Compensation Bill [HL]

I am very grateful to the noble Lord, Lord Hunt, for setting out so well the issues that concern not only him, but all Members of the Committee and the Government. That is why we have introduced this Bill into your Lordships’ House and wish to see it on its way as swiftly as possible to enable us to make the regulations and to deal with this problem. Let me try to address the principle of the way that we have approached it, which I hope will go some way to allay the fears expressed by the noble Lord, Lord Hunt, about the way that the Bill is set out. We want to avoid loopholes in the regulation that can be exploited by claims farmers. The noble Lord was alluding to, if not specifically saying, that some of them are very good at reinventing themselves. But we want to ensure that the response we give to this and the approach that we take is proportionate so that we do not impose unnecessary burdens on those who operate legitimately. We have approached this legislation by defining claims management services as widely as possible but regulate only those services that are prescribed by order. I agree with the noble Lord, Lord Hunt, that we want to get these regulations in place as swiftly as possible. Speaking of the fact that claims companies frequently reinvent themselves, I am grateful that the noble Lord has raised the question of a company trying to establish itself as a trade union. We cannot find it if it is trying to do that, but we are pretty certain that a claims management company would find it very difficult to meet the criterion in the Trade Union and Labour Relations (Consolidation) Act 1992 to enable them to become a trade union and therefore escape authorisation. We will consider, for the purposes of exemptions under the Bill, with the certification officer, adding a condition that when we exempt trade unions that will apply only to those who have been accepted on the certification officer’s list. Noble Lords will know that trade unions can voluntarily have their names added to the list held by a certification office. We hope that that will go all the way to preventing the reinvention of claims companies in this way, and I am grateful to the noble Lord for raising that with me. The Delegated Powers and Regulatory Reform Committee looked at this aspect of what we were trying to do and said in their report of 24 November:"““It is for the House to decide whether or not the definition in the bill of ““claims management services”” is appropriate but it seems to us acceptable for the bill to set the outer limits and for subordinate legislation to designate services within those limits. This is similar to a provision in section 22 of the Financial Services and Markets Act 2000 and would enable the Secretary of State to target areas which he considers are from time to time at a particularly high risk (paragraph 20 of the Explanatory Notes). But it is relevant to consideration of other provisions of the bill that all services within the definitions of ““claims management services”” may be brought within regulation by an order””." So we believe that we have fulfilled the spirit of the Delegated Powers and Regulatory Reform Committee and, as the noble Lord, Lord Hunt, rightly pointed out, I made it very clear during Second Reading that I intend, as always, to deal with all of the issues that that committee raised and to make amendments appropriately. So our principle is to take the breadth and regulate down so that we are very clear as well that as new issues arise we can use regulation to tackle them appropriately, which I believe answers the points that the noble Lord rightly raised regarding how we ensure that we act swiftly when these situations occur and when companies move in, as they did on the question of endowment mortgages. We saw a flurry of activity there and the noble Lord read out the advertisements in that context. The particular order clause would be Clause 2(2)(e) and we hope that that approach will be effective. In terms of who the regulator will be, I did indeed say that we would have the report by Christmas. I was very tempted to say that we would have it shortly, but I fear that I have overdone that word already in this Committee. I will have it on Thursday, so I suspect that my Christmas reading sack, which is growing ever larger, will include that report and of course I will ensure that the Committee understands what the report suggests to me. In later amendments we will look at how we plan to set up the regulator. The only thing that I would say in advance of that is that I am very keen that we do not find ourselves unable to be flexible for two reasons—first, to make sure that we can respond appropriately and put a regulator in place, and secondly that we can respond to changes, so that if we find a new area that we had not anticipated where we wished to regulate, or that the market changes, which is always a possibility, we have flexibility around a regulator. The noble Lord raised the question of advertising. I think I mentioned on Second Reading that we have a piece of research currently going on with the Advertising Standards Authority. I believe that I have watched all of the TV advertisements that we are discussing. From 2004 the authority has received about 20 complaints about advertisements from firms offering to help consumers make compensation claims as a result of endowment shortfalls, which is a particular concern. It is our ambition to work with the ASA to make sure that within its own regulatory framework it is able to deal with questions that are particularly pertinent in this area. But I beg the Committee’s indulgence in that we need to do the research first to establish whether the Advertising Standards Authority thinks there is more to be done and whether it is able to do that within its own framework. I will, of course, come back to the Committee as we get more information about that. I agree with the noble Lord that in dealing with some of the worst abuses it is very important that marketing practices such as advertising, cold calling, contract terms and credit arrangements should be properly regulated. As the noble Lord said, some of the most vulnerable people have been preyed on to capture their claims, with all the consequences that he identified. Where charges are levied, they have to be fair, reasonable, transparent and proportionate to the work involved. We trust that consumer safeguards will be delivered via the regulator’s rules governing authorised persons—as the noble Lord, Lord Hunt, indicated, there has been a distinct absence of high standards in the sector—or through general fair trading laws and codes. The source of the protection is not important; what matters is that the consumer is protected. We need to make sure that we deal with that appropriately. The noble Lord asked where the regulations would be going. As I have indicated, we start with a wide definition and narrow down. Certainly, we anticipate that the first order will bring within the net personal injury, employment, housing disrepair, criminal injuries compensation and mis-selling of financial products such as endowment policies. That is not an exhaustive list but I wanted to illustrate precisely where we had got to in our thinking within the principles of better regulation. I hope that I have addressed the noble Lord’s major concerns about the way in which we have approached this. I agree completely with the noble Lord’s desire to implement measures as swiftly as possible. I refer to the detail of the regulations and where we are as regards the report on the regulator. I accept entirely our need to look at issues such as advertising standards and come back to them as necessary. I hope that on that basis the noble Lord will feel able to withdraw the amendment.