Compensation Bill [HL]

I am grateful to the noble Lord for enabling me to discuss with the Committee some of the issues around the costs of regulation and the way in which the Government propose to address them. Perhaps I may say something about the noble Lord’s remarks on the Claims Standards Council. To reiterate—I think that the noble Lord agrees—I felt that it was appropriate on receipt of Mark Boleat’s report to enable the Claims Standards Council to respond it properly. The response is due on 31 January, after which I will be able to put the majority of the report in the public domain and, of course, share it with Members of the Committee appropriately. We will take it from there. I note the noble Lord’s comments about what is being said in the press. There are a number of speculative press reports on what may happen as a consequence. It is best if we agree that I should respond properly to the Committee when I am in a position to do so, but the points are noted. I am particularly interested in the comments that the noble Lord made about the characteristics of a regulator, which were very pertinent. On financing, we want the regulation of the claims management sector to be completely self-financing. It has always been and always will be my aim. I am quite realistic about the need to think about how we set up such a regime and how we get to the point of achieving a completely self-financing solution in a brand new statutory framework. It is not an uncommon position to be in before new regulation is introduced. Of course, we know that this is not an area of a shining, good example having been set. I am taking the power in the Bill to step in to ensure that consumers are not left without the additional safeguards that these new laws can provide. It would be irresponsible of me to introduce legislation without having a power to underwrite regulation, particularly in the early days. To begin with, it could be quite a turbulent market: I note what the noble Viscount, Lord Eccles, said about the way in which regulation may affect a market and the number of organisations. We have to be mindful of that. The noble Lord, Lord Hunt, referred to the good people in this market place. We hope that they will remain within the sector doing the work that they do well. We have to be mindful of the implications of that. As the noble Lord has said, Clause 3(5) allows the Secretary of State to provide that funding by way of grants to the body concerned. As the noble Lord has indicated, he is probing to see what basis we have worked on for the costs of regulation. I also know that Members of the Committee recognise that it is quite difficult to be precise about the likely number of participants in a market that has not yet been regulated and how many firms will seek registration. There are many factors to take into account, such as the financial incentives to continue to trade, the scope of regulation, exemptions and fee levels, and so on. In the regulatory impact assessment we estimated that there are about 500 commercial claims management companies of varying shapes and sizes. If the regulation works quickly and effectively, that number could reduce, possibly significantly. Regulation, after all, is designed to change behaviour. If bad behaviour is no longer possible, some of those may go elsewhere. Others may simply not wish to pay to be regulated. Some small firms may leave the market or be taken over by bigger ones. We estimated that the costs of operating a designated regulator would be between £1.5 million and £2.1 million with set-up costs of £500,000, and we asked Mr Boleat, in the work that he has done, to look at those figures and say whether we were roughly in the right place.