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Mr. Deputy Speaker (Sir Geoffrey Lofthouse): Order. The hon. Gentleman's time is up.
Question put and agreed to.
Bill ordered to be brought in by Mr. Chris Davies, Mr. David Rendel, Mr. Don Foster, Mr. Peter Thurnham, Mr. David Chidgey, Mr. David Alton, Ms Liz Lynne and Mr. Simon Hughes.
Mr. Chris Davies accordingly presented a Bill to enhance the independence and professional status of senior local government officers by providing for a statutory code of conduct requiring that their advice and actions be politically impartial, and to establish an independent tribunal with authority to investigate complaints made by the public and enforce the code as required, and related matters: And the same was read the First time; and ordered to be read a Second time upon Friday 1 May, and to be printed [Bill 116].
The Secretary of State for Social Security (Mr. Peter Lilley):
I beg to move, That the Bill be now read a Second time.
The purpose of the Bill is to ensure that victims get proper compensation, those responsible for causing injury pay that compensation and the taxpayer neither subsidises the negligence of others nor doubly compensates victims. The full package of reforms will save the taxpayer an extra £50 million a year.
The Bill deals with a less well-known part of the social security system. Nevertheless, it is an important reform because it brings the process of benefit recovery into line with a long-standing and widely agreed principle.
People suffering injury, accident or disease may sometimes receive compensation from a third party, such as an insurer. They may also, independently of that, receive social security benefits to meet their needs for lost income, or to meet extra care needs. So they could be entitled to two lots of money for the same needs. Benefit recovery prevents that, by recouping benefits paid from public funds. The policy is founded on the principle that an individual should not receive double provision to meet the same need.
Although that long-standing common law principle pre-dates the modern welfare state, Sir William Beveridge articulated it clearly in his historic report, "Social Insurance and Allied Services", published in 1942:
A key problem with the original rules was that the compensator kept the reduction on account of benefits paid. The taxpayer lost by subsidising the negligence of the person responsible for the accident, injury or disease. In a report produced in 1986, the National Audit Office concluded that it was wrong for public funds to be used to subsidise negligence.
The NAO recommended that the amounts deducted from compensation should be recovered for the taxpayer. Subsequently, the Public Accounts Committee urged the
Government to set up such a scheme. The Government commissioned a review of the relationship between compensation and benefit payments. Following the review, we decided to act.
In 1990, the Government shifted the advantage of recovery from the insurer to the taxpayer. That is the scheme we have now. The compensator deducts from the settlement an amount equal to the benefits that have been paid. He sends that amount to my Department and pays the balance to the victim. If the compensation is £2,500 or less, benefits are not recovered. It is straightforward and it keeps bureaucracy to a minimum. Compared with the previous system, it is also good value for money, and saved the taxpayer more than £130 million last year.
The Select Committee on Social Security played a part in focusing attention on the current scheme, and on ways by which it might be improved. At the beginning of 1995, the Select Committee decided to
In its unanimous report, the Select Committee reached conclusions about the scheme that are of crucial importance. It stated:
The scheme also has two unintended consequences. The first is that some victims do not get to keep all or indeed any of the compensation intended for their pain and suffering. It arises because compensators pay for proven loss, whereas the state pays for needs. Compensators reduce the amount of compensation that they pay by the total benefit already paid, regardless of what the compensation is for. So the compensation a victim receives for pain and suffering may in some cases be eroded by the recovery of benefits paid for need. A typical scenario would involve someone who is already out of work, perhaps through redundancy, before the onset of a disease caused by his former employment.
While the person is out of work, his income needs are met by state benefits. After a time, a compensation settlement from the former employer is agreed. It might be £15,000, intended to cover his pain and suffering. There would be no compensation for loss of earnings, because the victim was already unemployed, even though the illness would have made continued unemployment likely. The amount paid out in state benefits might have built up to £10,000, so £10,000 of benefit would have to be paid back to the state. The victim would be left with only £5,000--a fraction of the amount intended to cover
his pain and suffering. To any reasonable person, that must seem unfair. The Government agree with the observation in the Social Security Committee's report on benefit recovery:
One effect is that both the victim and the insurer may gain at the expense of the taxpayer. I can best demonstrate that if hon. Members allow me to lead them through a simple example. Let us suppose that a victim has received £3,000 in state benefits as a consequence of an accident at work. If the compensation agreed were £5,000, the insurer would pay £3,000 to the Department of Social Security and £2,000 to the victim. It would cost the compensator a total of £5,000. If instead the parties agree to compensation of only £2,500, however, the Department gets nothing and the victim gets the full £2,500. So the victim gets £500 more while it costs the compensator £2,500 less than if the settlement had been twice that sum.
Another effect is that the insurer may gain at the expense of both the taxpayer and the victim. A disproportionate number of compensation settlements seem to be pitched at or around the small payments limit of £2,500. That suggests that many victims settle for compensation at less than the true value. We cannot let either of those circumstances continue. The Select Committee concluded that
The Government published our formal response to the Select Committee report on 2 October 1995. As part of that response, I launched an extensive consultation exercise on the implications of reform along the lines proposed by the Select Committee, which was completed in November 1995. The compliance cost assessment of the Select Committee's proposals was published on 14 February 1996. A further consultation exercise to assess the implications of that assessment followed. The closing date for responses was in April 1996.
[Relevant documents: Fourth report from the Social Security Committee of Session 1994-95 (HC 196) on compensation recovery and the Government's response thereto (Cm 2997.]
Order for Second Reading read.
4.39 pm
"An injured person should not have the same need met twice over. He should get benefit at once without prejudice to any alternative remedy, but if the remedy proves in fact to be available he should not in the end get more from two sources together than he would have got from one alone."
From 1948, double compensation was prevented by recovering benefits from compensation, but compensation recovery was an inconsistent business. Compensation was reduced to recover benefits already paid, but the amount deducted differed from benefit to benefit. For some benefits, 50 per cent. was deductible. For others, the full amount paid was brought to account. Compensation could be reduced to reflect the payment of certain benefits for up to five years from the date of the incident. For other benefits, there was no time limit. That inconsistent approach disadvantaged some accident victims.
"inquire into the policy and practice of the compensation recovery unit, and the legislation on which it is based".
It took evidence from my Department and from a range of other interested parties and reported in July 1995. I pay tribute to the Select Committee and its Chairman, the hon. Member for Birkenhead (Mr. Field), who is in his place.
"it was right for the Government to shift the advantage of recovery to the taxpayer who lost out to the insurer under the pre-1990 scheme."
It added:
"the taxpayer should not be in the business of paying benefit for compensating individuals who have suffered injury or disease for which the courts would hold someone else responsible".
The Government welcomed those conclusions, as they confirmed that we were right to introduce a scheme which has the protection of the taxpayer as one of its primary objectives.
"We cannot accept that the general taxpayer should be reimbursed out of damages awarded for an individual's pain and suffering."
The other unintended consequence concerns the operation of the small payments limit of £2,500. For compensation payments below that limit, benefits are not currently recovered. The intention of the limit is a sensible one: it is to avoid the disproportionate administrative costs of recovering small amounts of benefit from large numbers of small claims. However it also unintentionally creates a loophole, providing incentives for insurers and victims to agree compensation at or below the small payments limit.
"it was right for the Government to shift the advantage of recovery to the taxpayer who lost out to the insurer under the pre-1990 scheme."
Furthermore, the Select Committee suggested that the Government should recover 100 per cent. of benefits in every claim. To recover all benefits means removing the small payments limit.
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