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Lord Hunt of Wirral: My Lords, as has already been pointed out in the debate on 25th June 2001, when the noble and learned Lord the Lord Chancellor set the discount rate at 2.5 per cent, he ended three years of uncertainty. However, I believe that the last thing that is needed by anybody, including claimants, is for the whole debate to be re-opened.

Noble Lords will know that I am senior partner at Beachcroft Wansbroughs. For many years I have specialised in financial services, especially personal injury damages. I declare that interest. Although I well understand my noble friend's argument put forward in the debate, I believe we have to reflect on the fact that in practice, claimants do not invest in index-linked government securities. Speaking as chairman of the Association of Independent Financial Advisers, I should be surprised if any independent financial adviser would recommend investment solely or even primarily in index-linked government securities.

At the time of our Appellate Committee's decision in Wells v Wells, there were 12 index-linked government securities available. That ruling was based on the assumption that the Government would continue to issue ILGS.

The fact is that no new ILGS have been issued, although there have been further tranches for existing redemption dates. There are now 11 index-linked government securities in issue, four of which have redemption dates within the next five years. There are no ILGS with a redemption date beyond 2030. Therefore, it is not possible for a claimant with a life expectancy of more than 29 years to protect himself or herself beyond that period. In five years' time there will be only seven ILGS unless new ones are issued, and we are informed that none is contemplated.

There is, however, a great demand for ILGS, particularly from pension funds. The Government's failure to issue new index-linked government securities has distorted the market in those stocks. Thus, any argument which now seeks to rely on the return from ILGS is, I believe, completely out of date. Therefore, the Lord Chancellor was right to depart from the view of the Appellate Committee that the best way to protect the interests of injured claimants was to tie the discount rate exclusively to the return from ILGS.

I believe that the Lord Chancellor was entitled to that considered opinion as the Damages Act places the responsibility for setting the rate on him, the only limitation on his power being the obligation to consult the Government Actuary and the Treasury. My noble friend quite correctly quoted the Lord Chancellor when he said that ILGS were not the only indicator of the real rate of return on low risk investment.

If this debate had taken place before the order had been made I would have argued very strongly that the discount rate should remain at 3 per cent. I tabled a Question for Written Answer about the impact of the

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reduction from 3 per cent to 2.5 per cent. The noble and learned Lord the Lord Chancellor responded that a full assessment of the impact of the new discount rate was being prepared and would be published in due course. I do not know whether the noble Baroness will be able to give the House an update on when that assessment will be ready. I shall be very interested to hear what the impact is.

One must recognise that any reduction, particularly against the artificial market which exists at the moment in ILGS, imposes a huge additional burden, for example on the National Health Service. The report of the National Health Service Litigation Authority states that the additional burden caused by the reduction from 3 per cent to 2.5 per cent amounted to #500 million. The decision to set the rate at 3 per cent was that of the Appellate Committee in Wells v Wells. In arguing that it is no longer appropriate to fix the rate to ILGS, I recognise that in today's market an investor should easily be able to achieve a return of 3 per cent without running any undue risk. If one accepts that to fix the rate by reference to the return from ILGS is no longer fair to both sides, 3 per cent is likely to be too low. Having said that, I recognise that this order was made after full consultation and consideration of the interests of claimants and defendants alike and, I believe, strikes a fair balance between them. I have no wish to see a return to the atmosphere of uncertainty which existed before the order was made.

In conclusion, having discussed this matter with my noble friend, I recognise the strong view that he expresses from the Front Bench. I hope that in the longer term those responsible for this policy will give greater consideration to providing the court with power to order structured settlements. That entirely equitable and humane alternative would avoid all those distasteful arguments about life expectancy and give the injured persons, particularly the parents of an injured child, the security that they need.

8.15 p.m.

Baroness Crawley: My Lords, listening carefully to the noble Lord, Lord Kingsland, I cannot agree with the argument that he put forward in his bid to revoke the Damages (Personal Injury) Order 2001. I try not to disagree with the noble Lord as a former colleague in the European Parliament. However, tonight I must do so. The crux of the noble Lord's problem with the order is that the discount rate for the lump sum damages in personal injury cases has been set too high and should be rounded down to 2 per cent. Yet, as the noble Lord is aware, the Lord Chancellor did not pluck the rate of 2.5 per cent out of thin air. He did not pass me in the corridor one day and ask me what I thought the discount rate should be. The Lord Chancellor did all, and more, that he was required to do by the 1996 Act in terms of consultation. He also commissioned the highest quality advice from independent financial experts.

Having considered all the relevant evidence, the Lord Chancellor came to the conclusion that it was right and appropriate to set the discount rate at 2.5 per

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cent. In so doing he made it known that his intention was to set a rate that, as far as possible, ensured that injured parties in personal injury cases received the full compensation awarded by the court, no more and no less.

As the noble Lord, Lord Kingsland, is aware and the noble Lord, Lord Hunt of Wirral, has just observed, inadequate compensation is unfair to claimants and over-compensation is unfair to defendants. I believe that in this case the Lord Chancellor has struck the right balance in the rate that he set. I also believe that the noble and learned Lord has struck a balance in recognising that the most significant risk that claimants face is not that their investments will fail to yield a 2.5 per cent return per annum but that they will live longer than assumed when the compensation was awarded. To raise the value of lump sums with an artificially low discount rate will hinder the development of structured awards which can reduce the risk of claimants who live longer facing poverty in old age.

The noble Lord, Lord Kingsland, may accept that it would seriously impede the timely settlement and disposal of personal injury cases if frequent changes were made to the rate to take account of limited and, most probably, temporary changes in market conditions. For these reasons, among others, I cannot agree with the challenge to the order.

Lord Brennan: My Lords, in my professional life it has been my duty to represent a considerable number of injured plaintiffs and many defendant organisations which meet such claims. Experience has taught me one vital fact about those who are severely injured, which is what this debate is about: that they, and particularly their families if they are children, want the assurance, in so far as they can obtain it, that the money they need to look after themselves or their loved ones will not run out.

Contrary to some superficial reports that large awards are squandered, reputable research indicates that many such families save money against a rainy day which they should be spending on the care for which the money was awarded in the first place. They save because they are afraid that the money will run out. In one's professional career one has faced many campaigns to change the rate of interest, which is at the heart of calculating the future loss. The objective is to avoid the risk of the money running out.

The time has come I fear to give up the campaign for the moment. Only three or four years ago the rate was 4.5 per cent. That was wholly unjust. Because of the decision in Wells v Wells it became 3 per cent. That was acceptable at the time. It has now been set at 2.5 per cent. That is the reality. The Motion will not change it.

In giving his reasons, my noble and learned friend the Lord Chancellor tried to reflect a number of considerations. Whether practitioners, trade unionists or whoever agree or disagree, that is the reality. I think that it is time to put the argument aside, with three very important provisos. The first one is that although the Lord Chancellor rightly said that it would not be right

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to tinker frequently with this rate, equally it would be wrong to be indifferent to a market where rates of interest have gone to the present level and could sink yet more. To bear that in mind and to review the rate earlier than three years if the circumstances required would surely be a prudent approach.

The second proviso is, I hope, important to practitioners. In the Damages Act 1996, Section 1(2) follows Section 1(1) which gives the Lord Chancellor the right to prescribe the rate. But subsection (2) is very important because it allows a judge to award a different rate. If the Lord Chancellor can find it in his heart to forgive me, I have to correct his reasons in one material particular. At the end he said that under that subsection a judge may adopt a different rate in a particular case if there are Xexceptional circumstances" so to require. The phrase Xexceptional circumstances" is not a statutory phrase. The subsection says that a judge can award a different rate, if in the circumstances of the particular case, it is Xappropriate"; in other words, if justice requires it, not if there are exceptional circumstances. Practitioners should remember that.

My last proviso is not really a proviso; it is a strong and urgent request to the Government to put this history of uncertainty about claims and damages right out of the legal arena in personal injuries claims. That can be done under the law by judges awarding the annual cost of the loss— whether it be care, transport or whatever—which will run for the lifetime of the injured person. So when they go to court the decision is: how much do you need from time to time for that requirement? The heartache, the legal costs and the waste of time spent in trying to calculate a lifetime sum could be completely avoided. Justice would be done. Worry would be put aside. Everyone interested in this, from the claimants to the insurers and the lawyers, would find it much more satisfactory.

I hope that the Lord Chancellor's present consultation on this issue will lead to a conclusion as robust as the one that I have suggested. The debate marks a review of yesterday. I close by inviting a different approach tomorrow.

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