| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord Hunt of Wirral: I am grateful to the Minister, not only for responding to the amendment, which was essentially probing, but also for giving a general outline of the way in which the Government are approaching the whole question of structured settlements. We shall need time to reflect on the Minister's response, and we shall, of course, return to the subject of variation in a later group of amendments.
My only additional point is that we must bear in mind the needs of people with disability which has been incurred as the result of an accident or trauma. There is a feeling on the part of some of those with disability that they have not been involved at the centre of this whole process relating to periodical payments. There is a real concern that periodical payments be some form of inhibitor as regards the emphasis on rehabilitation and getting people back to work.
Stephen Duckworth, who is a leading campaigner on disability matters, has made me aware that we need to consult people with disability in order to ensure that periodical payments will encourage them to become more independent and more amenable to rehabilitation interventions. There is the possibility—we shall return to the issue on variation—that the constant question mark over the level of payment may have a detrimental effect on the rehabilitation process. We need to focus on that aspect which the noble Baroness will have very much in mind. However, to give the necessary width to the debate, I mention it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
12.30 p.m.
Lord Goodhart moved Amendment No. 139:
- Page 44, line 28, at end insert—
The noble Lord said: I did not participate in the debate on the previous amendment but I strongly agree with the principle of periodical payments, moving from the existing structured settlement regime, which requires the consent of both parties if it can be done only by an out of court settlement subject to approval by the court, to a situation where the court has power to order periodical payments. While this is a step forward it will be essential to ensure that the real value of periodical payments is maintained. That is the purpose of the amendment.
Even at the Government's target figure of 2.5 per cent inflation, periodical payments with a fixed annual amount would steadily lose their real value over time. Ignoring the effect of compounding, a 2.5 per cent increase over a period of 10 years per annum would lead to a decline in real value of the periodical payment over those 10 years by 20 per cent. The figure is 20 per cent not 25 per cent; that is a matter for the mathematicians. If one takes into account the compounding of the interest—the 2.5 per cent per annum is measured not on what happened 10 years ago but with the previous year's figure—the problem becomes even more acute. The consequences would be not only serious but disastrous if inflation rates were over 20 per cent per annum as in the 1970s or early 1990s.
It is now practicable to ensure that the real value is maintained because the cost of an order for periodical payments can be funded through index-linked government securities. It is not practicable to link periodical payments to earnings. That is unfortunate. Because of the increase in real earnings, a person rendered unfit for work 40 years ago and in receipt of periodical payments fixed even in real terms at the 1963 figures would have a standard of living well below that of a healthy contemporary even if those periodical payments had been index linked. That seems to me an unavoidable problem. There is no realistic way in which an earnings-linked annuity could be funded. However, I believe that linkage to the retail prices index is not only practicable but plainly desirable and essential. I beg to move.
Lord Hunt of Wirral: It is an important amendment. It touches on the way in which periodical payments will be dealt with. I considered carefully this aspect when reading paragraph 35 of the Master of the Rolls' working party's report on structured settlements. Close matching regulations oblige, for instance, life offices to hold assets to match their liabilities. Close matching is a key issue when one considers the way in which any annuity payment will increase in value. That close matching was found in the Insurance Companies Act 1982 but is now regulated by the Financial Services and Markets Act 2000 with the detail to be found in the FSA Interim Prudential Source Book for Insurers, Volume 3 Guidance Notes, Section 4.4, linked contracts, paragraphs 2.1 to 2.15.
There is no point in setting up a system for structured settlements when no available products will conform to the close matching regulations. That is fundamental if we are to proceed with a general move towards the structured settlements which so many people would like to see.
Baroness Scotland of Asthal: I agree with the noble Lord, Lord Goodhart, and the noble Lord, Lord Hunt. It is important that the real value of periodical payments can be preserved over the whole period for which they are payable. The indexation of payments is already a matter for the court's discretion and the Bill does not affect that. At present it is common practice to link payments to the retail prices index. However, it would not be appropriate to prescribe this as a blanket index to which all payments must be linked. In some cases it may be appropriate to link different heads of damage to different indices. The court currently has that flexibility.
We believe that it is important to retain the current flexibility and for indexation to be left to the discretion of the court which can have proper regard to the individual circumstances of each case. I hope that that reassures noble Lords. We think that this ability of the court will address their concerns.
Lord Hunt of Wirral: Perhaps I may respond. Where the liability is to make index payments under an RPI structure, there is an available close-matching asset in index-linked government stocks. There is a general wish to see those made more widely available. However, if we were to move to another index—I agree with the noble Lord, Lord Goodhart—there will be no availability of any close-matching product which would enable the defendant, the defendant's insurer, or reinsurer, to make the necessary provision.
Lord Goodhart: I am not sure how the court's discretion now arises. It would arise only by virtue of the requirement that a court approve a structured settlement and that it will not do so unless the settlement makes some provision for indexation of the payments due under that settlement.
We have here a different situation. The court is making the order, not merely approving a settlement agreed between the parties. It is plainly desirable, therefore, that the court should be required to take steps to preserve the real value of the periodical payments. I should like to see a provision on the face of the Bill—perhaps not as absolute as my amendment—which states that the court shall be required to provide for the payments to be indexed unless it sees reason for them either not to be indexed or to be linked to some other index.
Baroness Scotland of Asthal: We should bear in mind how the courts currently approach the issue. When matters come before the court, all parties will have to direct their minds to the nature of the order that the court might make. The noble Lord will be familiar with the process. The court will make enquiries as to what the consequences are for various
Lord Goodhart: I still believe that it would be desirable and important to place something of this kind in the Bill, although perhaps not in these words. I shall consider some alternative possible wording. From my reading of proposed new Section 2(1)(a) and 2(1)(b) of the Damages Act 1996, it is not made expressly clear that the court even has the power to award periodical payments that are index-linked rather than fixed. I am strongly minded to bring back the issue on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Goodhart moved Amendment No. 139ZA:
The noble Lord said: This amendment is entirely different in nature from the previous one. It arises from correspondence with the Association of Personal Injury Lawyers. The association pressed for an amendment that would provide that an order for periodical payments should need specifically the consent of the claimant or a McKenzie friend, when the claimant was represented by a McKenzie friend.
I saw problems with requiring consent in all cases, particularly in the case of a young person who was legally capable of taking a decision for himself but might take an unwise one. The prospect of a large lump sum may be tempting to a claimant who would be better off in the long run with a periodical payment. The claimant might also come under pressure from members of his or her family who expected to profit in some way from the lump sum.
Having said that, the court should undoubtedly have regard to the wishes of the claimant and should be required to find out what they are. I accept that in practice a court that acted reasonably would almost certainly do that. However, the requirement should be in the Bill. I do not suppose that the court would ignore the claimant's wishes, even without a statutory obligation, but if the requirement were in the Bill the court would have to find out the claimant's wishes. It would also mean that if the court did not act in accordance with those wishes, it would have to give
"( ) Periodical payments shall be increased or decreased in accordance with the Retail Price Index."
Page 44, line 28, at end insert—
"( ) In considering whether to order periodical payments under subsection (1), the court shall take into account the views of the claimant."
Next Section
Back to Table of Contents
Lords Hansard Home Page