Examination of Witnesses (Questions 1-19)
DEPARTMENT FOR
BUSINESS, ENTERPRISE
AND REGULATORY
REFORM
22 OCTOBER 2007
Q1 Chairman: Good afternoon and welcome
to this sitting of the Public Accounts Committee, where today
we are considering the Comptroller and Auditor General's Report,
Coal health compensation schemes. We welcome back Sir Brian
Bender, the Permanent Secretary at the Department for Business,
Enterprise and Regulatory Reform. Sir Brian, will you introduce
your colleagues, please?
Sir Brian Bender: Yes. On
my left is Mr Ian McKenzie, who is director of the unit that deals
with the coal health schemes, and on my right is Mr Mark Jones,
who is an assistant director in that unit.
Q2 Chairman: The scheme was initiated
as a result of court actions that were decided against the Government
more than 10 years ago. Why have some men had to wait 10 years
for the compensation due to them? For some of them, the compensation
will be too late altogether.
Sir Brian Bender: May I begin
by apologising to former miners and their families for the fact
that many claimants have had to wait such a long time? A variety
of factors have caused the delay. First, there has been a high
volume of claims. Secondly, there was a significant surge within
a short time scale, particularly before the cut-off date for the
chronic obstructive pulmonary disease (COPD) scheme . The National
Audit Office Report refers to that. In addition, the involvement
of co-defendants and various policy issues needed resolving. A
series of issues has complicated matters, therefore.
We have approached the Association of British
Insurers, which says that, from research that it has undertaken,
it currently takes approximately 1,000 days to process and close
a compensation claim for injury in the workplace. We have taken
action to resolve claims. We have given priority to living miners
and widows. We introduced the fast-track process, as the Report
says, and we have identified ways of resolving bottlenecks. [1]
Q3 Chairman: All right, but if you
do not mind me saying so, Sir Brian, that is not a good enough
answer. You could surely have foreseen quite a lot of the problems
at the start and more thorough planning could have been undertaken
then. Is that not a fact? Paragraph 2.13 of the Report says that
you employed only three officials at the beginning. At the height
of the work, when you were clearly overwhelmed, you had 45 officials.
There are many things that you have mentioned that, had you thought
them through at the start—and if there had been sufficient
numbers of officials rather than three—might have been put
right.
For instance, you estimated 10 years ago
that compensation would cost the taxpayer £614,000,000, whereas
in fact it has cost £4.1 billion—that was a staggering
underestimate. Many people looking at the source of the problem
would reckon that it would be fairly easy to identify how many
miners or ex-miners might claim, and what might be the broad problems.
They might well ask themselves how on earth you got it so wrong
at the beginning, why you had so few officials, and why you were
so incapable of predicting the likely problems.
Sir Brian Bender: Again,
there are two parts to that, Chairman. First, I fully accept that
there are powerful lessons in terms of the initial resourcing
and, as the Report indicates, further resources were made available.
Secondly, I take issue with those who say that we could have got
it right. The Trade and Industry Select Committee said in its
report of three or so years ago, "It is not clear from the
evidence submitted to us how the DTI, with or without the input
from other interested parties, could have been expected to gauge
the demand for the ... schemes". It is easy to look back
and say that we should have done better and that we certainly
should have resourced better—I fully accept that—but
to have estimated it accurately was a huge ask.
Q4 Chairman: Okay, we shall go into
some of the details of how this has been run in a moment, and
other colleagues can come in. However, I think that I had better
ask you straight away: what can you now say to reassure claimants
that they will get their money very quickly?
Sir Brian Bender: We are
working on the completion of the schemes. The Report refers to
that, and the letter that I sent on Friday two weeks ago updates
that in some respects. [2]Having
set up the fast-track scheme and having prioritised, as I have
said, we now have set up target dates—aspirational end dates—for
the closure of the schemes. That for vibration white finger (VWF)
was originally set 18 months ago with a target of 300 claims left
for about the end of this month. We will not achieve that, but
we hope to be in a better place by next March. The COPD scheme
is broadly on track for the target of 500 outstanding claims by
February 2009. We are working hard to complete that, resolve the
outstanding issues, and do the right thing.
Q5 Chairman: And so if we were to
summon you back in a year's time, everything would be paid up
by then, would it?
Sir Brian Bender: No, Chairman.
I think that we will have made considerable progress, but as I
said, for the COPD scheme, the aspirational end date was 500 outstanding
claims by February 2009. We are broadly on track for that. Some
cases will depend on the resolution of outstanding issues, either
through negotiation or in the courts.
Q6 Chairman: Now, if we look at
paragraphs 5 and 12, looking at what your administration costs
and what it has meant for the miners, we read that at the end
of the schemes, for every £2 paid in compensation, more than
£1 will have gone on administration—presumably that
is a figure that you accept. In the case of COPD, 69% of claimants
received less in compensation than what the scheme cost to administer.
How can you possible justify that?
Sir Brian Bender: Can I begin
by explaining, rather than justifying, the key reason for the
high level of costs? The Department considered it impractical
to extinguish common-law rights, so the scheme was set up to ensure
that claimants get the level of compensation to which they might
reasonably have been entitled if they had pursued their claim
under common law. That has necessarily led to complicated processes.
We were one party to a negotiated settlement, and were not in
a position to control or reduce costs in the normal way. Again,
that is something that Mr Boys Smith identified in his report.
For comparative information, the Association
of British Insurers (ABI) has done some research that shows that
for every £1 that is paid in compensation, over 40p is paid
in legal and other costs. So, it is a complicated scheme, and
that is the consequence. It is not something that I am proud of,
but it is the consequence of the necessary complexity.
Q7 Chairman: If, for example, we
look at figure 10 on page 24, we can see practical examples of
the assessments by senior cost judges of what should be paid to
solicitors, and what they have actually come out with. One must
ask the question of whether the only people who seem to have done
well out of this are lawyers. Is that a fair criticism?
Sir Brian Bender: They have
done well out of it, Chairman. As more information has become
available, we have sought to negotiate down the costs, as a result
of which we had a favourable court ruling in April this year,
which will seek to recover over £80 million from lawyers,
plus £20 million savings, in cases that have not yet been
settled for COPD.
Q8 Chairman: This is out of the £295
million in fees that you overpaid to solicitors, is it?
Sir Brian Bender: Can I just
say on the £295 million—although the NAO can speak
for itself—that that is a calculation that I believe was
made in hindsight, based on knowledge available in 2007. At the
time, that was not known; we were negotiating in the difficult
circumstances that I described earlier. We are now in the process
of either not paying or recovering £102 million on chronic
obstructive pulmonary disease and £20 million on vibration
white finger. Therefore, we are recouping, or not paying, significant
sums of money.
Q9 Chairman: Halfway through the
saga, did you not introduce a fast-track scheme?
Sir Brian Bender: Yes.
Q10 Chairman: I congratulate you
on that. However, that begs the question: as the scheme has been
so successful, why did you not introduce it from the start?
Sir Brian Bender: We did
try. At the beginning, in 1999, we had an expedited tariff in
the original claims handling agreement. If certain employment
criteria were met and a certain spirometry reading was recorded,
there was a fixed tariff. Only 24,000 claims were paid that way
by the end of March 2004. The lesson is that such a scheme is
successful only if there is sufficient knowledge to develop a
tariff that both parties consider robust. Shortly before 2004,
when we discovered the scale of the COPD claims—nearly half
of them, or 294,000, were received in the six months before cut-off—we
worked hard to introduce the fast track, and we did that by February
2005. To have done it earlier would have raised questions about
our knowledge and setting it at the right level. As I said, when
we tried to do something at the beginning, we got very little
take-up.
Chairman: Thank you.
Q11 Mr Touhig: Some £50 million
has been paid out in compensation to nearly 10,000 of my constituents
for chronic obstructive pulmonary disease and vibration white
finger, and I am very pleased about that. It is a good scheme
and it delivers justice to miners and their families. However,
together, you and the solicitors have come pretty close to destroying
public confidence in the scheme. You have done that, have you
not?
Sir Brian Bender: Well, it
is really important when you set up such a scheme—and this
is one of the lessons for us—to try to manage claimants'
expectations about time scale, size of compensation, and service
standards. We have tried to communicate as effectively as we can,
including through Ministers and Members of Parliament, but it
is a really difficult issue.
Q12 Mr Touhig: I had over 500 live
cases in my constituency. I take the point that you made in your
apology right at the beginning that many people who made legitimate
claims are not alive today to see the benefits. You and the solicitors
created this scheme. I remember all the discussions going on for
a year or so before the agreement was signed. You created this
scheme, which the Report says was complex and contributed to the
difficulty of clearing up the claims.
Sir Brian Bender: I have asked
the question, as is referred to in the National Audit Office Report,
about whether it would have been practicable to set up a statutory
scheme. The best answer that we can come up with after all this
time is that, once the judgment had been handed down, the court
was effectively seized of the matter and any scheme would have
had to give effect to the court judgment. Therefore, claimants
could have ignored it if it was not in their best interests. We
were dealing with a situation that was really difficult to get
right.
Q13 Mr Touhig: I appreciate that.
It is the biggest single compensation scheme in the history of
the world, and I appreciate the amount of work that has gone into
it. However, you made it immensely complex. The Report shows that
you allowed the costs to spiral out of control to the extent—and
the Chairman made this point at the beginning—that solicitors
were paid more than the people for whom they were acting.
Sir Brian Bender: I am not
sure whether that question is rhetorical or one that you would
like me to answer.
Mr Touhig: I would like you to answer
it.
Sir Brian Bender: I have
explained how that happened. The only way one could have prevented
it from happening would have been to set up at the outset the
sort of fast-track scheme that we introduced halfway through.
As I said to the Chairman, our earlier attempts to do that resulted
in very low take-up.
Q14 Mr Touhig: But you did not put
in the right number of staff at the beginning. There was a massive
underestimate. The figures about the numbers of claimants that
the British Coal Corporation gave you were way out, but there
was a health warning with them. In South Wales, there were at
least 250,000 potential claimants. The Department would not accept
that figure at the time. Now we see that about 69% of miners and
their widows have received less in compensation than it has cost
to administer the scheme. There must have been a warning light
somewhere. I know you told us how much the insurance industry
said it cost to administer the scheme, but some 70% of those who
got compensation received less than it cost to administer the
scheme.
Sir Brian Bender: I certainly
cannot—and would not try to—defend the size of resource
the Department put in at the beginning. There is a really powerful
lesson there, which is made in the NAO's recommendations, and
it is one that my Department and, I hope, those elsewhere in government,
take to heart. I would repeat, however, what I said earlier about
the Trade and Industry Select Committee, saying that it is not
clear how the Department could have been expected to gauge better
the demand for the schemes. Nonetheless, we should have resourced
this more at the original time.
Q15 Mr Touhig: The solicitors really
ran rings around you when they negotiated the fees. That is a
clear implication from the Report. Do you know what is the smallest
sum that you have paid out for compensation for chronic obstructive
pulmonary disease?
Ian McKenzie: I think it
is 59p, I seem to recall.
Q16 Mr Touhig: It says 50p here on
page 22 of the Report. Will you tell us the solicitor costs for
doing that claim?
Ian McKenzie: I am not familiar
with that particular claim, but they would probably be in the
realm of about £1,000 or more.
Q17 Mr Touhig: Could you write to
us specifically and tell us, with the Chairman's agreement, how
much you actually paid the solicitor for delivering a claimant
50p?
Ian McKenzie: If I can just
add that, in terms of explanation, the key factors that would
have contributed to that very low level of compensation, which
we fully recognise does not in any way meet the expectations that
the claimant probably set out with, relate to the issues of their
smoking history and length of period underground—all those
factors.[3]
Mr Touhig: What the judge said about
smoking, yes.
Ian McKenzie: So we were right
on that.
Q18 Mr Touhig: Why did it take you
so long to agree with the solicitors on a minimum payment? This
is it now, is it not—a £500 minimum payment? It took
you so long to agree it.
Ian McKenzie: Yes. I cannot
comment on the detail of the protracted negotiations because they
took place before I arrived in my current role, but I recognise
that the aspirations around achieving a minimum payment scheme
went on much longer than was ideal. I certainly think that the
catalyst for bringing that to an end was the agreement in Scotland
last year, which effectively focused attention on resolving that
issue. It was something that the Department was keen to see happening
effectively, but it was something that was really in the hands
of the solicitors to respond to.
Sir Brian Bender: Can I add
one comment on that? Again, this is brought out in the Report.
With hindsight, another thing that we should have done at the
beginning was to have review clauses on the solicitors' fees,
although it is fair to point out, again as the Report does, that
the original agreement had assumed a registration cut-off in 2001.
None the less, the absence of a review clause was a gap.
Q19 Mr Touhig: Absolutely. The Report
tells us that some solicitors whose costs you were meeting entirely
then added additional charges onto their clients' bills. Why did
you not step in and put a stop to that?
Sir Brian Bender: Well, we
have stepped in and it is now an issue that has been taken up
by the various lawyer bodies, and some money has been recouped
for that.
1 Clarification by witness: The statistics provided
were taken from a speech on Personal Injury Claims Process Reform
to the Personal Injury Assessment Board Discussion Forum on 2
November 2006 by Stephen Hadrill, Director General, ABI. To clarify
the exact statistic the ABI states it takes 1,000 days from an
injury in the workplace to the compensation being closed. Back
2
Ev 12-13 Back
3
Note by witness: Solicitor costs totalled £1,974 for
the claim of 50p. The claim proceeded through all of the Claims
Handling Agreement including Employment Verification and Medical
Assessment Process and the costs reflect that. The reason that
the compensation amount was so low is due to the claimant being
diagnosed only with Chronic Bronchitis following the medical assessment.
In addition the claimant only worked for 2 years underground after
1954 (the date of liability) and was a medium smoker for 19 years,
therefore the claimant had a very low recoverable proportion of
compensation of 0.01% and hence a such a low compensation amount. Back
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