House of Commons
|Session 2006 - 07|
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Public Bill Committee Debates
Draft Compensation (Exemptions)Order 2006
The Committee consisted of the following Members:
Jenny McCullough, Committee Clerk
attended the Committee
The following also attended, pursuant to Standing Order No. 118(2):
First Delegated Legislation Committee
Monday 22 January 2007
[Mrs. Janet Dean in the Chair]
Draft Compensation (Exemptions)Order 2006
The Parliamentary Under-Secretary of State for Constitutional Affairs (Bridget Prentice): I beg to move,
That the Committee has considered the draft Compensation (Exemptions) Order 2006.
It is a pleasure to serve under your chairmanship, Mrs. Dean. This is the first time that we have served together as Chairman and Minister in a Committee. We have often been on the same Benches in the past, and I am sure that you will conduct our proceedings as admirably as you always do.
The order was laid before the House on 28 November. It specifies the classes of persons and organisations that are exempted from the statutory requirement to be authorised to provide a regulated claims management service under part 2 of the Compensation Act 2006. The Committee will notice that a correction slip was issued on 13 December to correct two errors in the draft. I am grateful to members of the Joint Committee on Statutory Instruments who raised the issue with us. We were happy to correct matters.
I should remind members of the Committee that other statutory instruments setting out the scope of regulation and the detailed regulations that underpin the framework needed to regulate the activities of claims management services were debated on 5 December and came into force on 14 December. The conduct rules for authorised persons were also published on 14 December and the authorisation process is under way.
The Committee will remember that the Better Regulation Task Force in its report Better Routes to Redress, published in May 2004, recommended that the claims management industry first be given a chance to self-regulate and, if progress were not made by the end of December 2005, that my Department should regulate the sector. Sadly, the industry failed to self-regulate, so the Government were obliged to step in. The measures that were introduced and thespeed with which work progressed were welcomed throughout the parliamentary passage of the Act. Indeed, the hon. Member for North-East Hertfordshire (Mr. Heald) said on 22 June 2006 that
it is clear that self-regulation has not worked.
He said that there is
the need to get on with this, and to introduce some robust arrangements that will act relatively quickly. [Official Report, Standing Committee E, 22 June 2006; cc. 72, 101.]
I therefore expect and hope that Members in all parts of the Committee will be of one mind on the statutory instrument.
Part 2 of the 2006 Act establishes a robust framework to regulate claims management services. The regulation will put in place vital safeguards for consumers, including a requirement that all authorised persons must comply with strict rules of conduct. It will raise standards throughout the industry and will give consumers the confidence in the services that they are using.
We have deliberately defined claims management services under the Act widely to ensure that there are no loopholes. The Compensation (Regulated Claims Management Services) Order 2006, which was debated in December, defines those activities under sectors that are regulated under the Act. The aim of the regulation is to target those who provide claims management services on a commercial basis. Individuals working in a voluntary capacity, for example, at a citizens advice bureau or a legal advice centre or where claims management advice is given to a friend, are excluded specifically from the scope of the Act by virtue of section 4(1)(d).
The draft Compensation (Exemptions) Order 2006, which was made under section 6(2) of the Act, specifies the class of persons or bodies whose activities fall within the scope of regulation. However, due to the nature of their activities or because they are already regulated, they are to be exempt.
The exemptions were drawn up in accordancewith general public law principles, taking intoaccount relevant criteria and with proper procedural consideration given to each person or class of persons. The Government consulted on the draft and discussed the proposals with representative bodies and interested parties to ensure that definitions accurately described the person or class of persons to be exempted.
Tony Baldry (Banbury) (Con): Among the organisations that the Minister consulted, did she consult the Association of Personal Injury Lawyers, which is genuinely concerned about article 5? APIL is concerned that if a claims organisation is regulated by the Financial Services Authority, it will be exempt from regulation by any other regulator. The FSA is not particularly attuned to dealing with the regulation of claims management companies. Why are claims management companies being given exemption when they happen to be otherwise regulated by the FSA?
Bridget Prentice: We did consult APIL and others. I saw the briefing note that APIL sent out last week and was rather disappointed by it. The note does not, for example, commend the Government for acting with speed to implement the regulatory framework. There is no evidence to substantiate APILs claims that insurers claims management activities would be regulated to a lower standard than if regulated by my Department. APIL confuses the concept of double regulation. No body should be regulated twice in respect of the same activity, which is exactly what the order achievesthat no body is doubly regulated. That does not mean that insurers will be exempt; it means that they will be regulated under the SFAI am sorry, the FSA: the SFA has more pressing things to deal with at the moment. There is a misunderstanding in the briefings that APIL sent out.
Mr. Kevan Jones (North Durham) (Lab): Before the hon. Member for Banbury raised his point, it was not one that I had honed in on. As currently agreed, would the order exempt claims handling organisations that sell after-the-event insurance, such as Freeclaim IDC, a disreputable organisation which has in the past hidden behind the fact that the insurance products that it sells are covered by the FSA?
Bridget Prentice: My hon. Friend makes a good point. That is exactly the issue that we wanted to clarify, so that claims management is dealt with under the order. Of course, people dealing with insurance properly, and those not dealing with it properly, will be dealt with by the FSA. It is important that we make those two things clear, and my hon. Friend makes a good point in raising the issue.
John Mann (Bassetlaw) (Lab): Just to be absolutely clear, is it the case that a claims handling company such as Vendside, which deals with mining and textile industrial disease claims, and also on the open market with mortgage and endowment mis-selling, would not escape regulation of its claims management business by claiming that the company should be regulated by the FSA?
Bridget Prentice: No, it certainly would not. If Vendside wishes to be a claims manager, it mustbe regulated under the 2006 Act, and would not be exempted by the order. Vendside could perhaps be separately regulated under the order by the Department for Constitutional Affairs, as well as by the FSA for the other services that it provides.
The order exempts legal practitioners, provided that they are acting in the normal course of business permitted by their profession rules. Those exemptions will apply only in so far as those concerned are already regulated under provisions for claims management services. Those providing regulated claims management services regulated under the Financial Services and Markets Act 2000 will be exempt. That covers the handling of insurance claims by insurers, including where an insurer deals directly with a third party who has a claim against one of its policyholders. It is often referred to as third party capture, and two hon. Members have raised concerns about it. The Financial Services Authority has made it clear that it will take very seriously any allegations of impropriety in the handling of third party capture claims for insurers.
The activity of referring uninsured losses for a fee to legal practitioners or to an authorised person, however, is not covered by the 2000 Act, and any person carrying out that activity, as my hon. Friend the Member for Bassetlaw said, will need to be authorised under the Compensation Act 2006. I hope that that situation is absolutely clear for all members of the Committee.
The order also exempts independent trade unions. The exemption for trade unions was debated at length during the passage of the 2006 Act. We consideredthe concerns seriously and have limited the exemption to trade unions certified as independent by the certification officer under the Trade Union and Labour Relations (Consolidation) Act 1992 in providing regulated services to members and members families.
The exemption for trade unions does not extend to any subsidiary company, whether wholly or partially owned by a trade union, and any such company will be required to seek authorisation to provide a regulated claims management service.
Simon Hughes (North Southwark and Bermondsey) (LD): My question is linked to the exemptions for trade unions and students unions in the orderan area that the Government are approaching in the right way. Would the exemption also apply to members of the Co-operative Societywho have an in-house service or contractual relationship with a solicitor for claims handlinga political party such as mine or the hon. Ladys, an organisation such as the Automobile Association or the Royal Automobile Club or any other membership organisation that is not a trade union in the conventional sense of the word?
Bridget Prentice: My immediate answer is no. The exemption would not apply to those organisations, so they would not be exemptI must be careful about double negativeseven though they might be membership organisations. If they provide a claims management service in the course of their business, they will have to be regulated. My immediate reaction is that they would not be regulated, but I will take further advice on that to be absolutely certain.
Simon Hughes: I am very grateful to the Minister, and I am not seeking to trap her into an answer. I am just trying to make sure that we are clear. What about organisations such as provident societies or mutual societies, in which members have a self-help set of activities? Could she tell us about that family of organisations? I will quite accept it if she says that they will have to get a specific exemption and will not have a class exemption, but it would be helpful if people knew.
Bridget Prentice: The hon. Gentleman makes a reasonable point, and I will see that he gets that information. The Act does allow for people to be brought in or taken out depending on their behaviour. If it becomes clear that another organisationsuch as a mutual societyis behaving much like a trade union, there might be a case for it to ask for exemption, and that would be considered. The condition of the exemption for trade unions, for example, is that the unions are required to act in accordance with the code of practice issued on 28 November by the Lord Chancellor and Secretary of State for Constitutional Affairs. That sets out some of the key standards that exempted trade unions will need to apply to the provision of regulated claims management services to their members. Very serious breaches of that code could lead to the exemption being withdrawn from a trade union, which would then have to apply for authorisation under the Act or else cease to provide the claims management service. We continue to work with the Trades Union Congress and the certification officer to monitor the operation of the code of practice. The order will also exempt charities and not-for-profit advice agencies.
Mr. Jones: On the role of trade unions, what will be the situation if a trade union is added that is defined under the Act and registered with the certification officer, and is therefore a bona fide trade unionI can think of at least two examples with which my hon. Friend the Member for Bassetlaw and I have been involvedbut is quite clearly acting purely as a claims handler rather than a trade union? In such a case, who would say that the union had to fall under the regulations of the organisation? From my experience with the TUC, a blind eye seems to be turned to at least one member organisation.
Bridget Prentice: I cannot comment on that particular issue except to say that the Government have worked closely with the TUC and its legal department in drawing up the code of practice. The TUC is as determined as we are to ensure that the code works properly alongside the certification officer who will monitor it. If it were discovered that an organisation claiming to be a trade unionit would have to be a trade union as defined under the Actwas acting purely as a claims handler, it would be contravening the code of practice. It therefore would not fall within the exemption that we are debating, but would have to be regulated under the Act.
John Mann: I think that it would be helpful to quote from the TUC briefing that I received today. It is extremely clear, unambiguous and helpful, and I seek the Ministers comments on it. The briefing says:
Trade unions are non-profit making
which gives a clear, well-understood and unambiguous definition of trade unions. It also states:
Unions do not charge members costs or deduct from damages in personal injury or employment cases, regardless of whether the case is won or lost.
In that statement, it seems to me, although I seek the Ministers view, that the TUC is being unambiguous about what it regards as fair and reasonable. Willthe TUC be referring to the regulator those unions, whether they be TUC or non-TUC, that breach the principle spelled out in its briefing?
Bridget Prentice: I am sure that the TUC will be listening carefully to our debate. As my hon. Friend says, the briefing makes it clear how the TUC visualises the behaviour of a properly organised, representative trade union. I am sure that it will take his point to heart, so that if anyone is acting in a way that is detrimental to members, including taking moneys from them for costs when it is clear that that is not part of a unions remit, the TUC will take it on board.
Mr. Dennis Skinner (Bolsover) (Lab): Will my hon. Friend bear in mind that many such cases came about because of a breakaway organisation from the National Association of Colliery Overmen, Deputies and Shotfirers in south Wales? That is where it all began, after the judgment in Manchester on chronic obstructive pulmonary disease. The breakaway organisation was principally Bleddyn Hancock, a Welsh nationalist who fought against Labour some time later. They tell me that he has a big house, a swimming pool and everything to go with it. I do not know where it has come from; I am not the sort to make wild allegations.
The Minister must concentrate her mind on this: cases are now being taken to the courts involving what we call beat knee. We all know that it will be extremely difficult to prove. It is not like COPD, for which medical evidence is pretty sound. My hon. Friends questions, which I am sure we will bear in mind, are important. Although COPD is coming to an end and the lawyers have been and gone, the truth is that there could be another upsurge, depending on what the judge says.
Bridget Prentice: I am grateful to my hon. Friend for raising that matter. He is right. We must be constantly vigilant about the behaviour of some individuals and organisations within the area. It is also beholden on the TUC as the umbrella organisation representing trade unions globally to take as strict a view as I do of people mis-selling or misbehaving in respect of individual trade union members. I hear what my hon. Friend is saying. The issue has not been brought to my attention before, but I will certainly ensure that we examine closely the activities of those in such areas who think that they can get round a law that is there to protect, in some cases, the most vulnerable in our communities. I shall make sure that we pay close attention to any judgment made as a result of such matters going to court.
The order exempts charities and other non-profit advice agencies. It exempts the independent complaints reviewer, students unions as the hon. Member for North Southwark and Bermondsey said, the Motor Insurers Bureau, the Medical Protection Society, the Medical Defence Union and individuals who refer or introduce a claim, but only if they meet the strict criteria set out under the order.
Judy Mallaber (Amber Valley) (Lab): I am pleased that the order contains the exemption. In my area, the organisations that did the most to tell people that they might have COPD and vibration white finger claims were the unemployed workers centre and healthand safety committees connected with the trade union movement, which are very much not-for-profit organisations.
The Minister spoke about the order being about protecting the vulnerable members of our society. I was most angry with the claims handlers because they were desperately trying to gather claims for members of the family, who had no need to claim but who were entitled legally to a legal claim as those who inherited their parents estate. That is one of the main distinctions that should be drawn when looking at which organisations have behaved honourably and should be subject to exemptions and which organisations have behaved despicably and should be excluded.
Bridget Prentice: My hon. Friend made an important point extremely well. In looking at such matters, we need people to be vigilant about how some organisations behave. Clearly, those not-for-profit organisations which are helping people should be supported and encouraged in their work. Anyone who is behaving in a way that undermines the spirit as well as the letter of the law and, indeed, is allowing people in vulnerable situations, in effect, to lose out should be brought to the attention of the Secretary of State. If
The exemption could apply to garages and body shops that pass on referrals for a fee, reward or gain, but only if they meet the tests that I have outlined today. The order provides for an exemption from the need to be specifically authorised and does not imply exemption from the rules of conduct. The primary aim of claims management regulation is to protect consumers by regulating the conduct of those who provide services for commercial gain. We recognise that the regulation of the claims management sector alone is not enough to ensure consumer protection. It is vital that all aspects of claims handling are effectively regulated to ensure that proper safeguards for consumers are in place and that the Department is working closely with the Law Society, the Financial Services Authority, the TUC and others to achieve that. On that basis, I commend the order to the Committee.
Mr. Henry Bellingham (North-West Norfolk) (Con): Welcome to the Chair, Mrs. Dean. It is a pleasure to serve under you. I thank the Minister for explaining clearly the details of the order and going through the different classes of exemption. The Conservatives support the order. We voted in favour of the primary legislation and are grateful to her for coming to the House to explain some of the details of the secondary legislation.
The Minister pointed out two corrections. To be fair, those corrections have been made in response to the Joint Committee on Statutory Instruments, chaired by my right hon. Friend the Member for Penrith and The Border (David Maclean). I point out that although the mistakes were technical, they were fairly significant. Why were the mistakes made? What happened? Surely it is up to her Department to get such things right and not to rely on the Joint Committee, although it could be argued that the Joint Committee is doing its job, which it does well. It is most assiduous in going through statutory instruments on the Houses behalf.
My question relates to insurance brokers, who are regulated by the FSA in the vast majority of their work and activities on behalf of insured clientsprobably95 per cent. of the general activities of intermediaries and brokers are regulated by the FSA. For example, if an insured individual or company is involved in a motor accident, any damage to the person insured is dealt with by the broker and comes under FSA regulation.
If a subsequent claim is made for personal injury or other damagesfor example, in a household fire caused by a third partythe damage to the property is dealt with under the policy, but any other loss, including injury to the individuals involved, is a separate matter. Most of the time, however, companies sell to the insured a legal expenses policy. If any personal injury claim or other legal action is referred by the insurance intermediary under that policy to a specialist solicitor or accident management company,
To return to my example, if the insured individual does not have a legal expenses policy with the insurance company through the broker, the intermediary or broker may well make a referral or recommendation. One could argue that under the law of agency the intermediary has a duty of care to put the customers interests ahead of his own, and that if he does not make a referral he could be in breach of that duty of care, opening himself up to the potential for an action.
That area represents well under 5 per cent. of brokers and intermediaries activities, but it will not be regulated by the FSA. It will be regulated by the new claims management regulator. The Minister said that there would be no double regulation or duplication. If, as she says, the FSA is doing an excellent job and her Department has confidence in itthe FSA knows the companies concerned well, as it deals with them day in, day outis it fair for the small percentage of activity that does not come under FSA regulation to be dealt with by the claims management regulator? Would itnot be better to bring it under FSA regulation? The industry is concerned by that point. The Government have said a great deal about trying to reduce burdens on business and about the work of the Better Regulation Task Force. The BRTF examined the claims management industry and gave it time to put its house in order, but the industry failed to rise to the challenge of putting in place a satisfactory regulatory regime of its own, as we have heard from the Minister on many occasions.
We do not want unnecessary extra regulation. We on the Opposition Benches entirely support the thrust of the primary legislation, as do most people in the insurance industry. They are in favour of greater regulation of those companies that participate in ambulance chasing, claims farming and other related activities. Given the Governments policy on regulation, particularly with regard to financial services and the their avowed aim of making the City more competitive in the global marketplace, will the Minister look again at the role of the FSA? The position as it stands will cost companies a significant amount of extra time and money. If she believes that the FSA is doing such a good job, there is surely an argument for it taking over the entire regulation of intermediaries and brokers, rather than the claims management regulator dealing with 4 or 5 per cent. of the activity, which could lead to a lot of extra work and bureaucracy.
Perhaps the Minister will respond to that simple question. Having studied the order and the exemptions, we otherwise support what the Government are doing.
Mr. Kevan Jones: We live in interesting political times and the modern Tory party is a strange beast these days. [ Interruption. ] It always was. In Committee and on the Floor of the House, Conservative Front
Mr. Skinner: For Witney, thats him. He is engaged in a different activity. We know that he is chasing every rainbow and all the rest of it, but he also deserted the City and the CBI and is trying to woo the trade unions. He is living in cloud cuckoo land.
Mr. Jones: I will not indulge my hon. Friend any longer, because I know that he takes no encouraging. If the Tory party is relying on trade union votes, it must be in desperate straits.
I welcome the order, particularly the exemption for trade unions. We made the point in Committee and on the Floor of the House that trade unions should be treated differently from other organisations, because they are already regulated by the certification officer and double regulation is not helpful. I also welcome the change of heart of the TUC, which initially was painting me and my hon. Friend the Member for Bassetlaw as the devil incarnate for suggesting that we should focus on the fact that some trade unions would not abide by the tough standards that the Minister wanted.
John Mann: My hon. Friend has got it slightly wrong, technically. It was not the TUC, but solicitors residing in the TUC building.
Mr. Jones: I thank my hon. Friend for that clarification. The TUCs change of heart is welcome. If it operates with a robust code of conduct and is prepared to challenge the unions that are guilty of bad practice or abuse of their members, that would be a good way forward.
One issue that I would like to raise with the Minister concerns not only how trade unions operate now, but past practices. Along with my hon. Friend the Member for Bassetlaw, I have raised the issue of the position of the Durham Miners Association with the regulator. My point relates to article 10, Independent trade unions, the idea of retired members, and the idea of a member. As the Minister well knowsI also raised this issue on the Floor of the Housethe Durham Miners Association now claims 15,500 members with the certification officer, the bulk of whom
About 6,000 members of the Durham Miners Association are women. The reason being put forward for the figures is that some members are associate members, who have no rights under trade union legislation. Associate members cannot complain to a
Rob Marris: It is a worrying situation because, as far as I know, women were banned from working underground in British mines, though not American mines. Would the situation he is describing not be covered by article 10(3)(b) of the order, which defines what a member is? The article specifically excludes someone who
is a member only for the purpose of pursuing a claim.
Mr. Jones: I am happy for that clarification, and I cannot say that there were not female members of the NUM but, as my hon. Friend the Member for Bolsover will be aware, there were very few. There may have been somethose who worked in canteens and so onbut there were not 6,000. In raising his point, my hon. Friend the Member for Wolverhampton, South-West, did not clarify the position vis-Ã -vis the certification officer, who accepts people as bona fide members of a trade union. That is the problem. I have raised the issue with the regulator and have made him aware of the situation.
Will the Minister tell us whether we could look at the past practices of trade unions when considering whether they should be exempt? The Durham Miners Association is continuing to accept the £20 a yearfrom people, and is now basically a claims-handling company, although it is a registered trade union. It has taken some £5.5 million into its coffers in the past three years, and because of the pressure that I and other hon. Members have applied, has now started to pay money back to people who demand it. Hopefully, with the helpful intervention of their solicitors, Thompsons, we may get a situation in which people who complain will get their money back. Clearly, although it is registered as such, the Durham NUM is not a trade union: it is a claims handling organisation that does nothing but deal with claims. Therefore, I ask that in looking at whether that organisation or others come under the remit of the order and are exempted, their past practice and current practices are looked into.
I am happy with the order. However, I hope that when the order gets teeth and the regulator gets into certain organisations, we see the banishing from the high street of the cowboys who, frankly, have wreaked havoc, preyed on victims, including in my constituency, and stolen thousands of pounds from people by doing nothing more than filling in a form and passing it on to a firm of solicitors.
I am grateful to the Minister for the way in which she introduced the order. She will remember that during the passage of the 2006 Act, we on the Opposition Benches were keen for both Houses to debate the order, so that there was no risk that the measures went through without the opportunity for discussion. That was honoured, the Bill was amended, and we are here today to debate the order.
Like the hon. Member for North Durham, I too am given to reflect on the slightly changed tone of Conservative Members. I do not know what Christmas and new year have done to them, but there has clearly been some tactical consideration and they have to be nice to trade unions now. We will see how that manifests itself. Clearly, it is a change of tactic, and has come from a slightly surprising quarter, but there we arethe hon. Member for North-West Norfolk is to be commended. I thought that the hon. Member for North-East Hertfordshire (Mr. Heald), who spoke on this issue in debates on the 2006 Act, was generally regarded as a relatively gentle and moderate member of the Tory party. If he is now regarded as relatively hard line, goodness knows where we may end up.
I have a couple of points in addition to those that I raised in interventions on the Minister. The first is that on the substantive issuethe trade union debatethe draft code of practice is well written and clear. It deals with most of the matters that we were worried about. It seems that every trade union member will be told what the code of practice says and know what the relationship is between a union and a company. They will know the financial arrangement and they, or anybody on their behalf, will be able to examine any paperwork. There will also be a complaints service, which is exactly as it should be.
I have one question on the code of practice. The previous Committee took the view that the best way to deal with exemptions was to have a blanket exemption and monitor whether people are complying with it. What do Ministers, and the person who is to take over the regulatory function for the time being, envisage as being the frequency and method of monitoring? The matter needs to be kept alive not just by regulation coming into force but with a good monitoring system to ensure that people do not have the chance to exploit the system as they did in the past.
Linked to that matter is a second point that the Minister did not specifically address. One abuse that we all want to avoid is somebody being signed up for a day to get the benefit of the service. People should sign up to a trade union because it is good to join a trade union with all its benefits. We want to prevent people from being signed up by either a bona fide trade union or a slightly less conventional one simply to get this benefit. The hon. Member for North Durham mentioned an abuse whereby people who do not expect to be coveredthe extended family, as it weresuddenly find themselves brought into the loop. The hon. Member for Amber Valley intervened on that point. Will the Minister assure us that such a situation is not intended for the new system and that it will be for bona fide trade unionists who, as part of their membership, get the services, support and legal advice that they would expect from the relationship?
I remind the Minister of my point about the self-help organisations, mutuals and so on. It will be helpful if she responds to it. In my constituency there is an organisation called the Hospital Saturday Fund, in which people can place money for later help, if they need it, with health or social security care. It is well established, having been going on for years, and it makes grants. It is based just over the Southwark border by the Oxo tower in SE1. Such organisations might decide that they want to offer the extended
Two final points: the hon. Member for Amber Valley will remember having a debate about people who have a small value of relevant business. The Minister rightly said that the order contains a provision for such people. Article 12 sets out that certain providers of referrals will be exempt, stating:
Section 4(1) of the Act does not prevent the provision of the regulated claims management service of referring details of potential claims or potential claimants to another person if...of the cases that the introducer refers to such persons, he is paid, in money or moneys worth, for no more than 25 cases per calendar quarter.
That seems difficult to monitor and regulate. How will anybody know about it? We will have either a bureaucratic procedure for a small amount of business or a system that will not work. I am not against the idea that people for whom it is not the primary business, but who do a small bit of the business, are exempted, but it could be a little difficult.
The link that has not been dealt with specifically was made during the proceedings of the Bill by my hon. Friend the Member for Montgomeryshire (Lembit Öpik) about someone with a small cash turnover per year. He cited a constituent whose business had a turnover of under £5,000. Given that the matter is defined by the number of cases per quarter, not cash, can a person whose business claims to have a turnover of £500,000 per year or £250,000 per year, but who literally has less than £5,000-worth of business a year of that type, make sure that he is not caught either accidentally or with a bureaucratic implication?
As for the point made by the hon. Member for North-West Norfolk on which the hon. Memberfor Banbury intervened, I share the Ministers understanding in that the position of the FSA is not that of double regulation and that the APIL is not correct in its assertion that it is. It seems that there are two types of activity: one that is regulated in one way, and another that is regulated in another way. We do not want double regulation, but that will not be the result of the provision. I welcome the order on behalf of my colleagues, particularly the code of conduct. It seems to be a good one.
Mr. Bellingham: I think that APIL was saying that the FSA does not publish its findings as it does not consider itself to be an effective regulatory body. It considered that all the exemption that was given in such matters should be taken over by the claims regulator. That was the point that my hon. Friend the Member for Banbury was making.
Simon Hughes: If that is the case, it seems a reasonable point. It prompts my last question to the Minister. We had a productive exchange when we were discussing matters in Committee about the fact that the arrangement seemed to be temporary with a civil servant acting as the regulator until the Legal Services Bill finishes its proceedings through Parliament, in which case it is envisaged that the person who is the regulator under the Legal Service Act, as it will then
John Mann: I am delighted that the TUC has issued a statement that identically matches what I have been arguing for over the past two years. I hope that the solicitors who did a private TUC briefing that I attended two years ago and who attacked what they quoted as the ill-informed remarks of certain Members of the House of Commons will do the decent thing and say that those remarks at the time were not ill-informed, but were precisely to the point, and on the point. One thing will emerge from this surprising all-party consensus that is particularly important for working people in this country. The unions will be able to recruit and advise their members that, if they go through their union in respect of industrial injury or industrial disease, they will receive a fair and accountable service. However, those who for whatever reason do not do that, will now have the backing of regulation to minimise the worst excesses of those who may choose to rip them off.
I wish to illustrate what I mean. The members of KFAT were persuaded by adverts by a claims handler called Vendside, a wholly owned subsidiary of the Union of Democratic Mineworkers, Nottingham section, to take their claims through that organisation and were then charged large amounts. In most villages in the north midlands, there was a pit and a textile factory. There are two kinds of case. In the first, a union member takes a case in her name for a deceased miner husband or father as she is entitled to, but succumbs to the lure of Vendside adverts or direct mailings, which seem to be highly precise in targeting which doors to knock on, however they get the names and addresses. She then finds herself paying undue amounts to that organisation, often even though her late husband was an active NUM member and would never have considered joining UDM. The case of Mrs. Moorhouse, one of my constituents, comes to mind. Such people feel a particular grievance. I am also thinking of cases such as that of Mrs. Zubic, another of my constituents, who was in precisely the same situation with her late fathers mining claim but also had a textile claim for industrial deafness and went through Vendside.
I am pleased to tell the Minister and the House that the Law Society has made a landmark ruling today on a miners hearing loss claim made through Vendside and its solicitors. The miner has been awarded £3,500 compensation because of how misleadingly the funding was handled. It was not one of the standard cases that received all the publicity; it dealt with hearing loss. Although each case is dealt with entirely on its own merits, it suggests what others and I have been arguingthat tens of thousands of textile workers,
The point in the context of the order is that members of that union are members for life. Its rule book says, rather unusually for a trade union, that they have access to the unions legal services for life. Therefore, all those women could have taken their cases through their own union and had its full protection. They would not have been ripped off. It is therefore a fantastic opportunity for unionsin this case Community, which is part of the merged KFATto advertise to the outside world that members should stick with and proceed through their unions.
That is precisely why the arguments put formally and informally by Thompsons and others that we were being misleading were wrong. We are promoting the rights and the whole point of trade unions. I am delighted that we have cross-party consensus on the matter, because the TUC can now demonstrate that all Parliament is sending a message that joining a union and sticking with it in any industrial issue, rather than going to a claims handler, is the sensible way to proceed.
Judy Mallaber: Does my hon. Friend remember one of my constituents, whom I brought to a meeting in his constituency at the start of the process? The meeting was attended by the Lord Chancellor, and we heard from textiles workers. My constituent had been a member of the UDM but was enticed to go via Vendside and was then charged because, he was told, he was no longer a member of the UDM, as he was retired and had not been given the KFAT members benefits of membership for life. He was charged even though he had been a UDM member and could have taken his claim through another solicitor without being charged.
John Mann: My hon. Friend is absolutely right. What is happening this yearnot last year, the year before or five years ago but this yearis that Vendside/UDM is going out to carpet workers in the west midlands to try to take cases forward. The sooner the regulation is enforced to ensure that such scurrilous attempts to take people in the wrong direction by a claims handler for the lure of short-term gain, the better. Of course, there are those who cannot use the Law Society and require the protection of regulators and regulation. Given their historic relationship with the trade union movement, the decent and appropriate thing would be for Thompsons solicitors to indemnify the costs to allow us to take a civil case against the UDM/Vendside to get back all the money that they have taken from miners and textile workers. We could then isolate that union, get justice by getting the money back and ensure that they get the publicity that they deserve through the mouths of those who wish to take them on. Very many miners and textile workers in my constituency and beyond are queuing up for justiceon that.
I have one more point. It is important; I have seen correspondence between the certification officer and Unison about a trade union formed by the British National party or some offshoot of it. The Minister may not be able to give verbal clarification now on what discussions she has had with the TUC and the regulator about a political party such as the BNP setting up a trade union, although she may recall that in previous debates or private discussions that I have had with her, I have pointed out that the BNP, as if it had been a claims handler, attempted specifically to recruit former ceramic union workers to take forward industrial disease claims, clearly to recruit into the party, make money and give that racist and fascist organisation some credibility.
Mr. Robert Flello (Stoke-on-Trent, South) (Lab): On that point, the BNP is currently putting out leaflets in Stoke-on-Trent suggesting that former ceramic workers should get involved with it to take forward that exact matter.
John Mann: That confirms my worst fears on how political parties of whatever kindbut in this case, one that none of us in this room would have any truck withcan abuse peoples genuine complaints about employer practices. I trust that the Minister will take a look at the precise issue and discuss it with the TUC. It appears from correspondence that I have seen that the certification officer will recognise the trade union as bona fide. I have not had the chance to get into any deliberation or correspondence with the certification officer, but that inaccurate decision does not have all the facts that my hon. Friend, others and I can provide.
Even though what I am talking about is absolutely on the margins, the margins can, as we have seen from the UDM/Vendside issue, mushroom when a large number of people have a genuine grievance and are looking for a remedy. If such people see a professionally written advert in a newspaperfrom an organisation called Vendside that no one had heard of beforeor receive a knock on the door from someone promising all things for no risk or get a telephone call or letter, they will be tempted to get the justice that they deserve through that route.
I repeat my call: here is an opportunity for the trade unions to demonstrate their value to the community. I hope that we will see a major advertising campaign, led by the TUC across all our communities, advertising the traditional values in a modern setting involved in joining a trade union.
Judy Mallaber (Amber Valley) (Lab): I, too, am delighted at the regulations and the Compensation Act 2006. There has been a lot of talk about bad practice. I should register my interest as co-convenor of the Unison Members of Parliament.
One of the great benefits of a trade union is precisely the personal injury claims and the protection given against industrial injuries. For example, nurses and other hospital workers who have made claims for back problems have suffered for many years. Without the benefit of their union to assist them, they would not be in a position to make those claims, so we should put on
I was pleased to be at a meeting in the constituency of my hon. Friend the Member for Bassetlaw at an early stage in the process of this legislation. My hon. Friend the Member for Sherwood (Paddy Tipping) and I took along some of our constituents to show some of the bad practices by those who had been former UDM members and those whom Vendside was seeking to entice into their network to make money. There have not been quite so many bad cases in my area as there have been in the Nottinghamshire coalfields.
The organisations that have done most to get people involved in making claims for former miners areamong those that I hope will be exempted under the not-for-profit provisions, particularly those associated with the Derbyshire unemployed workers centre, such as the trades council and the health and safety committees. The Derbyshire asbestos support team has given back-up to promote compensation claims on behalf of constituents of mine who are suffering from mesothelioma, which are also covered in the Compensation Act 2006.
It is important that those organisations are exempted under the order. They have done wonderful work in taking the initiative in setting up testing centres in Derbyshire, so that people could establish whether they had a claim that they might pursue further. They are in sharp contrast to the poisonous organisations that have come along at the end of the process, advertising on television that they would take up claims and sending out leaflets. My neighbour came to see me and said, What should I do? I have had people on the phone, wanting to come round and see me, putting leaflets through the door asking me whether I am related to anybody who has ever worked down the pit. They were not asking people whether they had suffered as a miner who was struggling with diseased lungs and hands that would not work, or as a widow who was struggling without money because she had lost her husband to a painful, horrible disease that had lasted for many years. Those organisations have come along at the end of the process, when all the hard work has been done, to sweep up the pickings that are left from people whom they can get in their grasp.
The order and the code of practice are well drafted to make the distinction between unscrupulous claims handlers and those organisations, both trade unions and not-for profit organisations, that have played a role in giving great assistance to those of our constituents who have suffered from personal injury and continue to do so. I commend the order and applaud the work done by the Minister and others in bringing it before the Committee.
Rob Marris: What a pleasure it is to appear before you, Mrs. Dean. I declare a registered interest: my constituency Labour party receives donations from
When responding to remarks about the FSA, the Minister said that no organisation would be regulated twice. I am not sure that that is consistent, because legal practitioners such as myself are qualified solicitorsI have not practised since I entered this place because I do not believe in moonlightingand are regulated by the Law Society. They may also be regulated indirectly under these provisions. Similarly, trade unions are regulated as trade unions and through provisions of this kind.
It is right that there is great support in the union movement for the trade union code of practice, as has been adverted to today. Indeed, paragraph 19 of the consultation document that was published last November says:
There was unanimous support from respondents to the principles in the Code of Practice.
That is absolutely right. The Government are to be congratulated on that listening exercise. It is not the code of practice that is the problem, but the other half of the equation, to which remarks have been addressed in this Committee, regarding the FSA.
Part of the problem concerns the issue of alternative funding mechanisms for those who might be engaged in a claim. Paragraph 2.4 of the code of conduct that the trade unions published on 28 November says:
In advising a member in any case where fees are payable by the member in respect of the claim, a Trade Union should ensure alternative methods of funding a claim are considered.
Paragraph 13 of the Law Society rules saysthis is a partial quotationthat
it is important that all the options available to the client for financing the proceedings should be explained and discussed, including the availability of legal aid.
The issue is a legal minefield, because of the litigation following the introduction of conditional agreements, with which my hon. Friend the Minister will be familiar, and the cases of Myatt and Garrett in the House of Lords, which relate to the inquiries that solicitors must make about pre-existing legal expenses insurance, and so on. Yet claims handlers and insurance companies would not be regulated as tightly under the regulations as the trade unions would,which seems unfortunate, particularly for a Labour Government.
I shall not be exhaustive, but I have an awful lot of examples with me. I have a letter from a Ms S. M., who works as a senior personal injury file handler at a major insurance company, and who unfortunately had an accident. She made contact with the insurers of the third party causing the accidentthis relates to the third party capture that we have discussedwhich was Direct Line. Direct Line got a medical report, sent it to Ms S. M. and offered £1,900. She then realised from her professional background that she was perhaps
I have a printout of claims in which the individual was initially not legally represented and dealt directly with the insurance company for the tortfeasor. One of two examplesthey are extreme examples, but extreme examples can make a pointis that of a Ms C. B. The amount first offered to settle her claim was £5,000. At that point she realised that she might need legal advice, and ended up receiving £150,000, which is a 30-fold increase. Ms L. M., whose initial offer was £4,000, ended up receiving £165,000. That is not just insurance companies getting it slightly wrong, because the quantum that would be awarded by a court is more of an art than a science. When they get it wrong by 30 or 40 times, that suggests that something is very wrong.
Similarly, I have a letterI do not know the name of the claimant to whom it refers, because it has been blacked out in the document that the trade unions passed to mefrom Sainsburys bank. Sainsburys bank, writing to an individual who had had an accident to say that it was insurers from the tortfeasor, stated:
Whilst we are aware that there are various agencies that would be prepared to arrange the above for you,
the above referring to obtaining medical reports and so on
there are numerous benefits in allowing our trained staff to process your claim.
Mr. Kevan Jones: Does my hon. Friend agree that a murky area also exists, whereby organisations suchas the AA and others pass on claims to insurance companies, and a fee is paid by the insurance companies to those organisations, sometimes adding up to several thousand pounds and possibly leading to a restriction on the right of the individual to choose his or her solicitor dealing with that claim?
Rob Marris: I agree with my hon. Friend . There is a problem with referral fees. About 18 months ago the Law Society of England and Wales, of which I remain a member, allowed referral fees. I think that that is a big mistake, although the Law Society is reviewing the decision, and I hope that it will get rid of them.
To continue my point about Sainsburys bank, the letter started:
Our customer has contacted us
to advise us that they were involved in an accident with you
the recipient of the letter. Sainsburys was saying to someone, We hear youve had an accident, because our insurer told us, and heres the deal well do for you. I say to my hon. Friend the Minister that thatis morally questionable. I am not suggesting that Sainsburys bank has done anything illegal, but it is disturbing in the context of the points that have been made on third-party capture. It disturbs me particularly because the bottom of the letter states:
Insurance is arranged and administered by esure Services Limited...Both Sainsburys Bank and esure Services Limited are authorised and regulated by the Financial Services Authority.
Sainsburys bank, a large and reputable company, appears to be engaging in rather questionable practices through some of its staff. Questions should be asked by the FSA. The letter was written in June 2006 and the
Simon Hughes: I am very sympathetic to the point that the hon. Gentleman makes, but I do not know whether there is a duty to tell somebody who is written to, although it is self-evident to us, that if they say yes to the offer they will be represented by the same organisation as the other side. That would hardly be a recipe for independent negotiation and agreement. I am not sure whether other organisations such as the AA, of which I am a memberI do not wish to mispresent any organisationspecifically tell people who join or rejoin what arrangement there is, if any, between itself and an organisation whose staff it does not directly employ. Does he agree that they should?
Rob Marris: I do agree. To be fair to Sainsburys bank, the letter is clearly worded in saying that the bank is acting for the other side. Alternative funding arrangements should also be made clear, and I suspect that they are not always. People are simply told, Someone else might be able to pay for it. They might be considering making a claim for the first time: that is often the case whether they are in a trade union or have had a car accident.
There should be a checklist asking a victim whether they are a member of a trade unionunion schemes often cover car accidentswhether their husband or wife is, whether they have household insurance that might cover an accident and whether their own solicitor who did the conveyancing will make a conditional fee agreement. That would sketch the possibilities so that a victim could say, Yes, actually, my wife is a member of a trade union. Perhaps I had better see whether it will cover the claim rather than having an audit for a fee, however transparent that fee might be. It is about raising the matter of alternative funding arrangements and pointing the victimthe client or prospective clientin that direction.
There is a potential conflict of interest in third-party capture which, despite the case of the Durham Miners Association, there is not for most trade unions, particularly those who are outstanding members of the TUC and follow its code of conduct. The conflict of interest is this: the trade unions should not have any interest other than representing their memberor relative of their member, if a scheme covers themand getting them a good settlement through reputable solicitors. The third-party capture insurers, who might be negotiating directly with the victim on behalf of the tortfeaserthe wrongdoertherefore have a conflict of interest. It is in their interests to settle claims such as Ms C. B.s claim in the example that I gave for £5,000 instead of £150,000.
The regulations contain a provision that the trade unions have signed up to through the TUC. The code of practice is understandable: I have read it, and it is good. However, under article 5, regulation will not be as onerous on organisations with a pecuniary interest in under-settling. Trade unions should not and, in my experience, do not have such a pecuniary interest. Regulation of that part of the industryif I can call it thatwill be subject to less onerous regulation, but often it is big business and needs more regulation.
I think that the Minister should have another think. There is an unfortunate conflict of interest. I do not expect her to withdraw the order, but I ask that she keep a close eye on what the FSA is doing to ensure that those that it regulates under third-party capture are not getting away with murder.
Mr. Skinner: I am prompted to speak by a couple of things said in the last three or four contributions.
I mentioned earlier that beat knee cases are pending from miners who worked in very low places and were often subject to serious knee injuriesin the old days, we called that beat knee. The problem today is not that there are a lot of claims here, there and everywhere, but that in 1998 a surfeit of claims emerged from the Manchester court for COPD and subsequently white finger. The net result was that the Government took on board the task of paying all the claims because there was no Coal Board left and the industry had been privatised by the Tories.
I compare that with the fact that, in 1975, the then Labour Government did not get involved in claims handling. When the pneumoconiosis settlement had to be made, the unions were intact because they had members. Unfortunately, some of them have not got members now, but they are still trade unions in my eyecertainly as far as Durham is concerned. Yes, the members were taken away by Thatcher and the rest of them.
We had a scheme that was not based on the individual claim. The net result was that within 12 months every miner suffering from pneumoconiosis over and above a certain degree according to a sliding scale had got their money. It was rough and ready, but there were no fly-by-night solicitors. The union solicitors in the 15 regions reached an agreement between themselves, together with NACODS, which had not yet been split up. The result was that the issue was dealt with.
The problem began when the claim handlers arose out of the COPD and white finger cases. They might have emerged in another way, but I am pretty sure that that was part of it. So I ask the Minister to lookback at the pneumoconiosis scheme in 1975-76. Ifthe Government can make a decision collectively in judgments, a lot of people will be happier, all these fly-by-night people will not be making money on the side and people will get paid more quickly. The pneumoconiosis settlement was the way to do it and it is a pity that we could not convince Justice Turner that it was the way to do the others.
Bridget Prentice: That was a significant contribution to a very useful debate from my hon. Friend the Member for Bolsover. We need to take on board his points and the Government must look to how we will deal with such matters in the future by learning the lessons of the past.
I shall try quickly to answer some of the points raised by hon. Members. If I should miss any, I shall write to all Committee members with my responses. I can only apologise to the hon. Member for North-West Norfolk for the errors in the original order. They were human errors that the Joint Committee properly picked up on while, as the hon. Gentleman said, doing its job correctly. They have been corrected.
My hon. Friend the Member for Bassetlaw referred to the BNP. I take very seriously any allegations that the BNP, or indeed any other political party, might be soliciting people for claims. I shall take up with the TUC and with the certification officer what my hon. Friend said, discuss the serious issues that he raises and determine whether action needs to be taken using trade union rules or otherwise to deal with the problem.
The hon. Member for North-West Norfolk also referred to insurance brokers. They take a significant amount of referrals for uninsured loss due to personal injury, and they can earn a significant sum: £600 and more for each case referred. They, just as much as claims-handling companies, can traffic low-value personal injury litigation, and they might refer exaggerated cases. The necessary way to regulate them is to apply the standards in the Act. It is tailored to that purpose.
Mr. Bellingham: I was not suggesting lighter-touch regulation; I was suggesting that because the FSA regulates 96 to 97 per cent. of insurance brokers activities, it could regulate the other 3 to 4 per cent. That was my point. Perhaps the Minister will write to me rather than reply in detail now.
Bridget Prentice: I am grateful to the hon. Gentleman for that. I shall write to him in detail, and I understand his point. We work very closely with the FSA on all such issues. We are using its model in the legislation before us and, through the legal services board, in the Legal Services Bill, which is being debated in the other place as we speak. There are parallels.
Several hon. Friends and the hon. Member for North Southwark and Bermondsey raised the issue of trade union membership. We do not want to restrict access to trade unions services so that widows and long-term sick are excluded from the benefit of representation. At the same time, however, we do not want to create any loopholes, such as those mentioned by my hon. Friend the Member for Amber Valley.
The exemption has been expanded to clarify that it applies to members, former members and those members families. We have also made it clear that the definition of member is in accordance with individual trade union rules. A person cannot become a member of a trade union simply to make a personal injury claim. I think the hon. Member for North Southwark and Bermondsey made that point.
The hon. Gentleman, and my hon. Friends the Members for Amber Valley and for Bassetlaw made points about people providing services without financial gain. Section 4(4) of the Act specifically excludes from the need to seek authorisation people providing a regulated management service if they do so voluntarily and do not receive any fee or financial reward.
The hon. Member for North Southwark and Bermondsey also mentioned the timing of the transfer to the LSB. Again, the Legal Services Bill is being debated as we speak. It contains the amendments necessary to transfer the Compensation Act 2006 to the Legal Services Act, as we hope it will become. That will depend on parliamentary time, but we hope that the LSB will be established by 2010 and that the office for legal complaints will be established by 2011. Obviously, work will be done in the meantime to deal with the issue.
The hon. Gentleman also asked about monitoring and compliance. We have established an exemptions monitoring board to consider the operation of all exemptions, and particularly the trade union exemption, in compliance with the code of practice. It is intended that the board will meet every two months to review progress and take up any issues that people have raised with it, although it can meet more often if it feels that that would be appropriate.
My hon. Friends the Members for North Durham and for Wolverhampton, South-West mentioned referrals for a fee. A person authorised under the Act will be required under the conduct rules to inform any clients if they are paying a fee to another person for the referral of the claim.
My hon. Friend the Member for Wolverhampton, South-West also mentioned the regulation of insurers. I am aware of the allegations about some insurers under-settling many personal injury claims, and the examples to which he referred are known to us. Indeed, they were discussed only last week with the FSA, the Law Society, APIL, the Motor Accident Solicitors Society and the TUC, so the issue is very much on the front burner as far as we are concerned. The FSA has confirmed that it will consider all the evidence that is put before it and will decide whether any additional rules are needed to deal with any problems that the Act identifies. I hope that that gives my hon. Friend considerable reassurance.
It has been an interesting debate, and I will want to reflect further on a number of important issues and, where appropriate, expand on them to members of the Committee. As my hon. Friend the Member for Amber Valley said, trade unions play an important role in serving their members interests, particularly on legal issues, and it is important to put that on record. The order will help to ensure that regulation under the Compensation Act 2006 is proportionate and targets commercial claims management without imposing unnecessary burdens on small businesses, trade unions and other not-for-profit organisations. That is consistent with the commitments that we gave during the passage of the Act. As the hon. Member for North Southwark and Bermondsey said, we also gave a commitment to have this very debate, and it has been very fruitful and useful one. On that basis, I commend the order to the Committee.
Question put and agreed to
That the Committee has considered the draft Compensation (Exemptions) Order 2006.
Committee rose at two minutes to Six oclock.
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