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Clause 7 - Scheme administration

Mesothelioma Bill [Lords] – in a Public Bill Committee at 11:45 am on 12th December 2013.

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Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham 11:45 am, 12th December 2013

I beg to move amendment 26, in clause 7, page 4, line 28, leave out subsection (6).

I tabled this entirely probing amendment because I do not understand what subsection (6) does or what it says. I appreciate, as does the Committee, that I am a bear of very little brain, but all I really want to know from the Minister is what on earth it means.

Photo of Mike Penning Mike Penning The Minister of State, Department for Work and Pensions

My notes say that removing the provision would mean that the scheme administrator would not be bound by the provisions in enactments when administering the scheme—in other words, they could make their own decision. That would mean that the scheme administrator would not have to follow the rules or any of the Bill’s provisions. It cannot be right that the administrator could move away from anything that Parliament decided in this Bill, so the subsection has been included to bind the administrator specifically within the rules of the fund that the House has set out.

Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham

Just for the Committee’s benefit, I will read out subsection (6):

“For the purposes of this Act, a reference to administering the scheme includes carrying out any functions conferred by or under any enactment on the scheme administrator”.

I heard what the Minister said that the provision was designed to achieve. No doubt if anyone is troubled regarding any application under the scheme or in a court, they will read with care what the Minister said about what the subsection is designed to achieve. I have to say that I still do not really understand it; it does not seem to make much sense, even as a matter of English. However, on the basis of what the Minister said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Kate Green Kate Green Shadow Minister (Work and Pensions)

This is an important clause for defining the operation and administration of the scheme. It allows the Secretary of State either to administer the scheme himself, or to make arrangements for another body to administer it. We all anticipate that the latter course of action is more likely. Although there are two options in the Bill, it is clear from the debates that took place in the House of Lords and the discussions that I have had with the Association of British Insurers that  processes are already in motion to establish an insurer-owned body to administer the scheme, with that scheme administrator then being answerable to the Secretary of State.

In the House of Lords, my noble friend Baroness Sherlock highlighted obvious concerns about the conflict of interest that might arise

“if the same industry that has to fund successful claims not merely underwrites but administers the compensation scheme”.—[Official Report, House of Lords, 20 May 2013; Vol. 745, c. 726.]

Even the perception of such a conflict of interest may concern victims and their families, no matter how scrupulously the scheme is administered. Baroness Sherlock made a number of alternative suggestions, such as arrangements similar to those for the Financial Ombudsman Service and the Financial Services Compensation Scheme. Those bodies are set up in statute and funded by an industry levy, which is similar to what is envisaged for this scheme, but they are administered by independent scheme operators.

The Association of Personal Injury Lawyers is equally concerned about the possibility of perceived conflicts of interest. It says:

“We have fundamental concerns that there is not enough detail on the face of the Bill to generate confidence that the scheme will be robust in serving and protecting claimants…This lack of independence is completely unsatisfactory. We submit that an independent body should be established, on a statutory basis, to review regularly the work of the scheme and the technical committee, and to ensure that the scheme is operating fairly, and in the best interests of those it has been established to compensate. The review body should report to the Secretary of State, who should then report to Parliament on an annual basis.

For the insurance industry to run the scheme without independent oversight from such a body would be of enormous concern in terms of the potential for conflict of interest. Clause 4(3)(b) for example, gives the scheme administrator the ‘power to decide when to impose conditions or what conditions to impose’. The scheme administrator will clearly be responsible for making crucial decisions about each case including, of course, the eligibility of applicants. An insurer body would have an obvious interest in keeping the number of applicants, and therefore the levy on insurers, low.

APIL has serious concerns about the prospect of the insurance industry, which has fought tooth and nail for years to avoid its responsibilities to mesothelioma sufferers, being in control of the compensation process from all sides—by running the scheme for untraced cases without independent oversight, to controlling the way cases are handled when the insurer can be traced… If the scheme is to be run by the insurance industry, there is real likelihood of conflict of interest, with insurers seeking to save costs where possible, at the expense of the claimant, even at the point of refusing an applicant entry to the scheme. The oversight committee should, therefore, monitor all decisions to ensure corners are not being cut just to save money for insurers.”

I have tabled a new clause that would establish an independent oversight committee, which was discussed in the House of Lords, to ensure that the scheme operates fairly and in the best interests of those it has been established to compensate.

There are two aspects of clause 7 that should particularly be highlighted. The first is the fact that costs associated with the scheme’s administration, including the industry’s legal fees, will be funded by the levy on the industry, thereby effectively reducing the size of the pot available to fund payments to mesothelioma sufferers by £30 million. The second concern is about the transparency of both the administration process and the tendering process that the Government intend to run for the body designated to administer the scheme.

I am worried that administration costs will effectively remove £30 million from the levy that could otherwise go to victims. The Government’s impact assessment of November 2013 states:

“The costs of the scheme are split between a levy of £371m on the insurance industry and £17m in government funding. This covers scheme payments direct to individuals (£261.4m), benefit recovery (£72.2m), applicant legal fees (£24.6m) and admin of £30.0m (including case legal fees of £24.2m, set up of £1.4m and running costs of £4.4m).”

It is not clear to me that the scheme should be paying for legal services provided to a multi-billion pound insurance industry that is the very cause of our needing the scheme in the first place. Given that it is likely that the scheme will be administered by the insurance industry, why should the industry benefit from the increased revenue derived from the scheme’s £1.4 million set-up costs and £4.4 million running costs? If administrative charges were not funded by the levy to be imposed by the Bill, the additional money could pay for at least a 5% increase in the percentage rate of average civil compensation claims. I am sure the hon. and learned Member for Sleaford and North Hykeham will be interested in that calculation, because it would bring us back to the 80% compensation level that he proposed earlier this week.

My second concern, on which the Minister may be able to offer some useful comments, is about the independence and transparency of the tendering process by which a scheme administrator will be appointed. On Second Reading in the House of Lords, my noble Friend Baroness Donaghy said:

“If the administration of the scheme is to be contracted out, I ask the Minister what safeguards will be written into the tender to ensure absolute independence and integrity. This would apply in particular if the insurance industry were to be the scheme administrator. The conflict of interest would be obvious, even if we were looking at an industry with a benign record. However, we are looking at one more commonly characterised by delaying tactics, spurious arguments and obfuscation.”—[Official Report, House of Lords, 20 May 2013; Vol. 745, c. 701.]

In Grand Committee, Lord Freud said that the insurance industry was setting up a company to meet the requirements of the scheme rules. During the Bill’s passage through the House of Lords, noble Lords expressed concern about potential conflicts of interests were the insurance industry ultimately to be the successful bidder for the contract to administer the scheme. On Report, in response to suggestions that the appointment of an administrator was already a done deal with the insurance industry, Lord Freud said:

“I offer my assurance that this is not the case and that we intend to run an open competition for the contract of scheme administrator, which will be chosen through the open tender process according to our commercial criteria. I hope this reassures noble Lords.”—[Official Report, House of Lords, 17 July 2013; Vol. 747, c. 762.]

It is reassuring to know that there will be an open and competitive tendering process. Will the Minister tell us a little more about how he expects it to operate to ensure the appointment of the best possible administrator to run the scheme? What assurances can he give us that the administration of the scheme will be fully independent if, in the end, the contract is awarded to an insurance industry body? I look forward to hearing his response to my concerns.

Photo of Nick Brown Nick Brown Labour, Newcastle upon Tyne East 12:00 pm, 12th December 2013

I, too, look forward to hearing the Minister’s response to the concerns expressed by my hon. Friend. In that response, however, will the Minister say a little more about who will do the choosing between the different bidders in any competitive tender? How independent will the chooser be? It would be helpful to the whole Committee if he could be as specific as possible about who will be doing the choosing and have oversight of the arrangements, which are fundamental to the operation of the rest of the scheme.

Photo of Mike Penning Mike Penning The Minister of State, Department for Work and Pensions

I thank the hon. Member for Stretford and Urmston for her comments. I understand why she has decided to speak up in the debate.

In answer to the initial concerns about ensuring that the Bill says that the tendering process will be as open as possible: it will be. As the noble Lord Freud indicated in the other House, the tender competition will be completely open—exactly the same as any other tender process. We will ensure that we have as much expertise on that committee as possible. The commercial staff in the Department for Work and Pensions will be responsible for the tender, as they are for our other tender processes—exactly as happened when the right hon. Member for Newcastle upon Tyne East was a Minister in the Department.

The contract will obviously be chosen on the usual criteria of value for money—commercial criteria. If there is a conflict of interest, that will be exposed at that stage, as will a bidder’s ability to operate the scheme. The shadow Minister was concerned about what would happen if—a big “if”—there was a conflict of interest that allowed the insurance companies to limit or pick and choose, but the criteria are set and the administrator has no say as to who gets money from the fund other than on the basis of the specific criteria agreed by this Committee. The administrator has to abide by the regulations to follow.

The legal costs relate to support for the scheme applicants, not to the setting up of the scheme. I have a note to that effect, but I will clarify matters in a longer letter to the hon. Lady. Running costs are of course a factor, which we will take into consideration when we look at the tenders.

Photo of Kate Green Kate Green Shadow Minister (Work and Pensions)

To press the Minister a little on the legal fees, I did understand, when I referred to case legal fees of £24.2 million, that those were specifically for dealing with the cases of applicants—they were not legal fees in relation to establishing the scheme. Will the Minister clarify absolutely, however, that they are not legal fees that are being spent in order to defend cases against applicants or to seek to thwart applicants’ claims? I was surprised that the scheme might be seeking to take legal action to protect the legal position of applicants, but perhaps that is what the Minister is saying.

Photo of Mike Penning Mike Penning The Minister of State, Department for Work and Pensions

As I understand it, that is what I am saying. If I am wrong in that, I will, of course, come back to the Committee, but that is the position, based on the information I have before me.

Photo of Kate Green Kate Green Shadow Minister (Work and Pensions)

I am very happy to have further clarification from the Minister, but the reason I am doubtful is that applicant legal fees are also covered, as a separate sum of £24.6 million. I just want to be absolutely clear that all these fees are being spent for the benefit of applicants.

Photo of Mike Penning Mike Penning The Minister of State, Department for Work and Pensions

The hon. Lady is absolutely right. We will come later to clause 10, which relates to help with funding and, later, with proceedings. I will clarify the exact points the hon. Lady raised, but—I will come back to this, sadly, on many occasions—this is the deal that we have, this is the deal that was done and this is the deal that went through the House of Lords. I saw the comments from noble colleagues in the Lords, but the Bill came out of the Lords in this form. We have a structured deal so that the Bill can make its way through the House. On that basis, we are where we are. We will go through an open tendering process, and we will make sure the scrutiny of that process is exactly the same as it would have been when Opposition Members were in government.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8 ordered to stand part of the Bill.