the capacity to conduct proceedings? Are we really willing to let some of the most vulnerable people in our justice system be left simply to hope for the good will of others to protect their interests because we in this House have failed to do so?
I know that the Minister is aware of this issue from discussion in Committee with my hon. Friend Bambos Charalambous. The Minister suggested returning to this point and that he would be very interested to see an amendment tabled. So here is his chance: a ready-made amendment that makes a simple correction and is an opportunity for the Government to rectify what I presume is an oversight. It simply extends the exemption already provided to others. It removes children from the changes being made to the small claims limit or tariff, and ensures that protected groups are excluded from the increase, the same as horse riders, cyclists and pedestrians. It removes the double standard of some vulnerable road users being granted an exemption and others not. Ultimately, it does little more than extend the protections already afforded to some and allow the Government to show that they care for all.
Thank you, Mr Speaker, for calling me so early in this debate. I rise to oppose the Opposition’s new clause 1, which seeks to prevent the Government or any other public body from increasing the small claims track limit in relation to these personal injury cases, particularly road traffic personal injury cases, above £1,500.
I strongly oppose the measure. I touched on one of the reasons for doing so in my intervention on the shadow Minister earlier. For the vast majority of general commercial claims and indeed personal claims, the small claims track limit is £10,000. The reason it is as high as £10,000 is that some level of materiality is applied to the claim in question. The view taken by Parliament in the past, rightly, is that matters below the £10,000 limit should be sufficiently simple for a small claims track procedure to be used without the involvement of often very expensive lawyers.
In response to my intervention, the shadow Minister, before she was distracted by another intervention, drew attention to the fact that these are personal injuries. I accept that point, of course. However, the fact of them being personal injuries is not germane, in my view, to the question, which is: is the matter sufficiently simple to be adjudicated via the small claims track rather than through lawyers? That is the question: not whether the matter is serious or not serious; it is whether the matter is sufficiently simple to be dealt with properly by the small claims track rather than through lawyers. That is why I think there is a strong a case, on the grounds of consistency, for a £10,000 rather than a £5,000 limit.
In road accident claims and particularly in employment liability cases at work, establishing who is to blame for an accident is far from simple. It is an extremely different sort of case from that of establishing whether a fridge was working or not when it was bought, or whether there is something wrong with a car. I really think the hon. Gentleman is not doing justice to the victims of personal injury accidents by the arguments that he seeks to make.
Of course the £10,000 small claims track limit applies to a far wider range of issues than simply whether a fridge functions or not. The hon. Lady mentions as an example the question of culpability for a road traffic accident. Given that we are talking about much less serious types of injury if the limit is, say, £5,000, determining responsibility for that road traffic accident does not need to be an enormously complicated procedure. For those of us who have been involved in such road traffic accidents, the minor ones we are talking about here, determining responsibility is not a highly complicated matter. I accept that, in much more difficult cases where very serious injuries have been suffered, one must of course take a lot more legal care and attention. For very minor injuries, however, where by definition the accident is a minor one, I suggest that determining responsibility and culpability does not need to be an extremely complicated matter.
With the greatest respect, I do not think that the hon. Gentleman knows what he is talking about. Given of the relatively low levels of compensation for injury, the effects of a £5,000 injury can be quite severe and debilitating over a period of time. The complexity of personal injury cases, which involve expert evidence and issues of causation, means that they are in a different category. Even the Government accept that, so he is batting on a rather poor wicket.
The hon. Gentleman’s arguments are ones that the legal community often advance, whether in this arena or others, to justify very high levels of legal and judicial intervention, which is often very expensive. We need to maintain a sense of proportionality, lest legal costs and expenses get out of control.
I shall in just a moment. I have seen figures suggesting that 47% of the pay-outs made by insurance companies for these relatively minor road traffic injuries gets consumed by legal fees. If such a high proportion of pay-outs is being consumed by expenses, it suggests to me that the entire system is out of proportion, and that some reform is therefore needed. I give way to the Chair of the Justice Committee.
I am afraid that my hon. Friend is not making the best case on the Government side that I have ever heard. Does he accept that lawyers act in the interests of their clients and that when they do, they are bound by professional obligations? Is not a better point that we should assist people through the system by working up a very good and accessible online portal, which the Minister has sought to do, so that we find the means of balancing cost with people’s ability to seek access to justice? I gently say to my hon. Friend Chris Philp that that is perhaps a stronger point that the Government have been able to advance. The Minister has taken care to delay the implementation of aspects of the Bill in order to get the online portal up and working, and I suggest that that might be a more fruitful area to consider.
I am always delighted to take advice and guidance from such a distinguished, learned and experienced Member as my hon. Friend Robert Neill. He adds further weight to the case by drawing attention to the benefits of the online portal, which I hope could be used to further simplify such matters and enable claimants to manage them, rather than having to rely on lawyers.
I refer the House to my entry in the Register of Members’ Financial Interests. Is the hon. Gentleman aware that in most personal injury claims, there are fixed costs for lawyers’ fees?
In many cases there are, but in many cases those costs inflate. I referred to the fact that 47% of the value of pay-outs gets consumed by legal fees. I hope that the fixed tariffs provision, which is not the subject of any amendment but is in the Bill, will further simplify matters.
One reason why we have a problem that needs solving in this area—new clause 1 would inhibit that solution—is qualified one-way costs shifting, which was introduced a few years ago. I understand why it was introduced—the shadow Minister referred to David and Goliath—but under a system of qualified one-way costs shifting, unless the respondent can prove quite a high level of intention, deceit or malfeasance, the claimant’s legal costs are borne by the respondent in any event, even if the claim is dismissed. That creates significant moral hazard, as it means that claimants can bring claims, even if those claims have relatively little merit, safe in the knowledge that they, or indeed their advisers, will never have to bear the cost of the claim. It is a one-way bet, which means that claimants may as well just have a go and see what happens. The number of cases in which a claimant is shown to be so egregiously fraudulent that they have to pay the cost is extremely small. This one-way bet—this free option—that the legal system now provides is one of the reasons why there has been such an explosion in claim numbers.
I should declare that I chair the all-party group on insurance and financial services. I agree with my hon. Friend’s opposition to the new clauses. Does he have any thoughts on why personal injury claims have risen by 40% over the last decade, yet during the same period, cars have become safer and accidents have reduced by nearly a third?
My hon. Friend is right—he makes exactly the point that I was about to come on to. Over about a decade in which accidents have reduced by 30% and cars have become safer, the number of claims has gone up by 40%. He asks why, and I think it goes back to qualified one-way costs shifting. There is a huge financial incentive for claimants to have a go—encouraged, of course, by claims management companies—in the hope that they can make a successful claim. Defendants, typically insurance companies, have rather irresponsibly taken the view that because defending one of these claims—probably successfully—will cost £10,000 or perhaps more, they should simply choose to settle, which may involve paying out £3,000 or £4,000, without bothering to defend the claim. Obviously word has spread both in the claims management community and among the wider public that people can simply make a claim and the insurance company will settle, because it is cheaper for them to settle a bad claim than to fight it. That has created the most extraordinary perverse incentives. Insurance companies have been seriously at fault, as they have set up this situation by paying out for claims with no merit, for understandable commercial reasons, but they have made a big mistake, and we now have to correct it through the Bill.
My hon. Friend asks why the number of claims has increased so dramatically. It is because claims management companies have been phoning around, encouraging the public to submit fraudulent claims, and I will elaborate on that in a moment.
The hon. Gentleman makes my point for me in saying that insurance companies are paying up on a regular basis. They are not even defending these claims, yet the Bill is designed to protect them. What does he say about that?
The companies are not defending the claims because qualified one-way costs shifting makes it more expensive for them to successfully defend a claim than simply to pay it out. The system simply is not working.
Does the hon. Gentleman think that any genuine claimants will be hit by this measure and will not receive the compensation that they should get?
The right hon. Gentleman raises a fair concern. Of course, we need to make sure that we do not overcompensate and find ourselves in a situation in which genuine claimants are prevented from claiming. The way in which we are legislating strikes that balance and genuine claimants can still make a claim. My hon. Friend the Member for Bromley and Chislehurst referred to the use of an easy-to-operate online portal as a way of ensuring that claims can be handled easily, even by laypeople. The concern that Sir Edward Davey raises is reasonable, but I think that the Government have addressed it in their handling of the matter. However, I am sure that the Minister will comment further on the right hon. Gentleman’s point.
This might be a peculiar counter-intuitive point, but it is often the case that whiplash claims are associated with bad headlines in the press. People think that the numbers of claims are dramatically exaggerated. Perhaps it might be helpful if we send a message from the Chamber about discouraging fraudulent claims, which would mean that people with a genuine claim would be more likely to have their cases dealt with more quickly.
As always, my hon. Friend makes a very good point. As Members of Parliament, we should send out a clear message to our constituents and the wider public that making fraudulent claims is not a victimless crime. They affect the insurance premiums that all of us and all our constituents pay. Fraudulent claims are extremely bad for society as a whole. They encourage a sense that people can somehow get money without really deserving it, which is morally corrosive as well as financially damaging.
I am sure that no one in the Chamber thinks that we should encourage fraudulent claims—absolutely not—but may I bring the hon. Gentleman back to some facts? Between 2015 and 2017, the number of registered claims for whiplash fell by 15%, while the number of claims being reported through the police also fell, which might have something to do with the 37% reduction in the number of road traffic police officers in the last 10 years.
Clearly the number of injury claims made via an insurance company is not related to the number of police officers on the street. The hon. Lady mentions the slight but welcome reduction in the number of whiplash injuries. Over the same period, the number of claims to insurance companies for back injuries has increased, so the total number of claims is down only very slightly over the last couple of years, and is still dramatically up over 10 years, which is clearly a more meaningful period. When the two are taken together, therefore, there has not been a significant reduction.
The House will know about my declaration in the Register of Members’ Financial Interests. I am glad that my hon. Friend has mentioned claims management companies. Would he agree that some of the concerns about balancing access to justice with discouraging fraudulent claims—we all agree about them—would be met by continuing to revise and strengthen the regulation of claims management companies, which are not regulated to the degree that solicitors are, and in particular by bearing down on the employment of paid McKenzie friends—non-qualified, quasi-lawyers who are particularly rife in the claims management sector? Will he work with me in persuading the Government to move swiftly to ban them?
Once again my hon. Friend makes a very good point—two very good points, in this case. The operation of claims management companies, which have been actively engaged in encouraging the public to commit fraud, has had an extremely negative effect in this area. I want an outright ban on them making cold calls, but I am slightly concerned that even if the Government take all the action that he and I would like, these people, being extremely adept in such matters, would adapt their behaviour to circumvent the legislation and regulation. For example, they might start making cold calls from outside the UK’s legal jurisdiction, as we saw following the ban on referral fees that came into force two or three years ago. Insurance companies were banned from receiving referral fees from claims management companies, but some insurance companies and claims management companies sought to circumvent the ban by setting up what they euphemistically termed “alternative business structures”, whereby the claims management company effectively remunerated the insurance company via an equity stake rather than a referral fee. I am therefore concerned that even if we take all the action we can, these often rather dubious characters will find new and ingenious ways of circumventing the legislation.
I welcome the fact that the hon. Gentleman supports an outright ban on cold calling by claims management companies, but does he agree that the Government’s measures in the Financial Guidance and Claims Act 2018 do not go that far? Rather than punishing injured victims, would it not be far better to introduce that outright ban on claims management companies’ cold calling?
As I said a moment ago to my hon. Friend the Member for Bromley and Chislehurst, an outright ban would be welcome—it might be something the Government are looking at in any case—but because these people are so ingenious at circumventing even the best-written rules and regulations, there would still be a problem.
I thank my hon. Friend for giving way—he is being most generous with his time. May I press him on the point made by my hon. Friend Robert Neill about McKenzie friends? I am going back years now, but in my day, when I first started at the Bar, the concept worked very well: they were volunteers who accompanied people to court and assisted them, and they certainly were not paid. Surely we just need to go back to the system as was, as I suggest that things would then work very well.
I agree wholeheartedly with my hon. Friend, who I know has a distinguished legal background. Both he and the Chair of the Justice Committee have powerfully made the point that McKenzie friends should be voluntary and unpaid. I hope the Minister heard that excellent recommendation, which has now been made by two learned hon. Members of this House.
I congratulate the hon. Gentleman on making a speech against the Bill. He has admitted that the insurance companies should be fighting the claims, that McKenzie friends should not be paid and that claims management companies should be regulated. He might not have realised it, but he has defeated the Bill by himself.
I am grateful to the right hon. Gentleman for granting to me such wide-ranging powers of persuasion, but I am not speaking against the Bill; I am speaking only against new clause 1. Despite all the measures we have just been discussing, including the three that the right hon. Gentleman mentioned, I do not think that they, on their own, will be enough, for the reasons I have outlined. The financial incentives created by qualified one-way cost shifting will remain, and claims management companies will find ways of circumventing any tightening of the rules that might be legislated for separately. There is no question but that the British public are being incited to submit fraudulent claims on an industrial scale—[Interruption.] The shadow Minister, Richard Burgon, is tut-tutting and shaking his head in a way that leads me to believe he disagrees with that statement—I think that I have fairly summarised his view.
I just wondered if my hon. Friend would comment on a previous interaction between me and my hon. Friend Huw Merriman about stock car racers, who obviously are involved in multiple collisions and yet do not seem to suffer any whiplash, or at least not to the same extent as others. In addition, people in Greece make far fewer claims than we do in the UK. Will he comment on that?
Once again, my hon. Friend makes an excellent point. Not only has the number of claims for such injuries dramatically increased over the past 10 years, at a time when the number of road traffic accidents has fallen, but they are far more prevalent here than in other European jurisdictions—not just Greece but countries such as France and Germany. Could it be that British necks are weaker than French and German necks, or could it be that our system encourages fraudulent claims?
The hon. Gentleman, who is making an excellent speech, has answered his own question. He has talked about the prevalence of claims management companies and the way they are inciting people to make claims on an industrial scale. Surely those claims management companies, and the insurance companies they are linked to in most cases, should be bearing the brunt of this problem, not the innocent victims of accidents, as would be the case under the Bill.
The hon. Lady evidently agrees that claims management companies have been inciting fraud on an industrial scale—a point of view that her Front-Bench colleague perhaps disagrees with. That said, claims management companies are only part of the problem. As I said, the incentives inherent in the system have encouraged the kind of behaviour I have been describing.
I want to come to the implied sedentary disagreement from the shadow Minister earlier. I inferred from his gesticulation that he disagreed with my suggestion that claims management companies were inciting fraud on an industrial scale. I will start with a personal anecdote, which I realise does not make the general point, but I will then come on to that more general point. My interest in this area stems from personal experience. About three or four years ago, just before being first elected, I had a minor road traffic accident while driving along the M5 to Cornwall with my wife and our two small children. [Interruption.] I think I am being heckled by the Chair of the Justice Committee.
Nobody was injured in the accident—the bumper was a bit dented, but that was it. It happened at low speed, the traffic having slowed down. For about a year, however, I was bombarded with calls to my personal mobile by people from claims management companies, I think, that had somehow found out about the bump, trying to persuade me that I or my family had suffered a neck injury. No matter how often or how insistently I told them that everyone was fine, they would say things such as, “If you just say your neck hurts, you’ll get £3,000.” The incitement to commit fraud was clear and direct. Subsequently, as recently as in the last two or three months, I have received repeated automated calls—robocalls—again to mobile, although wholly unrelated, I think, to the first set of calls. I received a recorded message saying, “We are calling about your accident. Do you want to talk about it?” There was then a pause during which I was expected to reply. That is clearly happening on an industrial scale.
In the first instance, it was very likely to have been an insurance company that had been circumventing the referral fee ban through an alternative business structure, which is a practice that I wholly deplore, and I encourage the Government to ban it. However, as I have said three or four times before, simply trying to legislate away claims management companies will not in itself be enough when the incentives inherent in the system are so powerful. Raising the small claims track limit to, say, £5,000—which is still half the level of the general small claims track limit—will serve to diminish the financial incentives in the system whereby lawyers are taking nearly half the value of payouts.
The proportion of fraudulent claims is about 1%. If I understand the hon. Gentleman’s argument correctly, he is saying that all meritorious claimants should be debarred from proper representation so we can identify that 1%, because it is too difficult for the Government to legislate. Is not the truth of the matter that the Government, as always, are joined at the hip to the Association of British Insurers, and are simply legislating in its interests?
I disagree with all three things that the hon. Gentleman has said. First, as I said earlier to Sir Edward Davey, the Government have no intention at all of preventing legitimate claims from being made. The Government are keen to facilitate those claims, and the online claims portal will help with that. There is categorically no intention of disbarring, preventing or in any other way inhibiting legitimate claims from being made.
Secondly, the hon. Gentleman referred to the 1% fraudulent claims figure. The reason the reported figure, which in my submission is dramatically under-reported, is so low is that insurance companies are, quite wrongly, choosing to settle those claims—even suspicious claims, even claims without merit—without defending them, because the cost of defending them, which is about £10,000 or £15,000, far exceeds the value of the payout. So the 1% figure cited by the hon. Gentleman goes nowhere close to reflecting the true scale of fraudulent claims in this area.
Will the hon. Gentleman respond to a general point? Does he believe that when we are tackling a problem, in any aspect of society, we should deal with the symptom or the cause?
Of course we should deal principally with the cause, and that is what the Bill seeks to do. [Interruption.] The right hon. Gentleman asked about causes. We can talk about claims management companies and we can talk about referral fees—those are important issues to deal with—but the cause of this problem is the financial incentives created by qualified one-way costs shifting, whereby claimants, aided and abetted by claims management companies, can have a crack for free, suffering no loss if their unmeritorious claims are dismissed. If the right hon. Gentleman wants to go into the cause of the problem, that is the cause of it, and elevating the small claims track limit to £5,000 will do a great deal to eliminate the cause. If he wishes to address the cause, as his intervention implied, he should vote against new clause 1.
I thank my hon. Friend for giving way again. It is not just the case that we do not really know the number of fraudulent cases, although we can certainly make a very fair estimate, given that there are 200,000 extra claims and 85% of them relate to whiplash. The real issue is that we tend not to see any medical reports because of the settlements. It is not just that the cases are not defended; we never see the medical reports, so we do not know exactly what the full figure would be.
My hon. Friend is absolutely right. Because the claims are settled upfront by the payment of, typically, £3,000 or £4,000, there is often no medical examination. There is therefore no evidence on which to assess whether the claim was fraudulent or not, which is why the 1% figure cited by Andy Slaughter is essentially meaningless.
One of the other provisions in the Bill, which we debated on Second Reading, is the requirement for a medical examination to take place before an offer is made. That is an essential reform. In response to an intervention from me, the Secretary of State for Justice confirmed that such medical examinations would have to be face to face. That would begin to address the issue that my hon. Friend Huw Merriman has rightly raised.
I thank the hon. Gentleman for giving way to me again; he is being very generous. He mentioned the purpose of raising the small claims limit to £5,000, and what that would do. What it will do is deny victims of injury access to justice, as the Government’s own impact assessment expressly states.
I do not accept the premise of the hon. Lady’s intervention. I think that in the case of the smaller claims, whose value is less than £5,000, it is perfectly possible and perfectly reasonable for individuals to submit their own claims—these are relatively simple matters—using the online portal to whose importance my hon. Friend hon. Member for Bromley and Chislehurst drew our attention earlier. Members have also referred to the role that unpaid McKenzie friends can play in assisting members of the public who submit claims. I do not accept the suggestion that bona fide claims will be prevented or inhibited by the proposed reforms.
I am grateful to the hon. Gentleman, because he has been generous. May I put a different scenario to him, because this aspect of what he is saying is confusing me? If, in the course of his employment, a resident of Glasgow South West were injured in Croydon South, why would he be treated less favourably because the injury was sustained in the hon. Gentleman’s constituency than he would be in the constituency of Glasgow South West? In Scotland personal injury claims are exempt from the small claims limit, and civil legal aid is available to claimants.
The two cases are treated differently because there is an entirely different legal system in Scotland, and there is a devolved Government there. It is perfectly within the competence of that devolved Government to take a different view. Clearly the Government in Scotland, and the Scottish Parliament, have taken a different view, as they are entitled to do, but I, as an English MP—as a London MP—take my own view, and it is the one that I have been expressing here today.
I thank the hon. Gentleman for that, but does he realise that the Bill affects 407,000 people—Scottish residents who are employed in England and Wales?
It may well affect residents of Scotland. Of course, it also affects residents of France, Germany, the United States and Kazakhstan who may choose to visit my constituency. I strongly encourage all of them to do that, by the way. If, heaven forbid, they were to suffer an injury in Croydon South, they would be equivalently affected. The mere fact that there are different rules in different jurisdictions is no reason not to change the rules in this one. Which jurisdiction is the hon. Gentleman suggesting that we align ourselves with? Scotland? France?
While I admire the hon. Gentleman’s patriotism in inviting us to follow the Scottish example, I am afraid that this Parliament will form its own view on what is appropriate, and I do not think that he can be in any doubt about what I think the right view is on the question before us today.
The hon. Gentleman is indeed being very generous. However, he constantly claims that the injuries sustained in road traffic accidents are minor. Written into the Bill is that an injury caused by the
“rupture of a…tendon or ligament in the neck, back or shoulder” that lasts for up to two years will be included within the limits. Does the hon. Gentleman agree that that sort of “minor injury”, which could affect people for such a large portion of their lives, should be included?
The Government consulted extensively on the definitions before legislating. I understand that the definition to which the hon. Lady has referred was recommended by the Sentencing Council, and I would certainly not wish to second-guess or naysay the recommendation of such an august institution.
I did not quite have the opportunity to finish a point that I was making in response to the hon. Member for Leeds East who, some moments ago, was expressing disagreement with my suggestion that claims were being farmed on an industrial scale. I have given my own personal example, but I also want to submit to the House, in support of what I said, an example uncovered by The Sunday Times in July 2015. It involved a company called Complete Claim Solutions, which was based principally in Brighton but also had an office in the Borough of Croydon—although not in my constituency, I hasten to add. It was discovered to be systematically encouraging members of the public to submit fraudulent claims. It was such a disreputable organisation that it used the film “The Wolf of Wall Street” as an instructional video illustrating the kind of behaviour it considered appropriate. This is no small company; it was responsible for making no fewer than 7 million outbound calls per year. One of its salespeople, Tom Murray, was recorded boasting to a Sunday Times journalist that he was able to easily persuade the public to lie. He said that
“if they want that £2,000, they’ll lie.”
He also said:
“When it comes down to a woman who’s had an accident…I’ll make her cry” as a way of persuading her to make a claim.
That is just one example of the shocking behaviour of these claims management companies, in this example one making 7 million calls per year.
I have taken up a great deal of the House’s time. [Interruption.] I am glad that I have at last said something that finds favour with the Opposition Front Bench. I am sure many other colleagues wish to contribute to this debate.
There is overwhelming evidence that our system is broken, in terms not only of the claims management companies and the use of alternative business structures to get information into their hands, but of the fundamental incentives inherent in qualified one-way costs shifting. The proposals the Government are contemplating to increase the small claims track limit will do a great deal to choke off this problem at source—to deal with the cause, as the right hon. Member for Kingston and Surbiton requested a few moments ago. For that reason I will be energetically and enthusiastically voting against new clause 1.
It is a pleasure to speak in this debate. I welcome the opportunity to try and counter the worst aspects of this Bill by speaking to Opposition new clauses 1 and 2.
Access to justice may sound like a catchphrase or buzzword, but it underpins so much within our society, and it should not be bandied about and dismissed with the cavalier attitude currently shown by this Government. The Bill will cause a regression in the ability of genuinely injured people to seek compensation and justice for their injuries. The narrative of wanting to clamp down on fraudulent claims has long worn thin and the statistics the Government are using to justify these policies are entirely erroneous. Of course fraudulent claims are wrong and should be investigated and clamped down on, but we are not experiencing the epidemic levels we have been repeatedly warned of. In 2017, 0.22% of all motor claims were proven to be fraudulent; bearing in mind that that is for all motor claims, whiplash injuries will be an even smaller percentage.
Instead of looking at empirical evidence to create legislation, the Government are using disputed statistics to legitimise their agenda. This is wrong, and the impact on access to justice that the Bill will have will be substantial: 350,000 injured people without the free legal cover they are currently able to access. That is the true cost of implementing the Government’s package of measures.
As I outlined on Second Reading and in Committee, the changes to the small claims limit—although not on in the Bill, they are intrinsically related to its content—will be utterly damning on any reasonable definition of access to justice. The proposal to increase the small claims limit from £1,000 to £5,000 in road traffic injury cases and from £1,000 to £2,000 in all other personal injury claims would mean thousands of injured people could fall out of scope for free legal advice and representation and could be denied justice. Costs are not recoverable from the losing party in the small claims court, so injured people will either have to pay their legal costs themselves, which is likely to be cost-prohibitive, or, more likely, forgo legal assistance altogether, or simply not pursue a claim.
In giving evidence during the Justice Committee’s inquiry into the small claims limit, the Minister in the Lords, Lord Keen, suggested that injured people could instead seek advice from their citizens advice bureau. I am sure that many Members will understand the great number of cuts that have befallen citizen advice bureaux in recent years, and this suggestion is not only unfeasible but is completely out of touch. If there is to be any change in the small claims limit, it must be done proportionately by pegging it against consumer price inflation.
I want to make some progress.
That this must be done in this proportionate way is a widely held view, and those who advocate the approach include the Justice Committee, which published a recommendation in its small claims limit report in May; trade unions, including USDAW; the Association of Personal Injury Lawyers; the Law Society; and over 50 Members of this House who have signed my early-day motion calling for the increase to be in line with CPI inflation. These disproportionate and misguided hikes are, it seems, favoured only by this Tory Government and the insurance industry.
New clause 1 in my name and those of my hon. Friends would limit increase in the whiplash small claims limit in line with inflation and permit the limit to increase only when inflation had increased the existing rate by £500 since it was last set. By linking any rise to inflation, it would remove the power from the Lord Chancellor to determine the level and would instead tie it to an economic measure used by both Government and the Bank of England. The Lord Chancellor has an important role, but it is not one that should be afforded powers to artificially dictate rates such as the small claims limit for political reasoning or motivation. If we remove the politics from the decision-making process by using a widely recognised measure such as CPI, people, whether insurers or injured people, can have confidence in the system. It would provide certainty and clarity, be easy to track and would allow stakeholders to adjust for subsequent rises accordingly.
Complementing new clause 1, new clause 2 would firm up the proposal made by my hon. Friend Bambos Charalambous in Committee that would limit increases in the small claims limit for children and people lacking capacity to make decisions for themselves. The Minister stated in Committee that vulnerable road users will be excluded from the Bill and from secondary measures on the small claims limit. This is welcome, but it is disappointing that no Government amendments have been tabled on Report to shore up that promise and include it in the Bill immediately. I hope that this is not a repeat of the Government’s promise to pass the predicted £1.3 billion-worth of insurance industry savings on to customers. I am afraid that the amendment in Committee on that issue was little more than a fudge, and its effect on customers’ premiums will be negligible at best, while the aggressive changes in the draft tariff system will involve reductions of up to 87% in payments for pain, suffering and loss of amenity from road traffic accident-related soft tissue injuries. Under the proposed tariffs, people will be compensated more for a flight delayed for three hours than for being injured for three months. The widely held and understood values of access to justice should not be undermined on a whim to satisfy the insurance industry.
What these Opposition new clauses highlight above all else is the true damage this Bill will do to access to justice and the principles that uphold the right to access to justice. In Committee, I warned the Minister that the changes made by the Government’s package of measures will be similar in scope to the disproportionate implications of the Legal Aid, Sentencing and Punishment of Offenders Act 2012—LASPO—and the unlawful introduction of employment tribunal fees, both of which are key pieces of Tory legislation that have done nothing but remove the rights of many people in seeking access to justice. What we have been left with is an 84% fall in civil legal aid and a 68% fall in the number of employment tribunal cases as a result of these Tory policies.
Does my hon. Friend agree that this is part of a wider package of pressure on people who have some of the lowest incomes in our society? I wish to be associated with her new clauses and her points, and does she agree that the Government’s proposed measures are part of a wider package of pressure on the most vulnerable people in society?
I agree with my hon. Friend. This is yet another attack on ordinary people’s access to justice. Should the Bill pass its remaining stages today, those shunned by LASPO and tribunal fees will be joined by an additional 350,000 injured people who will be left without the free legal cover they can currently access.
I thank the hon. Lady and fellow Select Committee member for giving way. She has talked about access to justice, but she has not mentioned at all the impact of the online courts. Does she have a feeling about what sort of effect that would have for increasing access to justice?
I thank the hon. Gentleman for making that point.
The Bill will have a significant impact on access to justice, and we know that the portal system is nowhere near ready to accommodate the changes. It has not been properly tested. Under successive Tory Governments, access to justice has fast become a luxury available only to the few. A recent survey showed that 63% of Unison members would not proceed or be confident to proceed with a claim without legal representation. The small claims limit changes in the Bill will push nearly two thirds of genuinely injured people away from pursuing a claim if they do not meet the arbitrarily imposed criteria dictated by the Lord Chancellor. The idiom of adding insult to injury has never been more apt, and it is surely time to think again.
I have done something a bit novel: I have listened to what has been said in the debate, and my remarks will focus on that. I did not come here with a prepared speech; I came here and listened to the contributions from both sides.
I would like to start by responding to Ellie Reeves and taking up a couple of points that she made. The first relates to the idea that the Government are somehow doing this because of special pleading from the insurance industry and that they are somehow in bed with the industry. The aim of the Bill is to reduce premiums for individuals. That is the focus of the Bill. If I were the insurance industry, I would want premiums to go up, but the aim of this package of measures is for premiums to go down for ordinary people. I therefore do not agree with her assertion.
Another point that the hon. Lady made was that the setting of the limit by the Lord Chancellor, or any future Lord Chancellor, was arbitrary, unfair and unjust, but that is why we have this House and why we have Ministers. They are not here just to do interviews on the “Today” programme. We have Ministers to make judgments that they are then held democratically accountable for. I accept that Labour Members—or, indeed, at some point in the very distant future, Conservative Members, when they are sitting on the Opposition Benches—might dislike a judgment that is made by a future Lord Chancellor, but we settle these things through the democratic accountability of this House. To reject that principle and to suggest that every limit in any area of law, whether this or anything else, should somehow not—
I thank the hon. Gentleman for giving way. He talks with great passion about the democratic accountability of this House. Does he therefore agree that any changes to the small claims limit should not be done by negative statutory instrument, as the Government are proposing, and that they should instead be debated on the Floor of the House?
That is an interesting point. I have served on many Committees, as we all have, and some have huge amounts of engagement from lots of Members while others have less. But this House is not just this Chamber; it is also all the Committee Rooms. Negative statutory instruments provide a way for significant amounts of secondary legislation—I do not know how many pieces of legislation; probably hundreds—to go through Parliament. I cannot agree with the hon. Lady 100% that using that procedure will always result in a lack of democratic accountability, because frankly, in modern government, it plays a significant part in our governance process. I recognise the point she makes, however, and it is fair to say that sometimes people do not pay as much attention in Committees as they might do, but that is fundamentally the case for this Chamber, too.
Does the hon. Gentleman therefore agree that, on occasions, statutory instrument Committees do not provide a democratic procedure, as in the case of the cuts to criminal injuries compensation in 2012? At the time, one Committee completely overturned the Minister’s proposals and asked for them to be brought back. A separate Committee was then reconvened, made up of Parliamentary Private Secretaries, and it railroaded through exactly the same criminal injuries compensation cuts. This House should not be seeking to use that kind of procedure for something that is so important to hundreds of thousands of accident victims.
I do not want to leave the House, or the hon. Lady, with the impression that I believe that statutory instruments are undemocratic. They are democratic, and they are a form of how we do things in this House. I was unaware of the case that she mentioned. The broader point is that getting primary legislation through, particularly in a hung Parliament such as this, will always be difficult—[Interruption.] No, primary legislation is not always the place where we make every single change. That is why we have a Committee system.
I would also like to draw attention to the personal anecdote offered by my hon. Friend Chris Philp about being phoned up by various claims management companies. I have had a similar experience—which I will not repeat in full—although I was going to Scotland rather than to the south-west. I am still receiving phone calls from the company, and the fundamental reason for that is the incentive structure under which the whole industry operates. Do I agree with hon. Members on both sides who say that certain things in this area need to change? Yes, I do, but does that mean that I should reject a piece of legislation that is designed to tackle certain injustices? No, it does not. So I agree with my hon. Friend on that point.
That is obviously factually accurate, but we need to ensure that we deal with the cause of these problems. As I have said, the Bill does not deal with everything, but it does deal with at least part of the problem. That, in and of itself, is a valuable thing.
The hon. Gentleman talks about the underlying cause that makes these changes necessary, as has the hon. Member for Croydon South. As they have both identified, that underlying cause is surely the fact that insurance companies should not be defending claims that could be fraudulent.
It is partly that, but the important point is that no single piece of legislation in this House can deal with every single problem. We can identify a particular problem and deal with it in a particular piece of legislation.
Does my hon. Friend agree that we can speak proudly from these Benches about the fact that civil litigation reform over the past few years has led to changes in no win, no fee, as well as to the banning of referral fees and the use of benefits by these companies? Government Members actually have something to say on this. Those changes have also led to a reduction of about £50 in insurance premiums.
The UK’s leading insurance companies earned more than £2.6 billion in profits in 2016, up on 2015. The proposed changes do not guarantee any reductions in premiums; they simply say that the premiums may fall. There is no guarantee that they will, and we know from previous Bills that this does not happen. Why does the hon. Gentleman suppose that things will be different this time?
I take the hon. Lady’s point. The industry has pledged to pass this on. My understanding is that premiums fell by an average of roughly £50 a year in 2012. When we talk about averages, we must bear in mind that if premiums were to fall by an average of, say, £35 under this legislation, the figure in some instances would be much greater—especially for young drivers, for example. Those are my remarks, based on what I have seen and heard today, and I commend this speech to the House.
I did not intend to speak, therefore I will be brief. The House is being treated to ad hoc speeches, which are always a delight. They sometimes benefit from a little knowledge of the subject, I gently say to Bim Afolami. I also urge him not to be quite so credulous of what insurance companies tell us because experience shows that they always say that premiums will go down, and sometimes they go down and then up again, and sometimes they do not go down at all.
I also wonder about the hon. Gentleman’s question of whether we can expect everything to be done in a single Bill. I would argue that the two main things that the Bill will do are to prevent people with meritorious claims and those with often serious injuries from getting into court, and, if they get there, to reduce the legitimate level of damages that they can expect to receive. Would not it be better to have a Bill that deals with a matter that probably everybody in the Chamber thinks is right to tackle: strengthening defences against fraud? There has already been some change in legislation to make it easier to defend fraud cases, yet one may ask why insurers still do not instruct lawyers—whom they are able to employ, unlike claimants, perhaps, after the Bill is passed—to defend those cases. Why do they not insist on medical evidence? Why do they in fact encourage fraud? Why does a proportion of insurance companies’ profits come either from selling information on, which perpetuates claims management companies, or from owning claims management companies themselves?
The problem with the Bill is that it has the wrong targets. I made that point earlier when I intervened on Chris Philp. All Labour Members can be brief because he substantially made the case for why this is a bad Bill, as Sir Edward Davey said.
However, the hon. Member for Croydon South said that the limit should be £10,000, as if personal injury claims were the same as simple money claims, which no one has ever argued. We are arguing about a difference in what the limit should be. In employers’ liability cases, the difference is relatively small, but the difference in road traffic accident cases is substantial: between what inflation would provide—around £1,500 as a small claims limit—and £5,000, which the Bill proposes.
The Association of Personal Injury Lawyers said about the Bill:
“Claims under £5,000 are not minor, and an increase in the small claims limit will cover far more than soft tissue injuries. These claims could include a brain or head injury, injuries to the eyes, a collapsed lung, or fractured cheekbones. This is a disproportionate response to the stated aim of dealing with whiplash claims.”
That must be right. We are talking about people who are in a vulnerable condition, having suffered personal injury. As has been said, the inequality of arms is apparent not just in the courtroom but in the background to the case, particularly in the case of employees who take on their employers. That is often done with the assistance of a trade union, lawyers and other advisers. We should not replace that tried and trusted system with McKenzie Friends—whether unpaid or unpaid— who often do more damage than good to the clients they intend to represent. I urge the Minister, even at this stage, to listen not only to Opposition Members but to some Government Members and particularly to the Justice Committee.
I went through the painful experience of the stages of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, and I have therefore heard many of the arguments trotted out before. We went from a situation whereby legal aid was available for personal injury to no win, no fee cases, and now to qualified one way costs shifting—QOWCS. It is increasingly difficult even for those with the most meritorious cases to get representation. There is not the same availability of representation as there was.
The review of the law post-LASPO is due to report shortly. It will cover not only part 1 but part 2 of LASPO, and if we had waited, we could have seen the effect of the reform to civil litigation, but no, the Government wish to take a sledgehammer to crack a nut. The overwhelming majority—estimates are around 90% of road traffic claims—of cases will be taken out of a costs regime. That means that all those people have to sink or swim on their own. No one, not just the lawyers here, truly believes that it is easy for many people who have suffered accident and injury to navigate through the court system, particularly when they are opposed by an insurance company, with all the resources that it has.
The Bill will not benefit the motorist or the interests of justice. Above all, it will not benefit people who, through no fault of their own, have suffered often serious injuries. It is disgraceful that the Government are legislating once again in the sectional interests of the insurance industry and against those who have suffered injury.
I rise to support the Bill and speak against new clauses 1 and 2 because, whether through ending rip-off energy bills, freezing fuel duty or increasing the personal allowance for income tax, the Government’s constant focus has been to make sure that the consumer is at the heart of their work and to reduce the cost of living for millions of people.
I am therefore pleased that Ministers have identified another area in which the cost of living is artificially and unfairly inflated. At a time when our cars and roads are safer than ever, one would expect the price of motor insurance to come down. Instead, the opposite has happened. Since 2010, there has been an almost 50% increase in the cost of comprehensive insurance premiums, and a near 80% increase in the cost of third-party fire and theft insurance premiums.
Does not the hon. Gentleman agree that the rise in the cost of insurance is, as we have heard in the debate, down to insurance companies not tackling possibly fraudulent claims, thereby creating the problem and making huge additional profits? Does he accept that consumers are also victims of accidents and will be severely affected by the Bill?
The hon. Lady is right to say that insurance companies have a duty to tackle fraudulent claims—that is certainly the message that the Government would send out and that I endorse—but the proportion of such claims is relatively small. We need to get the incentives in the system right so that the most serious cases receive the compensation and the attention that they deserve in the legal system and that the less serious cases receive a proportionate response. Whiplash is a horrible injury, which can be very severe, but we must ensure that the incentives in the system are not so skewed as to push all cases into the most extreme bracket. That simply does not reflect the nature of the injuries that are being suffered and it is not in the country’s public policy interest to have insurance rendered hugely more expensive, which the current system does.
Is the hon. Gentleman saying that the tariff for compensation for injuries, which judges currently use, is unfair and overcompensates people with more minor injuries? It covers a range of injuries, not just whiplash.
I am saying that there is a need for a proportionate system for compensation. The number of road traffic accident-related personal injury claims has increased by 200,000 since 2006—a rise of approximately 40%. That suggests to me that the incentives in the system are skewed. Insurers predict that, without reform, motor premiums could continue to rise at a rate of about 10% annually. That constitutes a significant burden on the cost of living for millions of us who are dependent on our cars for daily travel, especially in rural communities.
Does not the hon. Gentleman think that the fact that the UK’s leading insurers paid out £2 billion to their shareholders in 2016 might have something to do with the rising cost of insurance premiums?
The Bill is designed to make sure there is a closer connection between whiplash claims and medical evidence by introducing a ban on seeking or offering to settle whiplash claims without the appropriate medical evidence. That will discourage fraudulent claims, encourage insurers to investigate claims properly and protect genuine claimants from accepting a settlement without knowing the full extent of their injury.
Finally, the Bill will change the way in which the personal injury discount rate is set to help ensure genuine claimants receive no more and no less than the 100% compensation they deserve. Under the existing arrangement, the discount rate often produces significantly larger awards than 100% compensation. In fact, according to work by the Government Actuary’s Department, claimants receive, on average, 125% of their intended award at the current discount rate.
This package of measures will keep the system fair by ensuring that claimants receive the compensation they deserve while ensuring that the public are not paying unduly high premiums. Together with the changes to the small claims limit, these measures will deliver some £1.1 billion-worth of consumer savings a year and could lead the motorists’ insurance premiums falling, on average, by £35 a year. That is very welcome to most families, and it is why this legislation is right, necessary and timely.
I support new clause 2, which is in my name and in the name of other hon. Members. I am concerned that the Bill takes away the protection for children and protected parties such as people with a mental capacity disability.
Under the current civil procedure rules, children and protected parties are required to have legal representation in court when there is a settlement following a civil claim. Children and protected parties are not excluded from the Bill as vulnerable road users. Prior to introducing the Bill, the Government gave exemptions to a small category of vulnerable road users, including cyclists and horse riders, but no such exemption was given to children or protected parties despite their being protected under rule 21 of the civil procedure rules.
The Government should exempt children and protected parties in accordance with rule 21, and the Minister’s own Department, the Ministry of Justice, is responsible for setting these rules. I raised this issue with him when the Bill was in Committee and, being a man of his word, he duly got back to me, but his response was disappointing. Part 21 of the civil procedure rules states that for a child or protected party settlement to be made it has to be with the approval of the court. The settlement has to go before a court; there is no issue of it going to a portal. For court approval, children and protected parties need legal representation.
The Minister’s response to me suggested that the insurance industry would provide legal representation and that this would solve the problem. Except there would be a clear conflict of interest if the same party were paying for the legal representation of both sides. When choosing a litigation friend for a child or protected party, one of the criteria, under paragraph 3.3 of practice direction 21, is that the party seeking to represent the child or protected party as a litigation friend should have
“no interest adverse to that of the child or protected party”.
Clearly someone who is being paid by the insurance industry against the child’s claim cannot say that they have no adverse interest.
Sometimes children will be suing their parents in a road traffic accident personal injury case, meaning that the parents will have an adverse interest and cannot act for or represent their children. By not excluding children and protected parties from this Bill, the Minister is making a mockery of the current rules that govern personal injury in England and Wales.
Why should a child be able to access legal representation in a case where they have been injured at, say, an amusement park but not when they suffer the same injuries in a road accident? As things stand, the child or protected party would still have to get a legal opinion before the court makes a settlement, but the cost of the advice would not be recoverable from the negligent defendant, or their insurer, in cases subject to the small claims tariff. Why does the Minister want to take money away from children and protected parties in order to benefit insurers?
There are complexities in these cases, and legal representation is needed more than ever in matters involving children and protected parties. I cannot understand the Government’s logic or rationale in excluding horse riders and cyclists from this Bill but not children or protected parties. Are they saying that injuries suffered by children and protected parties through no fault of their own should be treated less seriously than injuries suffered by cyclists or horse riders? This goes to heart of the Bill, which is ill-conceived and drafted solely from the point of view of the insurance industry and not of innocent victims who make a claim.
It is shameful that the Government are willing to sacrifice the interests of innocent injured children, and to take away the protection they currently have, enshrined in law, to give the multi-billion pound insurance industry an even bigger advantage in court.
I beg your pardon, Madam Deputy Speaker.
New clause 1 would amend some of the worst failings of the Bill, which has been drafted at the behest of the insurance industry over several years. The industry has failed to tackle fraudulent claims. We have heard from hon. Members on both sides of the House this afternoon that the industry, which is responsible for so many of the claims management companies and for passing information on to them, is producing the problems that the Government are now seeking to address by further victimising the victims of accidents.
The insurance industry is making billions of pounds of profit and will make a further £1.3 billion from this Bill through the reduction in claims. Victims of accidents are not the people who tend to go to court. Those who lose will be denied access to justice, as both the impact assessment and the excellent report from the Justice Committee make clear.
It is a huge undertaking for a layperson to take a case to court. Most would not even dream of it, especially a case against their employer, who will be armed with their own lawyers and often with an insurance company, which will also be armed with its own lawyers. Unison, the public sector union, surveyed its members, 60% of whom said they would not have taken a case against their employer to get the compensation they deserved for their injury at work if they had to take the case on their own without the support of a lawyer.
It is extremely difficult to determine liability in the case of many accidents at work, especially in instances like those I saw when I worked for the Union of Shop, Distributive and Allied Workers. Deliveries are made to stores by a third party and there are incidents in warehouses that may be the fault of one party, the fault of another company or the fault of the employee. Those arguments are exceedingly difficult to pin down, especially for an individual claimant, and they require the assistance of a lawyer.
The Government assure us there will be an easy online portal for claimants to register a claim. I am sorry, but I am a member of the Select Committee on Work and Pensions and we were told that there would be an online portal for universal credit, yet 47% of claimants are unable to access the portal. An online portal is, of itself, not an easy thing to access, particularly for people for whom IT is not their natural sphere. I ask the Minister to commit the Government not to roll out these changes to the small claims limit until the portal has been demonstrated to be easily usable by at least 95% of those who seek to use it. I hope that that commitment will be made during the passage of this Bill because, as we have heard, the portal is nowhere near ready and even the pilots have been found by firms of lawyers to be difficult to access.
The arguments made in favour of the Bill have been about the cost of insurance but, as we have heard, that cost has been rising at the same time as insurance companies’ profits have been rising. It is not the cost of personal injury claims that has increased insurance; those bodily injury claims have actually reduced by £850 million since 2013. A large degree of the cost rises has been due to the costs of vehicle damage, which have become far higher in the last five years—nearly £700 a year more—because cars are more complicated.
The Bill has been introduced, it is claimed, to crack down on whiplash claims, but it covers far more than simply whiplash. The definition of whiplash itself has been extended far beyond a medical definition, to include all injuries to necks and backs that relate to rupture or strain of muscles, tendons or ligaments lasting up to two years. I hope that no one on either side of the House would feel that such injuries are minor. The Bill also deals with accidents at work, public liability claims and medical negligence. USDAW has estimated that five times as many cases would be caught by this small claims limit as are caught currently. According to the TUC, only one in seven workers make a claim against their employer for an accident at work. So we can see that this move will have a severe impact on the number of claims being made.
Does my hon. Friend agree that the Bill will make workplaces more dangerous? I know from experience that, if employers are litigated against as a result of accidents in the workplace, they review their safety policies and make workplaces safer. This Bill will have the opposite effect.
I absolutely concur with my hon. Friend’s point, which I raised with the Health and Safety Executive, whose laboratory is in my constituency. It concurred that one of its major concerns is that without claims being made against employers they will cease to mitigate against risk in the workplace. That is just one of the many problems the Bill will cause, both for victims of accidents and for all other employees in the workplace.
The Minister has heard many examples this afternoon of how the Government could crack down on fraud and on the costs of insurance without cracking down on innocent victims of accidents. The requirement in the Bill for medical reports prior to offers being made is an important one, which all sides are supporting. We hope that the Government would seek to assess the impact of that change before impacting on victims. We have also heard many calls from Members on both sides of the House for claims management companies to be acted against because they are obviously playing the system and we need to make sure that that cannot continue.
This Bill is seeking to make the innocent victims of accidents pay for the fact that insurance companies are not prepared to crack down on fraud and so have come to this Government seeking their help. We have no guarantee that insurance costs will fall, but we do know that insurance companies will make £1.3 billion more a year out of this legislation and that innocent victims of accidents will suffer. I very much hope that the Minister has listened to the arguments being made on both sides of the House today and will accept the new clause.
Let me begin by paying tribute to the high quality of debate today from hon. and right hon. Members on all sides of the House. This has been a serious business. The consultation on the issue began in 2012 and the detailed measures we are debating today were announced in the Budget in autumn 2015. There are disagreements on every side of the House, which are expressed in new clauses 1 and 2, but, more generally, I hope that everybody in the House will recognise that the Bill has been adapted as we have listened a great deal to suggestions made by the Opposition and others. I pay tribute to the hon. and right hon. Members on all sides who pushed for the changes we have introduced on vulnerable road users, on the new role of the consultation with the Lord Chief Justice and on definitions, particularly in respect of whiplash. I also pay tribute to what happened in the other House, where this legislation was considerably revised and improved by efforts from Cross-Bench peers, as well as Labour, Lib Dem and Conservative peers.
It is a tribute to all the work done in the other place and here that, now, having had dozens of amendments in Committee, we are down to debating two new clauses. I wish briefly to express why it is that, although we acknowledge and recognise some of the powerful arguments made by the hon. Members for Ashfield (Gloria De Piero), for Hammersmith (Andy Slaughter), for High Peak (Ruth George) and, particularly in relation to new clause 2, for Enfield, Southgate (Bambos Charalambous), the Government are proposing that the new clauses should be dropped and that we should proceed with the Bill as drafted.
There are effectively five problems with new clause 1 that lead us to feel that we should not proceed with it. The first is that it would go against the entire policy intent of the Bill. What would happen if, instead of increasing the maximum limit under the small claims track to £5,000, it were held at £1,500? The tripartite policy move has attempted to tackle three things simultaneously: to reduce the incentives for fraudulent or exaggerated claims posed by the pay-outs; to remove some of the compensation that can be achieved by getting one’s legal fees covered by the defendant; and to remove some of the current requirements on medical consultation. Those three things need to go together. If we were, for example, to increase the tariffs in line with the proposals that are dealt with by some of the amendments the Opposition have tabled for consideration later, but to leave the small claims limit as it was, we would end up in an unequal system. As my hon. Friends the Members for Croydon South (Chris Philp), for Hitchin and Harpenden (Bim Afolami) and for Middlesbrough South and East Cleveland (Mr Clarke) have said, there are significant costs to consumers, premium payers and the social system of proceeding with a situation in which some people—not all—are encouraged to make exaggerated and, in some cases, fraudulent claims.
The Government’s position is clear: we have enormous respect for the work of personal injury lawyers, who play an honourable and important part in society in representing the interests of victims as a whole, and in no way should this Bill be read as suggesting anything other than our respect for those individuals and the work that they do. However, we argue that the purpose of the small claims court is best dealt with through focusing on the nature of the claim, not on inflation. Many of the arguments that have been made, for example by Ellie Reeves and others, have focused on the question of inflation. Indeed, the entirety of new clause 1 attempts to set up a system where we look at inflation over the intervening period and determine purely on that basis whether the limit should be raised. However, as the hon. Member for Hammersmith pointed out, our theory is different—it is respected by the practice of the European courts and other jurisdictions: the basic determinant of what goes into the small claims track is not inflation but the complexity of the claim.
Does my hon. Friend agree that it is important that claims against employers above £2,000 are taken outside the scope of this? It is right in those circumstances, where it can be difficult to make the claim stick, that people should be entitled to recover their costs in the event of a successful claim. Does he agree that making that change was a critical improvement to this Bill?
My hon. Friend makes a powerful point, which should, to some extent, reassure the hon. Member for High Peak, some of whose arguments rested on damages in the workplace. The rise to £5,000 does not relate to damages in the workplace. As has been pointed out, it relates only to whiplash injuries suffered in a vehicle.
I am grateful to the Minister for giving way. I take on board his point that the appropriate test for a small claims regime is complexity or otherwise, but will he recognise that there is a risk that perceived complexity might make claimants vulnerable to the operations of claims management companies, which do not have the high standards and good regulation of personal injury lawyers, as he rightly recognises? What safeguards do the Government intend to put in place beyond this Bill and more generally to make sure that we do not have a displacement effect from well-regulated personal injuries lawyers to unregulated, unscrupulous claims managers of the kind to which my hon. Friend Chris Philp and others referred. What more can we do to safeguard against that unintended consequence?
This is an issue on which my hon. Friend has been very thoughtful in his role as Chair of the Justice Committee. There are obviously three things that we are endeavouring to do and we are open to more ideas. One of them, of course, is that, through this package of measures, we disincentivise claims management companies from having a significant financial interest in pursuing this type of case. The second, as my hon. Friend pointed out, is the setting up of an online portal to reassure individuals that they will have a more predictable, more transparent and more straightforward system for pursuing their claims in person. Finally, through consultation with the judiciary, we are looking at the issue of paid McKenzie friends. We are waiting for the judiciary to report back so that we can take action on that issue.
The Minister claimed that raising the limit for workplace accidents to £2,000 would allay my fears, but given that USDAW and other unions have said that this will actually increase the numbers needing to go to the small claims court by five times, it certainly does not. There are still wide concerns around taking cases against employers, as he will know. Will he make any assurance that the portal will be tested, and that it will be ensured that an ordinary layperson can use it before any claims are implemented?
Clearly two different cases are being made here. On the question of the online portal, a very serious group of people, which includes insurers and lawyers, is testing it. One of the concessions that was made in the House of Lords—I think it is a good one—is to extend the time before this is rolled out by 12 months so that we have more time to make sure that the testing is done and that the portal operates properly. That is a good challenge.
The point about injuries in the workplace is that that, I am afraid, is outside the scope of the Bill, which is very narrowly defined to deal with whiplash injuries. Indeed, new clause 1 is also very narrowly defined as it deals with only the question of a “relevant injury”, which, in this case, is a whiplash injury. Therefore, while arguments about other forms of injury and employment are very interesting, they are not relevant to the debate on new clauses 1 or 2.
Moving on to the next question about simplicity and inflation, I just wish to point out that the previous Labour Government accepted the principle that inflation was not the only determinant of the levels that the small claims court should meet, because, of course, the small claims limit was raised from £1,000 in 1991 to £3,000 in 1996, and then to £5,000 in 1999 under the Labour Government before it was raised to £10,000 in 2013. Quite clearly those raises were well in advance of inflation and were driven, as indeed was the case for European small claims, by the notion of the simplicity of claims, not a change in either the CPI or the RPI.
Even if one were to accept that there should be a relationship to inflation, the mechanism proposed in new clause 1 seems to be a recipe for falling behind inflation. In effect, the proposal is that an increase should only take place if there had been a rise of at least £500, and should then be limited to £500. It would not take many years of slightly higher inflation than we have now to end up in a situation where, over a five and 10-year period, the increase would be considerably in excess of £1,000, which would then allow for a rise, but we would then find a syncopated system that, very rapidly, would be falling behind inflation.
The more fundamental point is a constitutional one. This is not an issue that is traditionally dealt with through primary legislation, and it is not an issue that is dealt with in the Bill. That is because increases to the small claims limit are properly an issue for the Civil Procedure Rules Committee, on which the Master of the Rolls, district judges, senior judges, personal injury lawyers—barristers and solicitors, including the president of the Association of Personal Injury Lawyers—and representatives for consumer bodies such as Which? sit. That is a better way of looking at the proper limits than trying take forward primary legislation on the Floor of the House. Technically, there is also another issue with the new clause, which is that subsection (4) should include paragraphs (a), (b) and (c).
That brings me to new clause 2. Bambos Charalambous quite rightly drew our attention to potentially vulnerable litigants, such as infants, children and other protected parties. He argues—on this we absolutely agree—that they suffer the same forms of injuries as any other human, and are entitled to fair compensation and the same degree of representation that would be afforded to any adult. At the moment, that is, of course, provided by the allocation of a litigation partner by the judge concerned.
The hon. Gentleman and the hon. Member for Ashfield asked what happens if that does not work and whether an increase in the number of cases would undermine that system. We have looked at this carefully, because the hon. Gentleman raised the matter in Committee. Our conclusion, having consulted a wide range of individuals, is that we do not believe that that would occur, but a number of safeguards are in place in the worst-case scenario. In most cases, an individual who is in that situation, such as an infant, would be represented by their parents. In a situation in which they were suing their parents, because the parents were, for example, driving the car, a litigation friend would be appointed by the court. In the case that they would be unable to find a competent adult who met all the criteria stated by the hon. Gentleman, including there not being a conflict of interest from that individual, it would be possible to appoint the official solicitor. In a case in which that, too, failed, judicial discretion remains to move the case of the infant out of the small claims track into the fast track, where the legal costs would be recoverable. Of course, judges would still have a very serious role to play in approving any settlement made to an infant or any protected party. That was why Lord Justice Patten made this ruling in the case of Dockerill v. Tullet:
“I can see no reason in principle why a small damages claim made by an infant should be taken out of the small claims track merely because of the age of the claimant. It is also clear that the premise on which CPR 45.7 operates is that the normal track for damages by infants will be the small claims track.”
That brings me to my conclusion. This very impressive piece of legislation has involved the upper House, the Opposition and civil society members throughout its Committee stages. The Government have made a number of very serious concessions to make the process more workable. I pay particular tribute to the Justice Committee for the pressure that it has put on us in relation to a very large number of issues, ranging from the online portal to paid McKenzie friends and vulnerable road users. We have now ended up with a Bill that does not do everything that was set out when the Lord Chancellor initially announced it in autumn 2015. Instead, with a series of realistic, focused and pragmatic compromises, we have struck the right balance between the protection of genuine claimants who have suffered genuine injuries, and the protection of different forms of public interest—in particular, the public interest of people, especially in rural areas, who need to be able to afford their motor insurance in order to move around. This Bill will remove unnecessary complexity, unnecessary costs and, in particular, the moral damage and hazard that currently exist in the form of claims management companies and a few unscrupulous individuals.
As Lord Brown of Eaton-under-Heywood—the previous president of the Supreme Court—pointed out in the upper House, this country is now known throughout the world as a haven for unnecessary whiplash claims. Despite a significant reduction in the number of car accidents and an increase in vehicle safety measures over the past 15 years, if not over the last three, we have seen a significant increase in the number of whiplash claims, which can be accounted for only on the basis of fraudulent and exaggerated claims.
Question put, That the clause be read a Second time.
The House divided:
Ayes 240, Noes 287.