My Lords, all the amendments in this group are aimed at significantly bringing forward the date of the first review of the discount rate. They are all in my name and those of my noble friend Lord Marks and the noble Earl, Lord Kinnoull, and I am very grateful for their support. I am also extremely grateful to the noble and learned Lord, Lord Keen of Elie, and to his officials for the considerable time they gave to the discussion of this matter between Committee and Report, and for their help in suggesting drafting for some of the amendments in this group.
As the Bill stands, the timetable for the first review would be as follows. The Lord Chancellor can decide when the provisions in Part 2 commence and there is no minimum or maximum period laid down. At his sole discretion, he can take as long as he likes to commence the provisions that enable a review of the discount rate. Once he has decided to commence the provisions, he then has up to 90 days to trigger the start of the first review. The review must conclude within 180 days, during which the expert panel has up to 90 days to respond to the Lord Chancellor.
All this means that the entire process will take up to 270 days plus the time elapsed before the Lord Chancellor commences the provisions in the Bill itself. As the noble and learned Lord, Lord Keen, said in his letter of
The amendments in this group replace the existing process for conducting rate reviews with a separate and much faster process for conducting the first review. They leave untouched the process for subsequent reviews. Amendments 51, 55, 58 and 59 shorten the length of time after commencement that the Lord Chancellor has to trigger the first review from 90 days to 25 days. Since other amendments in this group will later remove the expert panel from the first review, there is clearly no need for the three-month maximum delay.
Amendments 64 to 66, 72, 74, 78 and 87 set up the new process for the first review. The essence of this new process is contained in Amendment 65. The other amendments are enabling or consequential, with the exception of Amendment 90, tabled by the noble Earl, Lord Kinnoull, to which I have added my name and which I will discuss later. Amendment 65 requires that the review is held and the rate determined within 140 days from the Lord Chancellor’s triggering of the first review. It also requires that the Lord Chancellor must, within 20 days of the start of the 140-day period, consult the Government Actuary and the Treasury. The requirement to consult an expert panel is removed entirely from the first review. The only consultees are the Government Actuary and the Treasury. The amendment specifies that the Government Actuary must respond to the consultation within 80 days of the Lord Chancellor requesting the consultation, while Amendment 65 sets out that:
“The exercise of the power … to determine … the rate … is subject to paragraph 3”,
exactly as at present and exactly as for subsequent determinations.
In summary, the changes brought about by the amendments to the process of the first review are as follows. They will reduce the time between commencement and triggering from 90 days to 25 days; they make it plain that the Lord Chancellor must request consultation no later than 20 days after triggering a review, a period unspecified in the Bill as it stands; they will remove the expert panel from the first review and the only consultees will be the Government Actuary and HMT; they will require the Government Actuary to respond to a request for consultation within 80 days after the request has been made; and the entire review must be concluded within 140 days of the Lord Chancellor’s triggering the review.
In all, these measures will reduce the time to arrive at the first determination from commencement by 105 days. This will represent a very significant saving, especially to the NHS, where it may be as much as £300 million a month. Amendment 65 and the other amendments in my name do not address the absolute discretion the Bill gives the Lord Chancellor to decide when the provisions governing rate reviews should commence, but this is addressed in Amendment 90 in the name of the noble Earl, Lord Kinnoull. There is no good reason to allow the Lord Chancellor unfettered discretion and I support Amendment 90, which removes it.
In my view, the time between Royal Assent and commencement should be either zero or some small number. When we discussed these matters in Committee, the Minister opened his response to our proposals to bring forward the first review by saying:
“I believe we are as one in our desire to see the provisions brought into force as rapidly and sensibly as possible”.—[Official Report, 15/5/18; col. 633.]
He went on to commit to reflect further on the matter. It is quite clear that he and his officials have done exactly that. Many of the amendments in this group, particularly Amendment 65, are largely the fruit of that reflection and of our discussions. I am grateful for that and I commend these amendments to the House. I beg to move.
My Lords, it is very hard to follow such a clear speech and say anything. I congratulate the noble Lord, Lord Sharkey, on such a clear presentation. I will only observe mathematically that the latest NHS Resolution annual report states very clearly that the change from 2.5% to minus 0.75% would cost the NHS an additional £1.2 billion per year. Making the change from minus 0.75% to 1%, which appears to be what the industry in general expects, works back mathematically to suggest that speed is worth around £2 million per day to the NHS. So the amendments have great merit in that they would have a direct positive effect on the front-line availability of NHS funds. Accordingly, I commend them.
My Lords, I declare my interests as set out in the register and congratulate the noble Lord, Lord Sharkey, and the noble Earl, Lord Kinnoull, on Amendment 65, in particular, and the consequential amendments. More than anything else, the simplification of the process for the first review of the discount rate will allow the Lord Chancellor to proceed with the speed that everyone in this House has urged. I very much hope that my noble friend the Minister will confirm that the Government are prepared to accept Amendment 65 and the consequential amendments. I look forward to her acceptance.
My Lords, the amendments relate to the speed with which the first review of the rate can be conducted. Initially, I will focus on Amendment 65 and the related consequential Amendments 64, 66, 72, 74, 78 and 87.
The amendments would accelerate the conclusion of the first review in four ways: first, by replacing the need for the Lord Chancellor to consult the expert panel with a requirement to consult the Government Actuary, thereby simplifying the preparation for the first review. Secondly, by reducing the maximum period within which a review must be completed from 180 days to 140 days. Thirdly, by requiring the Lord Chancellor to consult the Government Actuary within the first 20 days of the review starting. Fourthly, by reducing the time for the Government Actuary to carry out his or her review following the Lord Chancellor’s request, from the 90 days currently afforded to the expert panel in the Bill to 80 days. The remaining changes made by the amendments, including the obligation on the Lord Chancellor to publish information about the Government Actuary’s advice, are consequential to these four changes.
The Government have made clear on several occasions that they are committed to starting and completing the first review as quickly as practical after Royal Assent. The amendments will assist the achievement of that objective because they will remove much of the uncertainty that would exist as to the readiness and availability of the as-yet-unknown members of the panel to commence the review promptly. This means that the open-ended period for the request to the panel can be confined to a specified period.
In addition, the carrying out of a review by the Government Actuary rather than a panel is administratively and substantively a simpler proposition. The overall period for the review and the period for the Government Actuary’s response can therefore both be shortened. The proposal that the Lord Chancellor will make the determination on the rate within 140 days of the start of the review, and that the Government Actuary will respond within 80 days of the Lord Chancellor’s request, recognises these changes in the proposals. The amendments do not affect the timing of the commencement of the review.
However, the removal of the panel from the first review reverses a policy decision that the Government took when replying to the Justice Select Committee’s recommendation to involve the panel in the first review. The reversal of this decision is not something that the Government would do lightly—but, having listened to strong arguments from noble Lords across the House that the first review needs to be completed more quickly than would be possible if the panel had to be constituted, the Government accept that the proposed approach is a sensible and pragmatic step. We have spoken with the noble Lord, Lord Sharkey, and are grateful to him for agreeing some changes from the terms of his initial proposal in Committee. On this basis, the Government are content to accept Amendment 65 and the related consequential amendments.
Turning to the other amendments in this group, the effect of Amendment 51 and the related Amendments 52, 55, 58 and 59 would be to require the first review to be started within 25 days of commencement, rather than the maximum 90 days as provided for in the Bill at present. Amendment 90 would be even more restrictive on the time allowed, as it would require the timetable for the first review to begin on the date of Royal Assent. As I have explained, we share noble Lords’ desire to ensure that a review is carried out as quickly as is reasonably practical. However, reducing the period within which the Lord Chancellor must begin the first review—which is a maximum period that may well be bettered in practice—runs the risk of creating unnecessary problems around compliance with time limits for those involved in translating this legislation into action. This is particularly the case given the Government’s acceptance of the reduced time limits in Amendment 65.
Even though the review will no longer involve the expert panel, there is still a need for extensive pre-review research and analysis to be completed to enable the Government Actuary to provide input to the review on a fully informed basis. This will include developing the data requirements to inform a call for evidence on investment advice and behaviour, funds available to investors and their risk characteristics, and allowances for tax and investment management costs; preparing and publishing the relevant call for evidence documents; and collating and analysing the responses. While we will ensure that the gathering of evidence proceeds as quickly as possible, that work will require time and it is important that it is done properly. At present we estimate that it will be completed around the end of November, but there is a possibility that the Bill may achieve Royal Assent earlier than expected.
The Government are, however, sympathetic to exploring ways to reduce the 90-day period within which the first review must begin, without making the period so short as to cause problems for the rest of the timetable. In light of this we would be happy to discuss the detail of these amendments further with noble Lords before Third Reading if they would be willing to do so. I hope that this commitment will reassure noble Lords that the Government are prepared to examine how the 90-day period following commencement might be reduced and, on that basis, I urge them not to press their amendments.
I am very grateful to the Minister for her response, particularly to Amendment 65 and the consequential and preparatory amendments. I am also grateful for her comments about Amendment 51 and the allied amendments. I think it is generally agreed, as she said, that 90 days is too long. Perhaps 25 days is not quite right; perhaps we need a Goldilocks solution. I would be very happy, as I am sure others would, to join in a conversation between now and Third Reading to discuss exactly what size of bowl Goldilocks would like.
I notice, though, that the Minister did not address Amendment 90. I acknowledge the comment that it would be difficult to reduce it to zero, but I heard nothing else. I did not hear a suggestion that it could be some number that is not zero but is still quite small—and certainly less than the number that is currently in place. Would the Minister be happy to discuss that number as well between now and Third Reading?
Moved by Lord Hodgson of Astley Abbotts
53: Clause 8, page 8, line 14, leave out “within the 3 year period following the last review” and insert “if the procedure set out in sub-paragraph (3A) applies.(3A) The expert panel under paragraph 5 must advise the Lord Chancellor to undertake a review of the rate of return when it considers that the nature of return on investment has changed sufficiently significantly to justify such a review.”
My Lords, with this group of amendments we come to the procedure for timing the future reviews of the rate. They are in large measure parallel to some amendments I tabled in Committee but during that debate a number of important points were made by noble Lords, which I have reflected in changes in the drafting.
Our policy objective should be to establish a system that has three guiding principles. First, there should be a change in the rate only when the underlying investment climate—that is, the generally prevailing rate of return—has changed sufficiently significantly. We do not want frequent jerks on the tiller. Secondly, the timing of the change should be as unpredictable and quick as possible to minimise the chance of any people gaming the system. Thirdly and finally, we need to avoid the consequences of political inertia. The decisions to change the rate will always be controversial. As we heard from the noble Earl, Lord Kinnoull, the costs of these changes, one way or the other, can be very great indeed. Therefore, there will always be pressure on the Lord Chancellor to postpone any changes until the very end of any fixed-term period.
The way the Bill is currently drafted in large measure fails this test. First, having time-based reviews—for the reasons I have just explained, these are essentially time-based—fails to link to the fundamental reason for undertaking such a review; that is, the changing of the underlying rate of return on investments. Secondly, a system that requires the establishment of a new expert panel on each occasion—a decision that will undoubtedly leak—inevitably increases the chances of the system being gamed. Thirdly and finally, a system which places on the MoJ and the Lord Chancellor the whole responsibility of deciding both whether a review should take place and then whether the result of any review should be implemented is likely to lead to a preponderance of reviews taking place at the end of any fixed-term period.
The amendments I have tabled are designed to address the system and remedy these weaknesses. First, the decision on whether or not to implement a change remains with the Lord Chancellor because, as noble Lords have pointed out, this is at root a political decision. Secondly, the Lord Chancellor is relieved of the duty of monitoring changes in the available rates of return. This is undertaken by the expert panel, which will now become a permanent body. The expert panel, the proceedings of which will be confidential, will decide when to recommend to the Lord Chancellor that the rate should be changed and, if so, by how much. In this connection, to avoid frequent small changes, I have inserted “significantly” after “sufficiently” in the penultimate line of Amendment 53. All the above can be undertaken confidentially, away from the public glare, inevitably leading to a reduction in the amount of gaming. Indeed, if the Lord Chancellor chose not to accept the expert panel’s advice—which he or she would be perfectly entitled to do—no one need ever know it had taken place.
Finally, the other change from my Committee amendment is to remove the expert panel’s requirement to report to the Lord Chancellor at the end of every 12 months in which a review has not taken place, explaining why no review has taken place. My original intention was to improve transparency and clarity but it is clear from the remarks of noble Lords in Committee that it was a procedure that confused rather than enlightened and therefore I have struck it out. In the meantime, I beg to move.
My Lords, we support the thrust of the amendments tabled by the noble Lord, Lord Hodgson, and his introduction of Amendment 53. My noble friend Lord Sharkey and I, together with the noble Earl, Lord Kinnoull, and the noble Lord, Lord Faulks, have tabled a number of amendments to the proposals for later reviews of the discount rate; that is, all reviews after the first, which we discussed in the previous group. These amendments on the later reviews are considered in this and the following group—the last group—and I shall speak to both groups of amendments now.
Broadly, we support the following propositions. First, we do not regard it as sensible to have a fixed three-year period, or even a fixed five-year period, between reviews of the discount rate. Interest rates and rates of return change unpredictably and at very different speeds over time. Years may go by, as they have recently, with very little change then a period of rapid change may follow. Fixed periods between reviews do not respond to that pattern of change and slavish adherence to fixed periods would lead both to reviews required by statute taking place unnecessarily during periods of stability and, more seriously, to there being periods—possibly long periods—following rapid changes in rates when the discount rate failed to represent an accurate assessment of predicted long-term returns.
As a response to this difficulty, while I can see the argument for a five-year longstop provision whereby, at the end of five years following the previous review, there should be provision for a fresh review by the Lord Chancellor, in years one to four of the cycle that review should be available if necessary. However, it should be for the expert panel to decide on the need for a review at these interim stages, on the basis of its expertise and financial experience. So I argue that the panel should be able, indeed bound, to advise the Lord Chancellor on whether such a fresh review was yet necessary during every interim year. Amendment 57 and other amendments substituting five years for three are intended to achieve that end.
That leads to our second proposition: that the expert panel should be an established panel, as the noble Lord, Lord Hodgson, proposes, not a fresh panel established on an ad hoc basis, review by review, which would cease to exist after every review. This is not only for the reason that the noble Lord gave, which was that the formation of an expert panel would be a giveaway, but because it would be better for the expert panel to be always available to give advice on whether a fresh review was necessary. This is one of the purposes of our amendments between Amendment 75 and Amendment 86.
On the Government’s proposals, there would be no panel between one review and the next and no formal mechanism for involving the expert panel in deciding when a review should take place at any stage before the end of the proposed three-year maximum interval. That decision would, on their proposals, be for the Lord Chancellor alone with no expert assistance. In deciding on the advice to be given on any review, it would also be better, I suggest from the point of view of consistency of approach, for the expert panel to build up a body of experience over successive reviews.
Thirdly, I suggest that in proposing that the Lord Chancellor should do no more than consult the expert panel, the Bill as it stands has failed to achieve an appropriate balance between that panel, with the considerable experience it will have of investment matters, and the Lord Chancellor, whose experience is now generally political rather than expert or even legal. While I accept that political input and accountability are required, I see no reason why the Lord Chancellor should not be bound to have regard to the advice of the expert panel rather than merely consulting it. That should apply equally to decisions on when to have a review as to decisions made on whether to change the rate on such a review and, if it is to be changed, what the new rate should be. Amendment 63 and proposed new sub-paragraph (8) of the substitute arrangements for later reviews in Amendment 67 are designed to achieve this.
Fourthly, it should be specifically provided that confidence in the ability and independence of appointed members to adopt a balanced approach should be a criterion for their selection. While we agree with the Government that the proposed composition of the expert panel is sensible—although, as we proposed in Committee, we would have preferred to see a medically qualified member of the panel—we nevertheless suggest that a commitment to fairness to the interests of both claimants and defendants, as set out in Amendment 80, would be desirable.
So in substance we support the recruitment of an expert panel to assist the Lord Chancellor in ensuring an appropriate discount rate, a process for which, without such assistance, the Lord Chancellor will generally be uniquely unqualified, but the Bill as it stands fails to accord to the panel either the importance or even the role that its expertise and position under the legislation would logically demand for it. While we do not intend to press these amendments to a vote, I would hope that the Minister and his department might consider what is said on the subject of these reviews and, indeed, the consensus that has built up among Members of the House interested in these amendments during discussions on these topics hosted by the noble and learned Lord and the noble Baroness, for which we are very grateful, and then come back with some government amendments at Third Reading that reflect the concerns and the consensus that have been expressed.
My Lords, I have tabled Amendment 69 relating to the conduct of the review that we have been discussing, in particular in relation to Schedule A1. I wish to add one definite article and three words to this part of the Bill. That definite article and those three words are already part of the Bill in two places, and this afternoon the Minister indicated that there would be a third occasion when the words “the Lord Chief Justice” would appear.
This is a very dry debate, and therefore I remind the House that we are dealing with catastrophic cases, with injuries that are life-changing not only for the unfortunate man, woman or child who has suffered them but—let us not overlook it—his or her family: the wife, husband, parents or child. We are reflecting on family disaster.
Judges have to observe, day by day, year by year, the practical realities of the impact of the discount rate on claimants, defendants and, in particular, settlement proposals. I remind your Lordships that, in the case of children and those who need a guardian for the purposes of the conduct of litigation, a settlement can be acceptable only if it is presented to a judge, usually a High Court judge, to see whether he or she approves it and its satisfied by its reasonableness. In other words, there is a fund of experience constantly being refreshed by the litigation process. If the practical impact, the glitches and the nuances are not fully appreciated, the Lord Chancellor will be deprived of information that is vital to any decision relating to the review. The only way to make it fair and balanced is for there to be judicial input to it as a consultee, and therefore I invite the Minister to agree, as he did this morning in relation to Amendment 12, that the Lord Chief Justice should be made a consultee to this part of the Bill.
My Lords, I added my name to Amendment 69 and I support everything that my noble and learned friend has said. There is just one point that I would like to add. I draw attention to subsection (4) of the new Section A1, which is printed at page 7, lines 37 to the foot of the page. It refers to the content of the original order that the Lord Chancellor will have made, which is the background to the review process. The order not only talks about the rate but has to contemplate the possibility of descriptions of pecuniary loss, the length of the period during which pecuniary loss is expected to occur and the time when the pecuniary loss is expected to occur.
So one is not simply talking about the calculation of a rate of return in the abstract. It would be open to the reviewer to examine whether there should be some fresh approach to the matters that are contemplated in that subsection. It underlines the important point that my noble and learned friend has been making about the need for judicial input against the background of experience which everybody in the courts has drawn out of cases involving these very serious injuries. I support the amendment for that reason.
With some hesitation, I offer some slight doubt about the two contributions from the noble and learned Lords relating to the role of the Lord Chief Justice. I entirely accept the significance and appropriateness of the role of the Lord Chief Justice in the first part of the Bill, as the Minister accepted. I am more troubled about the suggestion in relation to the role which the Lord Chief Justice might play in the rate of return on investment. In essence, this is a quasi-mathematical function. The noble and learned Lord, Lord Judge, is quite right that judges regularly see and approve complex cases, and will be aware of the adequacy or otherwise of damages. However, with great respect, that is not quite the issue that the panel will be deciding.
I see a further problem and would be grateful for the Minister’s comments on it. The Lord Chancellor makes the rate determination—it has been accepted that this is essentially a political determination—must,
“give reasons for the rate determination”,
“publish such information about the response of the expert panel established for the review as the Lord Chancellor thinks appropriate”.
If he or she has to give reasons in response to a judicial review—the Minister has said that the decision must be amenable to such review—presumably those reasons might include the advice that he or she has been given by the Lord Chief Justice. I am a little concerned that this puts the judiciary in an unfortunately political position, when it has been agreed that the role of the Lord Chancellor is pre-eminently a political one, albeit advised by the panel. So although I entirely accept the experience and wisdom of the judiciary, I wonder whether this is entirely the right role in this context.
Does the noble Lord agree that subsection (4), towards the foot of page 7, is not dealing with matters of mathematics? The matter of description of categories and so on is involved. It goes a little further than the noble Lord was contemplating in his brief remarks.
I entirely accept that it does, but ultimately the question of what the rate is is determined by experts, taking into account the factors which are, I agree, set out in the Bill. I shall listen with interest to what the Minister says, but it still seems to me that that is perhaps dangerously close to the judges getting involved in an area which might render them subject to criticism.
I will speak extremely briefly in support of the noble Lord, Lord Hodgson of Astley Abbotts. It seems to me that the Lord Chancellor would, very properly, have two questions in life that he would want to ask of an expert. The first is: “Do we need a review?” The second is: “Please will you conduct the review?” However, unless there is a standing panel, who on earth can he ask the first question of? I assume that he will not have anyone within the Ministry of Justice to whom he can turn and say: “Are we in circumstances where we need a review?” That is, in itself, a powerful argument for having a standing function that would allow him some access to expertise in this difficult and esoteric area. So, if the Minister is not minded to be amenable to the amendments proposed by the noble Lord, Lord Hodgson, how will that question be answered?
My Lords, at this late hour I propose only to express agreement with much of what has been said from all round the Chamber in these debates. I am not as concerned as the noble Lord is about the role of the Lord Chief Justice. It does not seem at all inappropriate for the Lord Chief Justice to be consulted, which is all that the amendment suggests, in the course of making these very difficult decisions. The noble Lord need not worry very much about the consequences of that.
I am happy to support all the amendments that have been discussed and I congratulate noble and learned Lords on the progress that has been made. I assume that the Minister will be inclined to accept, and I certainly hope that that will be the case.
I am obliged to noble Lords for their contributions. In speaking to Amendment 53, in the name of my noble friend Lord Hodgson, I shall speak also to Amendments 56, 60, 63, 69, 75 to 77, 79 to 86 and 88. I shall not, however, be speaking to the amendments in the next group, although I appreciate that the noble Lord, Lord Marks, referred to them. On that point and the submissions made by him, the period for review is not fixed either at three years or five years. It is not the case that review would not be available in years one to four if it was five years. The Bill is clear that the three-year period following the last review is the outlier—it is the maximum period—and it is there to ensure that we do not face the situation that we have had in the past where, for one reason or another, no review takes place over many years whether or not a panel or anyone else believes that such a review should have taken place. I wish to make that clear.
The reason we have grouped the amendments in the way we have is because they are generally concerned with the creation of a standing panel or make provision for the panel rather than the Lord Chancellor to determine when the rate should be reviewed and how it should be set. Amendment 53 would replace the system proposed in the Bill for reviewing the discount rate with one without time limits under which the need for the rate to be reviewed would be determined by the expert panel; and it provides that the panel will make its decision by reference to whether the nature of returns on investment has sufficiently changed for a review to be needed. I recognise that Amendments 56 and 60 are consequential drafting amendments on Amendment 53 to remove references to the three-year maximum period that we find in the Bill.
Amendment 77, again in the name of my noble friend Lord Hodgson, would make the obligation on the Lord Chancellor to establish the panel a one-off obligation rather than an obligation on the occasion of each review. Again, that is clearly consequential—as is Amendment 81—because if there is a standing panel there would be no need to deal with the simultaneous review as the panel would not cease to exist at any point.
Amendment 63, in the names of the noble Lords, Lord Marks and Lord Sharkey, would require the Lord Chancellor to have regard to the views of the panel in deciding when to commence any subsequent review of the rate. The expectation underlying the proposal is that the panel will be established again on a permanent basis. I will come back to the observations of the noble Earl, Lord Kinnoull, about that in a moment.
Amendments 75 and 82 would require the panel to be responsible for advising the Lord Chancellor, broadly on an annual basis, whether the rate should be reviewed and also for advising him or her in respect of the second and subsequent reviews of the rate. Again, Amendments 76, 79 and 83 through to 86 are consequential on these changes.
On the point made by the noble Earl, Lord Kinnoull, about who the Lord Chancellor would consult in deciding whether or not there should be a review if there was no standing panel, the answer is that he may consult who he wishes in that context—for example, it is open to him to consult with the Government Actuary and Her Majesty’s Treasury as to whether or not economic conditions are such as to prompt him to consider a review. There is no limit as regards the inquiries he may make in order to inform his decision—I emphasise his decision—as to whether or not a review will be required.
The panel’s expertise will be in technical matters and its introduction will inject expertise and help to ensure that the rate is reviewed properly with full expert consideration of the issues. However, deciding whether the current rate is no longer appropriate engages issues of judgment as to the level at which the rate should be set and we do not consider that the panel would be well placed to make that decision. It is a question not only of monitoring investment returns, but of making a broader judgment as to the social impacts of, for example, a change in the rate.
The Government therefore consider, as did the Justice Select Committee, that the Lord Chancellor should be responsible for this decision. To ask the panel to make, in effect, a substitute judgment as to what the rate should be would be contrary to its nature as an expert panel in providing merely technical advice. Again, we do not consider that the panel should be in that decision-making position. The Lord Chancellor, of course, has to make a properly informed decision in reaching a conclusion on the outcome of a review.
We have listened to concerns expressed by noble Lords and others in Committee that a long-stop fixed review period might result in all parties to litigation somehow engaging in what is termed gaming the system in expectation of a change to the rate. Obviously, we share a desire to ensure that as far as possible that sort of conduct does not take place. On one view, a standing panel might mitigate some of the potential gaming at the end of a fixed period, but we fear it would increase the frequency of gaming around the intervals at which the panel would meet. Claimants and defendants can also watch changes in rates of return, and it will not take long for them to anticipate when there might be a degree of change in investment returns that might trigger the panel’s interest in a review. We consider that whichever route we take there is always the risk of gaming. It is something we want to minimise, but we are not persuaded that a standing panel would be the means by which to minimise the gaming of the system, as it has been termed.
Delivering regular and broadly predictable timings for reviews was the principal concern of those we consulted when they replied to the consultation in March 2017. We know from responses to the consultation and pre-legislative scrutiny that the majority of claimants and defendants want and benefit from certainty and predictability. We consider that the approach proposed in these amendments would make the system less certain and perhaps less predictable. We consider that the present approach will deliver a process that will see the rate reviewed at least every three years following the first review. As the noble Lord, Lord Marks, conceded, it is not a fixed term. This will ensure that there is not the possibility that the rate will again be left without formal review for a period of about 16 years, but, of course, the Lord Chancellor will be able to review the rate at any time in the period if he or she consider that the rate is no longer set at the right level.
The reality is that there will always be litigants anticipating what may happen because of changes in the market and seeking to take advantage of them, but we must seek to mitigate and minimise that risk. I emphasise again that the fixed period within which a review must be begun is a maximum period.
I accept that in theory it would be possible to combine a standing panel with the Lord Chancellor deciding when the rate is to be reviewed, but such a panel would probably be inactive for considerable periods and it would increase the level of cost and bureaucracy required. That is something that we do not consider desirable. While the precise estimate for these will depend on how often the panel would consider whether there should be a review, a permanent appointment would require some form of continuous funding and administration.
Amendment 88, which is also in the name of my noble friend Lord Hodgson, would remove the provisions in paragraph 8 of the new Schedule A1 that cover the possibility of the Lord Chancellor deciding on the occasion of the review to set no rate or no rate for a particular class of case. They make clear, for example, that a reference to a review of the rate includes reference to a review of a situation where no rate has been prescribed. Even if the Lord Chancellor decided not to set a rate, paragraph 8 ensures that the review mechanisms in the Bill will still apply and that “no rate” will be reviewed at the next appropriate juncture in the same way as if it had been a rate. The provisions of paragraph 8 do not, contrary to some of the fears expressed in Committee, provide a means for the Lord Chancellor simply to dismantle the machinery for the required reviews of the discount rate.
It may be helpful in understanding paragraph 8 to consider the present law. The new section A1(1) reproduces provisions in the Damages Act 1996 that indicate that the court must take into account such rate of return, if any, as may from time to time be prescribed by an order made by the Lord Chancellor. The wording implies that the Lord Chancellor might decide to set no rate under the present law, and the provisions in paragraphs 8(2) to (4) are intended to clarify how this power would operate.
I concede that the possibility of no rate being set for some or all classes of case may well seem an unlikely eventuality. However, just as is envisaged in the present law, circumstances might arise in which a category of rather unusual cases occur that call out for individual assessment of an appropriate discount rate. Preserving a “no rate” provision would enable the parties in the cases affected to plan their litigation with the certainty that the discount rate would have to be settled as part of the case. That would be a potential benefit for claimants and defendants in unusual cases. Removing these provisions would be unhelpful to future users of the Bill.
Amendment 80 in the names of the noble Lords, Lord Marks and Lord Sharkey, aims to indicate that the four appointed panel members are expected to approach the work of the panel as experts with the objective of advising the Lord Chancellor in a way that is fair to the interests of both claimants and defendants. This is the spirit in which the appointed panel members are intended to approach their work. That is one of the reasons why they are required to take account of the duties imposed on the Lord Chancellor in determining the rate. The amendment is expressed in terms that appear to be aspirational in nature rather than obligatory, leaving us a little uncertain as to what the effect is intended to be.
The Government have already made clear in the response to the Justice Committee our intention to recruit panel members who will act as independent experts and that appointed panel members will be required to disclose potential conflicts of interest. The provisions in the Bill and the assurances already given will lead to advice from the panel that will be fair to the interests of claimants and defendants. We do not consider that any further express provisions are needed in order to ensure that result.
Amendment 69 in the name of the noble and learned Lord, Lord Judge, raises the question of the Lord Chancellor being expressly required to consult the Lord Chief Justice during the review process. I note the point made by my noble friend Lord Faulks with regard to the potential implications for the Lord Chief Justice. There are some grounds for that because under other legislation—such as, for example, the 2007 Act with respect to the regulation of the legal profession—there is a provision where a party applies for regulatory status, but the Lord Chancellor will consult with the Lord Chief Justice on such an application. Indeed, that occurred recently; the Lord Chief Justice gave his opinion and that is now subject to scrutiny in the context of an ongoing application for judicial review. It is a rather unfortunate situation that the views of the Lord Chief Justice, which he is obliged under the statute to express, come under the scrutiny of his own Administrative Court. So there are potential difficulties here.
Nevertheless, I recognise the force of the point that is made under reference to Amendment 69. On the one hand, I can say that the Lord Chancellor is of course free to take evidence on the question of how he is going to fix the rate, and that could include evidence from the Lord Chief Justice, but that is hardly a complete answer to the suggestion that he ought to be consulted. In light of what has been said on this matter, having regard to the difficulty that was identified by my noble friend Lord Faulks, I would like to take that proposal away and consider it further in anticipation of Third Reading. I will give it further thought and will be happy to speak to noble Lords on that point in due course. In the meantime, I invite my noble friend at this stage to withdraw the amendment.
My Lords, I am very grateful to my noble and learned friend for his very full response. I am sure he will not be surprised when I say I am slightly disappointed at the way in which he has rejected quite a lot of the arguments that have been put forward from all quarters of the House. He rightly points out that the three-year period is a maximum, but I will have a sporting wager with him that when we come back here 20 years from now the reviews will be bunched around the end of the fixed period, whenever it is, because that is the way the political process will work.
As the noble Lord, Lord Marks, pointed out, the idea of the expert panel is that you build a body of knowledge and institutional memory about how these things will work more effectively, which will get lost if you have to constitute a panel every time.
As for advice, as the noble Earl said, Her Majesty’s Treasury has an interest in this case, as when you say, “We are going to change the discount rate”, it has to go back and redo its sums. This will be an interesting question that it has to face on each occasion. There remains confusion in the Government’s mind between instituting a review and instituting a change, and the two tend to get conflated.
There was a slightly strange suggestion that somehow there will be gaming around the meetings of the panel. That seems to me unlikely. I could not conceive why the panel would be announcing its meeting or why that would cause gaming in any way. No system is free of gaming, but this seems unlikely to lead to a greater degree of playing the system.
My noble and learned friend used a final rather strange phrase. He said that there was a social impact to the decision. I was not clear what social impact meant. This seems to me a clinical decision about the rates of return, which the Lord Chancellor must make. The social impact does not seem to me part of this discussion. Perhaps I have misunderstood what he said, so I will read Hansard carefully. In the meantime, I beg leave to withdraw my amendment.
Amendment 53 withdrawn.
My Lords, this amendment is in identical terms to that which I advanced in Committee. This time I have the support of the noble Earl, Lord Kinnoull. In view of the fact that there are no changes in the nature of the amendment, I think I can be brief in outlining its purpose.
The purpose is to ensure that the reviews are regular—indeed, that is the purpose of the Bill—which is particularly important in the light of the fact that Lord Chancellors so rarely exercised the power in the previous 20 years or so. The question is: how regular? I respectfully submit that the three-year period is too short, and a five-year period would be much better.
I say this based not least on personal experience at the moment and having had conversations with people on, as it were, both sides of the fence. When you are expecting a change one way or another, as is the position now—because the market suggests, as the noble Earl pointed out, that there probably will be a change, let us say from minus 0.7% to plus 1%—one side or another will see it to their advantage either to bring forward a claim or delay it to take advantage of the putative date of the decision.
This process is perfectly legitimate and part of the hurly-burly of litigation—there are lots of uncertainties in litigation—but this one is of particular significance where large sums of money are concerned. I am not disparaging anyone involved in the litigation process. But if the change happens every five years, there will be less of this gaming than if it happens every three years, just as everyone says about the last year of a four-year term of a President—nothing much happens. A lot of positioning will be taking place before the change.
This is a view expressed widely in the profession. I therefore ask my noble and learned friend carefully to consider accepting the amendment, or at least coming back at Third Reading with something that reflects those considerations. I beg to move.
My Lords, I support the noble Lord, Lord Faulks, in his amendments. I should explain why I did not support them in Committee. In Committee, I listened to two eloquent speeches—one from the noble Lord and one from the Minister. They went carefully through the arguments about gaming and not gaming. I thought it was very interesting. I have a lot of knowledge in this area, but I did not actually know. I then spoke to a large number of practitioners on the insurance side to try to form my own view on whether three or five years was right for gaming. I am afraid I strongly formed the view that five years was right and therefore strongly believe that the noble Lord, Lord Faulks, is on to something that would greatly benefit all concerned. That is why I support the amendment.
More importantly, I have tabled Amendments 68, 70 and 71, which are to do with the timing of the second review. Broadly, they try to bring the timing in from what I thought was 180 days to what I thought was120 days. Those thoughts were prior to the arrival from the Minister’s office of the draft terms of reference of the expert panel, which I have in my hand. It is very interesting because the expert panel is established at the very moment that the review trigger is pulled—or, I suppose, immediately after. In fact, in a section entitled “Preparation”, before the review is triggered there is a call for evidence, which asks for all sorts of evidence all round.
That raises two issues for me. The first is that it extends the period of uncertainty. There is a 180-day review period and the call for evidence period, which I assume is at least 60 days—probably 90 days—to increase the level of uncertainty. During this uncertain period, the people who suffer are not the banks of lawyers on either side of the argument; the fee clock is still running. The people who suffer are the individuals who have the catastrophic injuries. So I worry about that.
The second thing I worry about is that if I were an expert, I would not want someone else to draft my call for evidence. I probably do not need the call for evidence because I am an expert. The idea that the poor old Ministry of Justice will be able to ask for all this expert evidence is wrong. The Ministry of Justice is not full of this sort of specialist in the esoteric areas around the setting of a discount rate. I do not believe that is a wise thing to do, so will the Minister look again at the draft terms of reference? Maybe, when we have our coffee to discuss timings, we could have a short session on the terms of reference so that we can try to align this. The basic point behind Amendments 68, 70 and 71 is a desire to allow enough time for a panel of experts very well versed in discount rates to arrive at the correct answer, without extending that time unreasonably. The uncertainty is bad for the victims of the catastrophic injuries.
My Lords, I am inclined to agree with the noble Earl about Amendments 68 and 71, but I am afraid I remain unconvinced about the five-year period as opposed to the three-year period, and find myself in the rather strange position of agreeing with the Minister. It is not as though all claimants will be five years off a review. Some will be and others will not, necessarily. There will be different timescales for individual claims, and I do not think five years is necessary to protect the integrity of the system. Some people will try to game, whatever the period. Five years is not necessarily more likely to protect against that than otherwise. Rather unusually—I am sure the noble and learned Lord will stick to the three-year period in the Bill—I will have to agree with him.
I should like to say at the end of this very long day that the House has done its usual very good job of scrutinising difficult legislation. It is a little late to try to recall everything that we have discussed and agreed, but a good job has been done today and I hope the Bill will be improved. The Minister has offered to consider a number of matters before Third Reading—and, in any case, the Bill will go somewhere else in another week’s time and come back to us eventually for further consideration. There may be changes that we have to consider at that stage.
On behalf of these Benches—or what is left of us—I thank the Minister for his running of the Bill. He has been more than willing to talk to colleagues, even when some of them, like me, are rather slow on the uptake in this rather technical area. It is not one where, in practice, I had very much to do with cases at this level, as a personal injury lawyer—thank heavens. Around the House, we have heard some very important contributions from Members from all sides, and there is every prospect of further changes being made at Third Reading or in another place on the basis of the level of debate, discussion and argument that we have had. That is a signal tribute to the work of the House.
I am obliged to noble Lords for their contributions, not only to this grouping but to the debate as a whole that has taken place this afternoon and evening. In speaking to Amendment 54, I shall speak also to Amendments 57, 61, 62, 67, 68, 70 and 71. I do so because, although they were not formally moved in this grouping, the noble Lord, Lord Marks, made it clear that he was addressing the amendments in this group when he spoke earlier. I appreciate his determination not to repeat himself.
As I explained in Committee, the choice between three and five years is not one of principle. The three-year period adopted in the Bill represents a compromise approach based on the responses received to the March 2017 consultation, which included a wide range of views, ranging from automatic reviews at short intervals up to a 10-year fixed maximum. We have listened carefully to the arguments this evening and in Committee from noble Lords about the potential for the gaming of the system, depending on whether there is a three-year or five-year maximum between periods.
I note the observations of the noble Lord, Lord Beecham, who brought himself to agree with the Government on this matter. Tempted as I am to move away from the Government’s position in light of that, I maintain that, overall, it would be appropriate for us to look to three years. But there is no clear-cut case, and I am perfectly content to speak again to noble Lords before Third Reading if they wish to make further representations to the Government with regard to the period. So I do not close the door on that, but our position is that three years would be appropriate, and we would have to be persuaded by something that might be termed “new evidence” before we would consider moving away from that position. However, as I say, the door is open.
Amendment 67 largely replicates the provisions already in the Bill for the conduct of a review, but applies them only to the second and subsequent reviews, in light of Amendments 65 and 66. But Amendment 67 in isolation makes a relatively small number of changes to the procedure for the conduct of the second and subsequent reviews. First, it adopts the language of advice rather than response to describe the panel’s reply to the Lord Chancellor. Secondly, it makes clear that it is not just the question of whether the rate is to be changed, but also what the new rate is to be, that is subject to the provisions for determining the review in paragraph 3 of the new Schedule A1—and that, in reaching these decisions, the Lord Chancellor should have regard to the advice from the panel. Finally, that amendment would introduce a requirement that the Lord Chancellor will consult the panel within 10 days of the start of the 180-day period for the completion of the review. This is new, but noble Lords’ proposals for the first review contain a similar provision, albeit with a 25-day period, and we are conscious of that.
I think that everyone appreciates the desire to ensure that reviews are conducted promptly, and the Lord Chancellor would have every interest in starting the work of the panel as soon as is practicable, as delay would only reduce the time available for the Lord Chancellor to consider the panel’s advice when it comes and to decide the outcome of the review. If there is a reason for a delay, it is likely to be a good one, and imposing a short time deadline is likely to be unhelpful to the overall good conduct of the review: that is our concern. I agree, of course, that the Lord Chancellor must have regard to the advice of the panel and that the Lord Chancellor’s decision on what the rate should be is subject to the provisions in paragraph 3. These are clearly the intention of the legislation, and we do not consider that further clarification is needed. These time periods are maxima, and nobody is suggesting, I hope, that the Lord Chancellor will hold out to the end of each of these periods. I hope that, in the light of that, noble Lords will not press their amendments.
Amendments 68 and 71 from the noble Earl, Lord Kinnoull, repeat amendments tabled by the noble Earl that were considered in Committee. In effect, they would reduce the maximum time period for the completion of a review of the rate initiated by the Lord Chancellor from 180 days to 120 days. Amendment 70 repeats an amendment discussed in Committee which would reduce the maximum time available to the expert panel to deliver its response to the Lord Chancellor’s consultation from 90 days to 75 days. That would apply to all reviews. Again, I believe that we are all agreed that reviews of the rate must be carried out properly, with due consideration to the relevant factors and without avoidable delay. The question is how long we should allow the people involved in the review to carry out their statutory responsibilities, whatever the circumstances at the time of the particular review. We, who do not have to fulfil these obligations in person, should take some care as to the additional burdens that we impose on those who do.
The 180-day period was proposed in light of experience under the present law. Setting the discount rate is not an easy task and will probably be even less so under the evidence-based approach now proposed than under the current approach, which is based largely on the yields of index-linked gilts. We therefore consider that those time periods have to be approached with care. The Government’s intention is that there should be a review of the rate that should be completed in a reasonable time. We consider that the proposed periods are maximum periods, which set a longstop. It would be reasonable and sensible to err, if at all, on the side of caution. Therefore, while I share the noble Earl’s determination that the reviews should be completed as quickly as is reasonably practicable, I hope that, in light of these reasons, he will consider not pressing his amendments.
I add that I am open to further discussion on the question of time limits; I have already engaged in some discussion on this with some of your Lordships and would be prepared to do so again before Third Reading if there is an element of fine-tuning to be carried out. However, I simply emphasise that these are maxima—which, clearly, should be borne in mind when we approach this matter. In light of that, I invite the noble Lord to withdraw his amendment.
I am sorry that I have not been able to persuade the noble Lord, Lord Beecham, of the wisdom of this amendment—nor, it appears, the Minister, or his predecessor who answered this on amendment. I echo what the noble Lord, Lord Beecham, said about the quality of the scrutiny that the Bill has received around the House. However, I am a little disappointed at the level of the response to this amendment. I have not yet heard any reasons why it should be three years rather than five years; I have heard that it is preferred, but not why. The submission that I have made consistently in debates on the Bill is that gaming is going on—I do not think that anybody doubts that at the moment. I accept the point made by the Minister that five years is the outer limit and that it can come earlier than that. The fact is that when, quite rightly, a “must” obligation is inserted in the Bill and there must be a review every three years, it means that in the year leading up to the review people will inevitably be guessing and manoeuvring to do that. That will happen less often if the period is five years. It is a simple but powerful point and, since we are on the whole determined to try to encourage the settlement of cases and as much certainty as possible, this seems to be desirable.
My noble and learned friend has very helpfully said that his door is open, as indeed it has been throughout the passage of the Bill, and I pay tribute to him for his engagement generally. I suggested in Committee that I would try to bring forward some evidence to convince the Government, but I am not sure what more evidence I can give. Inevitably it is hearsay evidence, although we now also have the evidence of the noble Earl, Lord Kinnoull, but I will not give up. Given that my noble and learned friend has left that door open, I will continue to try to assemble better arguments or more evidence to support this amendment. In the meantime, I beg leave to withdraw.
Amendment 54 withdrawn.
Amendments 55 to 63 not moved.
Moved by Lord Sharkey
64: Clause 8, page 8, line 31, leave out “2” and insert “1A or 2 (as the case may be)”
65: Clause 8, page 8, line 31, at end insert—“Conducting the first review1A_(1) This paragraph applies when the Lord Chancellor is required by paragraph 1(2) to conduct a review of the rate of return.(2) The Lord Chancellor must review the rate of return and determine whether it should be—(a) changed to a different rate, or(b) kept unchanged.(3) The Lord Chancellor must conduct that review and make that determination within the 140 day review period.(4) In conducting the review, the Lord Chancellor must consult—(a) the Government Actuary, and(b) the Treasury.(5) The consultation of the Government Actuary must start within the period of 20 days beginning with the day on which the 140 day review period starts.(6) The Government Actuary must respond to the consultation within the period of 80 days beginning with the day on which the Government Actuary’s response to the consultation is requested.(7) The exercise of the power of the Lord Chancellor under this paragraph to determine whether the rate of return should be changed or kept unchanged is subject to paragraph 3.(8) When deciding what response to give to the Lord Chancellor under this paragraph, the Government Actuary and the Treasury must take into account the duties imposed on the Lord Chancellor by paragraph 3.(9) During any period when the office of Government Actuary is vacant, a reference in this paragraph to the Government Actuary is to be read as a reference to the Deputy Government Actuary.(10) In this paragraph “140 day review period” means the period of 140 days beginning with the day which the Lord Chancellor decides (under paragraph 1) should be the day on which the review is to start.”
66: Clause 8, page 8, line 32, leave out from beginning to “to” in line 34 and insert—“Conducting later reviews2 (1) This paragraph applies whenever the Lord Chancellor is required by paragraph 1(3)”
Amendments 64 to 66 agreed.
Amendments 67 to 71 not moved.
Moved by Lord Sharkey
74: Clause 8, page 10, line 20, leave out from “information” to end of line 22 and insert “as the Lord Chancellor thinks appropriate about—(i) the response of the expert panel established for the review, or(ii) in the case of a review required by paragraph 1(2), the response of the Government Actuary or the Deputy Government Actuary (as the case may be).”
Amendment 74 agreed.
Amendments 75 to 77 not moved.