Examination of Witnesses (Questions 60-79)
DEPARTMENT FOR
BUSINESS, ENTERPRISE
AND REGULATORY
REFORM
22 OCTOBER 2007
Q60 Mr Bacon: So KPMG did not think
of it, either.
The following items in the box on page
42 have a cross on the right-hand side: "Obtain an actuarial
estimation of population and costs, and an appraisal of the level
of uncertainty", and: "Obtain an actuarial assessment
on the expected phasing of claims". That is about involving
actuaries in compensation schemes. We have heard that some of
the people who might have benefited from this scheme are now dead.
One does not have to be an actuary to know that actuaries work
out how long people will live. Why was an actuarial assessment
not done?
Sir Brian Bender: An assessment
should have been done. I accept the NAO's view that it would have
helped, but I do not think that it would have been a silver bullet.
It would have shown a wide range of forecasts. As part of our
current contingency planning, we are looking at actuarial studies
of the potential scope of future claims, in the event that liability
is established in other areas.
We are talking about something that happened
quite a long time ago, in complicated circumstances. But I agree,
with hindsight, that an assessment should have been done, as the
NAO Report said.
Mr Bacon: I have run out of time.
Thank you.
Q61 Chairman: Paragraph 3.29 is about
other charges made to claimants by solicitors. Can you tell me
whether Beresfords in Doncaster, for instance, was one of the
firms of solicitors that charged additional fees to claimants?
Sir Brian Bender: Can we come
back to the Committee on that point?[7]
Q62 Chairman: Yes, you can. Consequent
on this line of questioning, I would like to have a note from
you—you will not be able to answer now—that lists
the 10 companies of solicitors that have taken the most out of
the scheme and how many partners they have. On the part of the
taxpayer, we should name and shame some of the solicitors who
have made a fortune—salaries of up to millions of pounds
a year—out of some of the most vulnerable people in society.[8]
Sir Brian Bender
indicated assent.
Q63 Mr Mitchell: I presume that at
the start you just accepted British Coal Corporation's assessment
of the numbers. Why were actuaries not enlisted at that stage,
so that you could have some check on them? The biggest explosion
seemed to be in the number of cases coming forward.
Sir Brian Bender: Actually,
the biggest explosion was when there was about to be a cut-off
in the COPD scheme. Nearly 300,000 came forward at that stage.
It was a few years later that the explosion happened.
Q64 Mr Mitchell: But the estimates
in March 1998 were 173,000 claims for pulmonary disease and 45,000
for white finger. The actual figures were 591,000 and 169,000.
They were three times higher.
Sir Brian Bender: It is a
matter of fact, as you implied by the way you asked the question,
that the Department relied primarily on British Coal's estimates.
It had the greater knowledge and expertise. They were gross underestimates,
and we should have challenged them—there is no doubt about
that.
Q65 Mr Mitchell: Yes. I want to know
why you did not challenge them.
Sir Brian Bender: Perhaps
one of my colleagues could answer. I think the answer is that
the Department believed at the time that British Coal knew their
people and the data.
Ian McKenzie: In terms of
the current experience but also going back to the experience at
the time, the evidence that I have seen when trying to deal with
the issues that the NAO has been studying is that there has been
a build-up of medical knowledge about some of the factors that
play into this. Going back to the Chairman's question about the
time scales for the introduction of the fast-track scheme, I think
that the Department was using actuarial evidence effectively from
the passage of 100,000 claims through the scheme, and learning
what was actually happening in respect of the medical evidence
that was coming out. There was internal learning through the scheme's
operation, and we were taking those lessons on board.
Q66 Mr Mitchell: Were either of the
unions involved in planning the scheme?
Ian McKenzie: There was very
close liaison, certainly with the co-ordinating group of solicitors
throughout the development—
Q67 Mr Mitchell: Was it the unions?
Was the UDM involved?
Ian McKenzie: Those solicitors
were in the main acting for the trade unions.
Q68 Mr Mitchell: Was any special
treatment given to the UDM? I see that it is No. 8 on the list
of claimants' representatives by income, but the NUM is not mentioned.
Why is that?
Ian McKenzie: The UDM had
a claims handling organisation in Vendside. My understanding is
that the NUM had disbanded its own in-house capability some time
before these schemes were introduced, in favour of relying on
solicitors to handle claims on its behalf.
Q69 Mr Mitchell: Right. So it was
not that the UDM had any special access?
Sir Brian Bender: No. It
had a mechanism through its claims handler.
Q70 Mr Mitchell: Okay. It looks as
though one of the problems was the bad deal that you came to right
at the start with the claimants' solicitors' group. Who negotiated
that deal?
Sir Brian Bender: It would
have been officials in the Department under the guidance of the
court. As I said earlier, the important aspect to bear in mind
is that it is a court-based scheme and we were obliged to negotiate
all elements under the ruling and guidance of the court. Again,
the Boys Smith Report recognises that: "Solicitor's tariffs
appeared reasonable at that time". With hindsight, I think
that the error that the Department made—I think that I said
this earlier to one of the Members of the Committee—is not
to have had review clauses in those agreements. I think that any
figure, any negotiation, would have been fraught with uncertainty.
Q71 Mr Mitchell: Surely there is
a case for negotiating a special deal at the start. You have got
to deal, even on your own estimates, with a substantial number
of claims. Why not negotiate an abatement?
Sir Brian Bender: I do not
know whether there is anything that you can add to that, Ian.
Ian McKenzie: The reality
is, as Sir Brian has already said, that a review clause would
come into play. From my more recent experience, in that we are
still actively negotiating in certain areas with the solicitors'
group on the costs that we pay, the position that the Department
now finds itself in is that it now has this ability to model more
accurately what is going to happen, in terms of the claims that
are still within the system.
Q72 Mr Mitchell: What was the basis
of paying solicitors? What fees did they get? Was it a flat rate
fee, or a fee proportionate to the amount claimed? What was it?
Ian McKenzie: It was a flat
rate fee.
Q73 Mr Mitchell: How much?
Ian McKenzie: I do not have
the figures that were agreed at that stage, as such, but there
are various tariffs that apply for different ways in which the
scheme operates.
Q74 Mr Mitchell: Why cannot you give
us a figure?
Ian McKenzie: In terms of
the current figure for the chronic obstructive pulmonary disease,
or COPD, scheme, I think that it is about £1,700.[9]
Q75 Mr Mitchell: So, whatever happens,
even if the claim is for two and thruppence and it is awarded
59p—I think that was what you said—the solicitor gets
that sum of money?
Ian McKenzie: If the claim
is successful, yes.
Q76 Mr Mitchell: That is incredible.
How could you negotiate a deal like that? Is it solicitors negotiating
with solicitors and scratching each other's backs? I mean, why
are people so nice to the solicitors?
Ian McKenzie: As Sir Brian
said, I think that the deal that was done at that stage, as such,
took into account the information that was available to the officials
in the circumstances of the negotiating pressure that they were
working under.
Q77 Mr Mitchell: When it went on
to a costs judge, I think that his judgment was the overcharging
was to the extent of £295 million. Was all that amount recovered?
Sir Brian Bender: That was
a view reached in 2007, with hindsight. That is indeed part of
the rationale in respect of which we have been doing the recuperation.
Q78 Mr Mitchell: But that was subsequent.
Was the £295 million recovered?
Ian McKenzie: It is not a
figure that is recoverable; it is a figure that is extrapolated.
Peter Gray can perhaps correct me, but essentially it was a figure
that was extrapolated based on Master Hurst's costs judge assessment
in 2006.
Q79 Mr Mitchell: But when these costs
judges assess costs in court cases, the money cannot be claimed
if the costs are cut.
Ian McKenzie: Yes. It is
perhaps worthwhile just bringing out that the reason why that
evidence is available to us, effectively, was that the Department
spent two years seeking to reach a reasonable tariff on the fast-track
scheme. My predecessors were not prepared to accept the position
that the solicitors' group was taking, so we pursued the matter,
fairly actively, through the court process for two years, seeking
to get to a tariff. Master Hurst's work was part of that, and
we achieved final resolution in April with the settlement that
relates to the £100 million that we are seeking to recover.
7 Note by witness: The Department has written
to all 10 claimant representatives in Appendix 7 of the NAO's
Report. Beresfords is one of the organisations to receive a letter
in order to enquire about the deduction of fees, whether in respect
of costs or for any other reason. However, it is apparent through
the publication of Beresfords Accounts, which are in the public
domain; they have made some provision to repay claimants. The
Committee will receive an update on Beresfords after the 16 November
2007 deadline which was set for the solicitors to respond by. Back
8
Information provided, not printed. Back
9
Correction by witness: The basic solicitor fees tariff
at the start of the COPD scheme (between September 1999 and March
2000) was £1,750. This is a basic tariff which is subject
to change due to the circumstances of the claim. Due to RPI increases
the basic tariff is now £2,159. Back
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