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Standing Committee E
Tuesday 17 June 2003
[Mr. Win Griffiths in the Chair]
Liability to pay NHS charges
Chris Grayling (Epsom and Ewell): I beg to move amendment No. 626, in
I am delighted, and indeed relieved, to see the Minister of State in his place as the only survivor of the old team; I wondered whether any of them would remain after the reshuffle.
I seek your guidance, Mr. Griffiths, before beginning this part of the debate. Clause 137 addresses a substantial issue, and the Opposition intend to debate it as a clause and to seek your leave to divide the Committee on it. Given the nature of the amendments, it may be logical to address the issues in a clause stand part debate at the beginning rather than the end of such a debate because subsequent amendments will effectively follow on from those issues. Will you permit the debate on amendment No. 626 to range into a clause stand part debate so that, first thing this morning, we can set up some of the issues for subsequent amendments?
The Chairman: I am happy to do that, provided that when discussing subsequent amendments we are careful to keep strictly to the subject matter. Having said that, I am happy to let the debate on amendment No. 626 range widely. I hope that no one will complain that they have not had a chance to speak in a clause stand part debate. Now that all members have heard what I had to say on that, we will proceed.
Chris Grayling: I am grateful. That will help the shape of this morning's debate, and I am happy to be guided by you about the nature of the debate on subsequent amendments.
Amendment No. 626 addresses one of the issues in this part of the Bill about which the Opposition are concerned. Those concerns range across several different dimensions, one or two of which we shall return to when we discuss subsequent amendments. The greatest concern is the impact that the measure will have not simply on GPs—I will talk later about its impact on the health service—but on employers generally.
This part of the Bill will establish the principle that employers and anyone liable to pay compensation as the result of an incident will be liable also to meet part of the victim's national health service treatment costs. Amendment No. 626 singles out one group—the health service itself—that will be adversely affected
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by the introduction of these measures. However, that adverse impact will extend more widely.
For that and other reasons, we are profoundly concerned about that part of the Bill. The Opposition tabled a series of amendments, which I appreciate cannot be called under the rules of the Committee but which, clause by clause, deleted that part of the Bill. I want to set out the reasons for that with regard to amendment No. 626 and some of the clause stand part issues.
This part of the Bill is problematic because of the impact that it will have on the various forms of liability insurance that different groups in society are obliged to take out—or would normally take out—to protect themselves against third-party claims. Those groups could include employers; employers' liability insurance is routine for an employer. Medical practitioners could also be included because, as amendment No. 626 states, they are increasingly required to, and must, take out insurance against claims for negligence, mistakes and so forth.
As we will see in a subsequent amendment, liability insurance can apply to small sports clubs, other voluntary organisations and charities. Frankly, Mr. Griffiths, it applies to any householder taking out household insurance, because there is a public liability element in most such policies.
As sure as night follows day, a consequence of this part of the Bill will be that insurance premiums rise, as it will introduce to the insurance industry an additional potential element of liability. No longer will a claim in court simply provide compensation to an individual; the cost to the national health service of treating the person who has been affected by the circumstances that led to the claim must also be considered. There are huge bureaucratic implications, which we will talk about when we discuss subsequent amendments.
However, the real problem is what this measure will do to those areas of liability insurance that have been a particular problem in recent years. By any measure, employers' liability insurance must be top of that list of problems. It affects all kinds of organisations and people; schools, GPs, hospitals and businesses. It affects anyone in the public and private sectors who employs others. However, the real impact will be felt by hard-pressed, smaller businesses.
Dr. Andrew Murrison (Westbury): Is my hon. Friend aware that, in a written parliamentary answer, the Secretary of State for Trade and Industry admitted to me that 5 per cent. of businesses feel that employers' liability insurance is becoming a show-stopper as far as their future economic viability is concerned?
Chris Grayling: My hon. Friend has made an extremely important point, and I intend to give the Committee the Government's own information about the employers' liability problem. I shall then ask Ministers why the Government is apparently heading in two separate directions on this issue.
You will be aware, Mr. Griffiths, that the Department for Work and Pensions recently
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published a very detailed report and set out a strategy to consult on and study employers' liability insurance in order to work out, before the Bill comes into effect, how best to solve the current problem. The Bill throws a great rock into the pool of that process, making it much more difficult to establish a way forward for employers' liability insurance, quite apart from the impact that it will have on large and small firms up and down the country.
The issue is straightforward, and I shall draw significantly on the Department for Work and Pensions' own study of the matter. Of the costs of employers' liability insurance for smaller businesses, the Department said that
''as a proportion of profits they can be significant, particularly in sectors where above-average premium growth seems to be occurring and in small and medium sized enterprises (SMEs), which generally pay a higher proportion of turnover in EL insurance than larger firms.''
The measure will have a particularly adverse impact on smaller businesses at a time when they face pressures from all directions.
The problem is that, over the past two or three years, there has been a huge jump in the level of employers' liability insurance. That has partly been a result of the international situation, but has also been a consequence of changing assessments of risk. Increasingly, we live in a compensation culture. More and more people want to take companies, doctors and their local hospitals to court. People will take a school to court if their child breaks an arm in the playground. We are becoming a more litigious society and, consequently, the cost of those insurance policies has been rocketing in recent years.
The Department for Work and Pensions' own figures state that
''Zurich Insurance, the Association of British Insurers (ABI) and the British Insurance Brokers Association (BIBA) say that the average increase in EL premiums across all types of risks over 2002 was between 40% and 60%. Norwich Union has estimated its own average increase in EL to be slightly lower at 30% to 45%.''
However, that is still a huge jump in a single year. That has been confirmed by the Office of Fair Trading, which has also been looking at this area. It carried out a survey of approximately 450 small businesses, which showed that during 2002, two fifths of businesses experienced an annual increase of more than 20 per cent. The employers' liability costs of one in eight businesses more than trebled, an increase of 200 per cent. or more. Those are enormous increases.
The picture has been particularly bleak in individual sectors. The DWP refers to two sectors in particular, one of which is construction. The Department of Trade and Industry carried out a survey of the construction sector, which reported that employers' liability insurance premium increases ranged from 10 per cent. to 368 per cent. That is a huge figure.
The National Federation of Roofing Contractors carried out an insurance survey covering the period 2001–02. Employers' liability premiums rose by an average of 161 per cent. between 2001 and 2002. In
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many cases, these companies have not been making claims. They have been good stewards of their employees and have not had to make any payouts to them. However, due to the growth in litigation across our society and the impact post–11 September, premiums have been jumping.
An employer in my constituency—a car park operator who ran car wash services in car parks across the country—came to see me. His insurance premiums had risen beyond all measure. He was having difficulty getting the premiums that he had had in the past, even though nobody could say that his policy was related in any way to the international situation. His business was not exposed to terrorism. However, he had to face huge premiums, which came off his bottom line.
The purpose of explaining this is to demonstrate that small businesses are already suffering a huge additional burden in employers' liability insurance. The measure in the Bill will add an additional layer of costs. The Association of British Insurers estimates an 8 per cent. increase in employers' liability premiums. However, it may be much more for many firms depending on their sector. Smaller businesses are particularly liable to find that even a relatively small increase in premiums will have a significant impact on their business.
That is the nub. The total cost of the employers' liability insurance premium may be a sizeable proportion of the overall turnover, let alone the profitability, of a relatively small business that turns over a few hundred thousand pounds. The DWP highlighted the example of a scaffolding firm that employs seven people and has a turnover of £300,000. It reported a rise of 500 per cent. in its combined employers' liability and public liability insurance costs over two years. The premium in 2000 was £6,000, which rose to £10,000 in 2001 and to £30,000 in 2002. That business is paying 10 per cent. of its £300,000 turnover in employers' liability premiums.
By adding another set of increases on top of that premium, I expect that the business would struggle to make a profit. Some 8 per cent. of that £30,000—£2,400—probably represents a significant proportion of that company's remaining profit margins and could even wipe out its margins altogether. That is money that cannot be spent on other things and perhaps, as a result, the company might have to employ one person fewer. That £2,400 may mean the difference between having a bit extra that enables them to have one extra person on the books and not being able to do so.
Small businesses—small manufacturing businesses and small service businesses such as that scaffolding firm—cannot afford to take on additional costs in this way. Mr. Griffiths, you will know from the experience of companies in your constituency that many firms are currently finding it difficult to survive. It is a difficult economic climate, and the last thing that they need is yet another increasing cost. The consequence of introducing the measure will be to reduce employment and erode profit margins and to make it more difficult for those companies to survive and
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flourish. The measure in clause 137 is a tax on business, and it will also be a tax on the public sector and on voluntary groups, all of which will have to meet the additional costs of insuring against the risks that they face day by day.
The smaller businesses will suffer; indeed, the Department for Work and Pensions itself admits in its report that larger companies tend not to be so badly affected. One of the reasons for that is that insurers can do detailed risk assessments of individual substantial businesses, because such businesses are big enough to make full risk assessments worthwhile. However, that is not the case with smaller businesses, for whom it is simply not cost effective to carry out detailed individual assessments. The Department for Work and Pensions itself says:
''Insurers state that generally it is not economically efficient for them to fully assess a smaller company's health and safety practices, by way of a liability survey, and to link the results to premium charged.''
The small firms get lumped together and get a big increase, and cannot demonstrate that they are not risky operations. The measure will be a tax on smaller businesses from which they cannot escape because, by law, they have to have this insurance. They will have to pay the bill at a time when they can ill afford to do so.
Mr. Griffiths, you will not be surprised to learn that the various groups representing these organisations—medical practitioners, employers and small businesses—are all deeply unhappy with this element of the Bill. The Federation of Small Businesses, apart from raising several specific concerns, sets out many ways in which this measure will have an impact on business. The FSB highlighted issues to which we will return during debates on the amendments in relation to legal costs and some of the settlement frameworks. Overall, it is deeply unhappy with the potential impact on smaller businesses.
The Engineering Employers Federation says that the scheme will not work, that it will damage businesses and that it will have an adverse impact. The federation is profoundly concerned about the scheme, saying:
''The estimated amount of costs recovered will be in the order of £100 million. While this represents a relatively insignificant amount to NHS funding, it is in effect a tax on British Industry. This will be felt most keenly in the so-called higher risk areas such as manufacturing, which is currently suffering some of the worst trading conditions experienced in the last ten years.''
I now turn to the matter of medical practitioners. The purpose of the amendment is to make a point to the Government and to seek to exclude medical practitioners from this process. We will end up with the NHS in a merry-go-round of claiming against itself. The first and most immediate impact is that it will raise the cost of liability insurance for medical practitioners themselves. We will then have a situation in which GPs will be seeking to recover costs from hospitals and hospitals will be seeking to recover costs from other hospitals when treatment does not work.
We all know of people who have come to see us because the care that they have received in the NHS has not worked for some reason, or because something has gone wrong. The Minister will recall that, in the
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Chamber a few months ago, I referred to the fact that a recent study in the British Medical Journal said that one in ten patients in hospital suffers from an adverse event. That might be picking up an infection or, for an elderly person, falling out of bed and breaking a bone. In many cases, the outcome of those adverse events is a claim for financial compensation. We will see medical practitioners not only pursuing claims against each other, but being pretty much obliged to do so.
A GP who treats a patient who has been treated wrongly at hospital, will, under that section of the Bill, have to claim the cost of treatment back, through the compensation system, from the hospital that did not do the job properly in the first place. There is a risk of a merry-go-round of claims within the NHS, which will create bureaucracy and tension and push up costs. That will have an adverse effect and create more of a blame culture within the NHS at a time when Ministers are rightly exploring the possibility of a blame-free system of compensation. This measure will require medical practitioners, effectively, to challenge each other's word in order to try to recover funds. The Minister must have seen the submission from the Medical Protection Society on this, which states that
''In practice, these proposals are likely to set GPs and hospital doctors against each other, which will be bad news for hospitals and patients alike. Mistakes made in hospitals will be dealt with by the trust management and the NHS Litigation Authority, but for GPs the effects of the recovery of hospital costs scheme will be much more personal. A GP working long hours for the NHS, who is sued by a patient for delay in diagnosing a condition that was subsequently picked up by A&E and treated in hospital, could be liable to pay tens of thousands of pounds to the hospital.''
To prevent that potential risk from turning into a real personal liability case for a GP, the GP will have to push up his or her level of insurance and pay higher premiums.
One area highlighted in the report carried out by the Department for Work and Pensions was long-term occupational disease. I will keep my remarks on that brief, as we will touch on it when dealing with subsequent amendments. However, it is worth making the point that one issue that the insurance industry will have to address if that section of the Bill comes into force is future risks, such as asbestosis, illnesses suffered by coal miners who spent years under the ground and, interestingly—given the debates that we have had on Wales—specific diseases that apply to the slate mining industry. The industry will also have to address the successors of those conditions; for example, repetitive strain injury or conditions of which we are yet unaware.
Insurance companies will have to look into the future to assess what the situation will be with regard to asbestosis, or its equivalent, in 20 years' time. What will the potential, hidden liability be at an indeterminate time in the future? How will insurance companies make provision for that? Dealing with asbestosis and other long-term conditions that arise from certain workplaces will involve huge costs over many years. Insurance companies must also take that into account when establishing premium costs. That will compound the situation in some sectors in which the insurance industry judges that there is a particular risk.
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The great irony is that the Government are well aware of the problem that is being created for employers of all shapes, sizes and descriptions as a result of the liability insurance issue. The Department for Work and Pensions report is meant to be part of a long-term, ongoing project to try to identify ways of mitigating the impact of surging insurance costs on individual employers of whatever kind. It has identified several areas in which it is working with business and industry to evaluate the evidence in order to separate long-term occupational disease risks from accident risks. That work is ongoing.
The Department is working with stakeholders to maximise the benefits of current initiatives within the legal system, such as how to reduce the costs of settlements, how to make the process of claiming less litigation orientated and how to reduce legal bills. It is considering ways of making rehabilitation play a more central role in the UK workers' compensation system, and it is considering reforming the arrangements for enforcing employers' liability in order to deal with those organisations that slipped through without taking out insurance. There is a comprehensive programme, with a detailed document. Having read the work that is being carried out by the Department for Work and Pensions, I must say—as a genuine compliment—that it has recognised the significance of the issue and is trying to do something about it.
During a thoughtful process to tackle a substantial issue for smaller commercial organisations in particular, but also for a wider range of organisations, why does the Department of Health—demonstrating absolutely no signs of joined-up government—throw an almighty rock into the pool by saying that it will change the compensation system and allow the NHS to recover costs in a way that will place a huge additional burden on smaller businesses? That would complicate the review process that is designed to ease the existing burden on smaller businesses, and it would create complexities and problems in the NHS because of how the compensation system operates within it.
It is absolutely the wrong moment to be doing that. It is the wrong time as regards the process and it is certainly the wrong time to be levying an additional £100 million of taxation on smaller businesses. It is mad. It is certainly not right to do it before the Department for Work and Pensions has reached a resolution about possible changes to the liability and insurance structure. Surely this part of the Bill should be set aside.
The Department of Health should be engaging in the ongoing discussion and debate between the Department for Work and Pensions, business groups and other organisations. If the Department of Health really wants to come up with a package of proposals, it should do so, eventually, as part of a more comprehensive new structure for employers' liability insurance. Surely that is the logical way to do it. It is absolutely the wrong time to be putting forward this part of the Bill. It is an unwanted tax at a difficult economic moment, and it will make very little
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difference because, as the Engineering Employers Federation pointed out, in the context of the overall NHS budget, £100 million is a drop in the ocean.
We expect the overall NHS budget in the next couple of years to be close to £100 billion. Although £100 million will make very little difference to the NHS, it will make a major difference to small businesses at a time when they can ill afford it. This is the wrong time to do it; it is a tax on jobs and business, and we strongly oppose it.