Social Justice and Social Security Committee [Draft]

Meeting date: Thursday, March 28, 2024

Official Report 739KB pdf

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Social Security (Amendment) (Scotland) Bill: Stage 1

Our next agenda item is our fourth evidence session on the Social Security (Amendment) (Scotland) Bill. The bill is at stage 1. Today, we will focus on part 7 of the bill, which concerns recovery from compensation payments.

I welcome to the meeting Lynne Macfarlane, who is a solicitor advocate at the Forum of Insurance Lawyers; Alastair Ross, who is assistant director and head of public policy for Scotland, Wales and Northern Ireland for the Association the British Insurers; and Alan Rogerson, who is a member of the Forum of Scottish Claims Managers. I thank you very much for accepting our invitation to the meeting.

I will mention a few points about the format of the meeting before we start. Please wait until I or the member asking the question says your name before speaking. Do not feel that you have to answer every question. If you feel that you have nothing new to add to what has been said by others, that is okay.

I ask everyone to keep questions and answers as concise as possible.

We now move to questions. I invite Paul O’Kane to begin.

Good morning. First, for the benefit of the committee, I ask the witnesses to give a brief overview of how the current system of compensation recovery works. That would be a useful place to start. I will start with Alastair Ross, who is sitting in the middle, and then others can pitch in.

I will defer to Alan Rogerson, who is a practitioner, to take you through it.

That is fair. I decided to go to the middle—I do not know why I did that.

I should explain that my other day job is working for Aviva Insurance as a senior claims manager, so I have practical experience of how the recovery benefits system works in the United Kingdom currently.

The process begins when a claim for compensation comes in to an insurer or a compensator, which then registers the claim with the compensation recovery unit of the Department for Work and Pensions. The unit goes away in the background and checks whether benefits that could have been as a result of the accident or incident that is being claimed for were paid to that person. After that, the compensator receives either a certificate to say that there are no such benefits, or a schedule of benefits that are due to be recovered from the compensator if the compensator pays the claim. The way in which those benefits work under the UK scheme is very similar to what is proposed for the Scottish scheme. They are aligned to individual heads of claim.

A compensator cannot make an offer to an injured person until they have a certificate of recoverable benefits. That is a very important point to make, because any delay in that process means a delay in the person getting their rightful compensation. At the point of settlement, then, if the insurance company is making an offer of, for example, £5,000, and £3,000 of that is for the injury and the other £2,000 is for loss of earnings, and there is a benefit repayable of £1,000 that is related to loss of earnings, the injured person will get £4,000 in their hand from the compensator and £1,000 will go back to the compensation recovery unit. The £5,000 remains the £5,000 regardless, but it is offset against the person’s damages and what they receive at the end of the day.

That was a helpful overview. Does anyone want to add anything?

There is also an opportunity to seek a review or reconsideration of the certificate. That is in the existing scheme. If you, as the compensator, receive a certificate and consider that some of the benefits that have been attributed to the accident are not, in fact, attributable, you can seek to review or appeal the certificate. That is an integral part of the process.

I have one tiny point to add—Lynne Macfarlane reminded me of it. It is not just the insurer who can ask for an appeal or review. The claimant solicitor can do that, too, if they do not believe that those benefits are linked to the accident.

Are witnesses content that the Social Security (Amendment) (Scotland) Bill enables the same system to be created for Social Security Scotland that exists for DWP benefits? I wonder whether you might want to comment on the synergies.

We have a system that is operated by the DWP and works well. Insurers are familiar with it and are committed to prompt payment, once settlement has been agreed. We want to get those moneys through so that they can get to the injured person and the social security provider.

Our preference would very much be to align with that model. As we understand what is set out in the bill, the two options are essentially to outsource or enter into an agency arrangement with the DWP, which would give familiarity with the current process, or to go down the route of having a separate Scottish system, which would mean insurers adapting to operating two systems and being able to identify situations where they had to go down the existing DWP route or down a separate Social Security Scotland route. There are areas of uncertainty there that it would be good to have clarified. If, for example, somebody is resident in Scotland but suffers an injury while they are in another part of the UK, or vice versa, how would insurers work that out?

In addition, it may be helpful to clarify that, for the purposes of the bill, we are talking about the payment of moneys to, in this case, Social Security Scotland for benefits payments that result from the injury that has happened. If somebody was already receiving social security payments before the accident, those would not be covered. The payments that we are talking about are if somebody was, for argument’s sake, working and no longer able to work. The devolved Scottish payments that would be triggered by that accident would come into play, as opposed to existing payments to people. Hopefully that makes sense; I think that it is an important point to understand.

From an insurance industry point of view, our preference would be the agency model that has been set out. I think that the Scottish Government has also indicated that that is its preference. The three of us have taken part in consultation events with the Scottish Government in advance of the introduction of the bill. It is fairly unusual for insurers, insurance lawyers and claimant lawyers to agree, but this is one of the rare times when we are all in agreement. You do not have the Association of Personal Injury Lawyers in front of you, but I have spoken to Gordon Dalyell and the APIL is very supportive of the agency route. That seems to be the most practical option.

Obviously, it is for the Scottish ministers and the DWP to agree on the details of that, how it would work—including, presumably, some kind of agency fee—and how it would compare to the figures that have been set out in the financial memorandum. We might come back to the financial memorandum later, but that is an important aspect of the matter.

Thank you. That was a comprehensive overview of that interaction, if you like, in the bill, and the views of insurers. Does anyone else want to contribute anything at this point?

I am here to represent the Forum of Insurance Lawyers, so I am very concerned with, essentially, the litigation process. The main issue that we have in our minds is the smooth running of the litigation process. Receipt of a certificate of recoverable benefits is an absolute cornerstone of what we all do, whether we are a defender solicitor or a pursuer solicitor working in personal injury. If we do not have an accurate certificate, or a prompt certificate, that has a significant knock-on effect on the litigation process. From a defender point of view, if I am a pursuer’s lawyer, I would be unable to offer advice to my client on what might be a reasonable settlement proposal, because I would not know what benefits are attributable or deductible from damages. I could not offer advice to my client about whether that offer is reasonable and should be accepted.

If the front end of the system does not operate promptly and smoothly, we will have real difficulties in progressing litigation, not just from a settlement point of view but from a court point of view. In essence, if a solicitor decides that a case is to be defended and wishes the case to proceed to a full hearing on evidence or a proof, the court must be given evidence about benefits that the compensation recovery unit can recover. The compensation recovery unit certificate would routinely be lodged with the court, and if the presiding judge or sheriff was minded to award damages, he or she would have to take that certificate into account. Therefore, if the process breaks down and we are not in receipt of a valid, prompt and accurate certificate, that puts at risk the litigation process.

It is also good to know that you are working in harmony with one another.

Jeremy Balfour has a supplementary question.

This might be a daft-laddie question, but what happens at the moment? Lynne Macfarlane, is there an agreement between the DWP and Social Security Scotland? What happens day in, day out? Some benefits have been devolved, but the recovery powers in the bill have not been enacted yet.

I will pass that on to my colleagues, because I am very much concerned with the front end rather than the back end.

The short answer is that nothing happens, at the minute. If a person receives universal credit or any of the UK-led benefits, the compensation recovery unit works as normal. At the minute, because the legislation is not in place yet, there is no mechanism for recovering any devolved Scottish benefits. The headline of the bill is first about replicating in Scotland what exists in the UK and then about the mechanism for recovering the benefits.

At the moment, if I am on a benefit in Scotland, is that not included in any certificate that is presented to the court?

If it is a devolved benefit it is not on any certificate, at the minute. If it is a UK benefit, such as universal credit or industrial injuries disablement benefit, it appears on the certificate and the money goes back into the DWP.

There might be a few daft-laddie questions this morning, so I apologise, but I would prefer to understand properly.

Our briefing paper says that applicable benefits could be claimed back for up to five years. Does the certificate relate to benefits that have been received up to the date of the award or do you fast forward? If, as a direct result of an injury, a claimant will be on devolved or reserved benefits for ever or for a prolonged period, is that taken into account for clawback? How does that work?

The certificate relates to benefits that are payable after the accident. The benefits have to result from the accident, which was the point that Alastair Ross made.

When an insurer or a compensator receives a certificate, there is a list of dates on the left-hand side and then there are the benefits being paid and the amounts. The amount accrues as it goes down the page. At the point when the compensator settles the claim, everyone is clear and you literally go across the grid to find the figure for the benefits that need to be repaid and deducted from the injured person’s settlement.

So, it relates to benefits actually received and is a full and final settlement. There is no predication of future benefits being accrued.

That is absolutely right. It stops as at the point of payment.

I will add to that. It sounds like an odd process and I appreciate that we are trying to explain an odd process from our perspective. However, through the life of the litigation, a solicitor who is dealing with a litigation or a claim will periodically reapply for an up-to-date certificate. The certificate that is provided to that solicitor will have a date of expiry. As a responsible solicitor, I would always require to update the certificate before the expiry date so that I am aware of the accrued benefits and what should or should not be deducted. That is an important part of the process, because if you are not in receipt of a valid certificate that is valid until a particular date, you will not be in a position to effect resolution of the litigation.

09:15  

Thank you for helping us out by providing such in-depth answers. I am certainly not a lawyer, so I have some daft-lassie—as opposed to daft-laddie—questions.

You alluded to this on the opposing side, but I want to narrow it down a bit. Do you have any views on the necessity of the proposed provisions? What would be the implications of not enabling compensation recovery for Social Security Scotland benefits? I am not sure who is the best placed to answer that question.

I am happy to kick off on that. We partly touched on this in response to Mr Balfour, but if, for whatever reason, you were to choose not to go down the proposed route, those moneys would simply not be recoverable, which would mean that there would be an imbalance between what happens at DWP level and what would happen at Social Security Scotland level. That would be the most obvious implication of not proceeding in the proposed direction.

From the insurance industry’s point of view, we support the principle of the bill that social security payments should be recoverable in the event that an insurer or their customer is liable for the injury that meant that someone had to start receiving social security support. I absolutely agree with that. It makes sense to apply that principle to the devolved system as well as to the system that the DWP operates. Having an imbalance in that respect would certainly not benefit insurers. We are talking about insurers paying out a gross sum and that sum being divided, with part of it going back to Social Security Scotland in order to address the potential shortfall and avoid avoidable compensation.

If we did not go down the proposed route and did not enable compensation recovery for Social Security Scotland, there would be a loss of income and compensation payment. On the other hand, I point out that going down the proposed route would not generate any additional moneys on top of what can reasonably be expected. I do not think that it would be the case that a separate Social Security Scotland system would recover a greater proportion of moneys than the DWP system would. There would not be a contrast in that respect between the agency agreement with the DWP and a separate Social Security Scotland system.

That is very helpful. We need to have a balanced view on that issue, and your comments help with that.

We move on to theme 2—options for delivery—on which Katy Clark has questions.

The Scottish Government’s preferred implementation option is to have an agency agreement with the Department for Work and Pensions. What are the advantages of an agency agreement with the DWP for the recovery of compensation payments? Perhaps Alan Rogerson would like to come in first.

The issue is not so much the advantages of going down that route but the disadvantages of not going down it. We have heard about the litigation process and the importance of having a certificate, but if we ended up having two certificates and two different methods of getting them, along with everything else, that would create confusion for everyone, and it could lead to delay in the system. That is probably why the agency route was more appealing to everyone who was asked during the Scottish Government’s consultation phase.

To follow up on the point that Alastair Ross made in response to the previous question, a cost benefit analysis probably needs to be carried out to allow us to see what we would recover versus what it would cost to implement. It would seem that the agency route would be cheaper to deliver, because the infrastructure is there. Given that the DWP already asks local benefits offices what benefits have been paid to a particular person, it would surely be easier for everyone involved to ask about Scottish devolved benefits at the same time.

Thank you. Would any of the other witnesses like to comment?

As Alan Rogerson said, we have a proven system that is familiar to all users, from insurers and compensators to claimant lawyers. Everybody understands how the system operates at the moment. If there was a different system, training would require to be provided to make sure that people understood and could identify which system they would have to follow. That is what would happen if the systems were separated out, rather than continuing with the agency agreement with the DWP.

I will not get into the details just now, but if you are going to take the route of having a separate Scottish system, that would, I presume, require procurement in order to build an information technology platform, which would be an additional cost.

I also presume that there would be a cost to the agency arrangement and, as Alan Rogerson says, a cost benefit analysis would need to be carried out in order to understand the best value for money for the taxpayer, for want of a better term.

The only other question that I have in my mind, having looked at the papers, including the financial memorandum, relates to the set-up costs for the option of a separate Social Security Scotland system. I think that the operating costs would come in at about £5 million a year once it was set up and running, and the estimated figures for what would be recovered come to round about the same. I presume that one would offset the other, so you would have to balance that against the cost benefit analysis in the DWP agency system.

I will pick up on the point that Alastair Ross has just made. If, for any reason, the Scottish Government and the DWP were unable to negotiate an agency agreement, what other options might be available? You have alluded to one option.

I expect that option 1 would be simply not to recover the money, and we have already talked about the implications of that. Option 2 would, I presume, be to build a separate Scottish system, with everything that that entails in terms of procurement, the IT system and the training. I do not know whether you would also need legislation for that.

Therefore, you presume that Social Security Scotland would operate that system.

I expect so, yes.

Alan Rogerson, are there other options?

I will be honest and say that I cannot think of another option. Those are probably the only options that we have been able to come up with.

That is helpful. Lynne Macfarlane, do you want to come in on that?

The only thing of practical assistance might be the possibility of having just one certificate. From the front-end perspective, if there was one certificate that set out all benefits that are recoverable, English and Scottish, the insurer would then pay that amount and the back-end process would then be left between the Scottish ministers and the DWP.

Let us assume that there is an agency agreement. I might return to the other options, but that issue has been explored pretty well so far. We cannot just do that overnight. The suggestion is that there could be a lead-in time of at least a year. Would any of the witnesses want to put on the record what has to be done to support the industry in order for there to be effective implementation so that this is a success once we get there. What steer would you give the committee and the Government to ensure that any agency agreement is a success?

If the agency agreement was that the compensator still reports in exactly the same way that it does now to the DWP, absolutely nothing extra need be done from the compensator side. Everything would then be about what happens at the back end between the DWP and Social Security Scotland. We have a system where we would register the claims, and that system talks to the DWP directly. All big compensators will have exactly the same. For those that do not have that system, there are ways to notify the claims in a traditional manner, using forms. That still happens.

Mr Ross, your organisation has talked about training and other potential requirements ahead of time, in relation to lead-in time. I can read the quotation:

“Insurers would need at least 12 months’ notice of this change and details of the new system in order to support its smooth introduction, and provide training for claims handlers to understand the new system and the social security applicable.”

From Mr Rogerson’s perspective, it is a case of press the button and on we go because there is a single point of contact and things at the point of use—as Lynne Macfarlane was talking about—carry on as before. The numbers simply change with a disaggregated breakdown. However, are other things lurking, Mr Ross, that need a wee bit of attention?

As I said, I defer to Alan Rogerson, because he is the practitioner. We were thinking that there would be an element of training just to ensure that the claims handlers were aware of the separate Scottish system, in case it is brought up in the conversations that they have when they go through the claims handling process. The claimant or their representative may raise that—they may say, “I’m now in receipt of the Scottish child payment—is that factor being taken into account?” There would need to be an element of education and training to ensure that the claim handlers were aware of, and understood, the situation, and were not confused by it.

With regard to being able to roll this out across various sites, a period of 12 months would not be unreasonable. I am not saying that training would take 365 days, but we would need to ensure that we were able to familiarise people with the system and bring them up to speed with the new terminology. They would need only to know about the presence of the system—they would not necessarily need to operate it, but they would need to be aware of it. That is the main point.

In making my earlier point, I missed out the back-entry aspect that insurers would do, but they would do that as a matter of course. The front end would be the same, and nothing would need to be done if we were still reporting the information to the DWP in the normal way.

With regard to what the ABI quote refers to, if there was an alternative method and we, as compensators, needed two different ways to notify these claims, that is where the new systems, and even more training and everything else, would come in.

I do not want to create a division between the witnesses—although it would be nice to get one, because you are all agreeing with each other.

Mr Ross, I think that you are saying that we would need awareness raising of the terminology and the phraseology around the different system in Scotland, rather than taking it for granted that all individuals who work in the sector would be fully aware of the situation. I am sure that they are aware, but we would need to get it right and be 100 per cent sure. Is that what you are saying?

Yes. As Alan Rogerson touched on, there are the major compensators, which are working at scale, but there are also some mid-sized and smaller firms that may well have much smaller volumes of these cases. When such cases come up, they would still need to be able to recognise and understand the situation, and go through the appropriate route. It is about ensuring that there is sufficient time available to make sure that claims handlers are aware of the distinctions. At this point in time, they may not be aware, because they currently do not have to include in the compensation recovery process things such as the Scottish child payment and the other devolved payments that we now have. Awareness of those aspects is probably relatively low in the compensator community, for want of a better term. My point was that we would need to provide some capacity to educate people and bring them up to speed with that.

So the big takeaway for us is the need for a single point of contact for the sector in delivering on this. You guys do not have to address the complexities—it is for the DWP and Social Security Scotland, between them, to deal with those. You do not have to see those complexities as long as the front-end user that Lynne Macfarlane was talking about can just continue as they always have done, with the appropriate training.

Sorry, Lynne—I apologise if I have misrepresented your position.

No, not at all. I just want to add a bit of colour to that, with regard to the appeal and review process. Under the bill as it is drafted, if someone wishes to appeal on Scottish benefits, they would have to do so to the Scottish ministers, but if they wish to appeal on English benefits, they would have to appeal to the DWP. There is, therefore, some prospect of a divergence in practice in relation to the appeal process. We do not know how that will play out in due course, but it might cause a little bit of confusion and uncertainty.

That is helpful—thank you.

We move to theme 3, which is the financial memorandum to the bill.

Good morning, panel. Mr Rogerson, do you think that the figure for estimated recoverable payments of up to £5.5 million per year by 2028-29 is reasonable?

I noted that the financial memorandum is heavily caveated in that respect. When I first read it, I went back and did a little bit of digging in my own organisation. That is where I came up with the figure of £992 per claim that we note in our submission. I could not necessarily square the two, because I think that, by 2029, the cost per case would be about £3,600, if my maths is correct. I was not sure how that would all work in practice. I am not clear and I am doing it every day, so I made a freedom of information request to the DWP to try to get some more information on what payments it is recovering now for Scottish benefits. If I get that information, I hope that I can extrapolate what it might mean for the recovery in Scotland. I am certainly more than happy to share anything that I get back with both the Scottish Government and the committee, if it arrives in time.

09:30  

That would be very helpful to the committee, thank you.

Jeremy Balfour would like to come in with a supplementary question, and then I will invite John Mason in.

This is probably not within your area, but I will ask my question just in case it is. In the financial memorandum, I noticed that it is estimated that it will cost £3.78 million to implement the scheme, which seems quite a lot of money to me. Will you unpack what we get for that £3.78 million and explain why it is so expensive?

I will try. I am not an IT expert by any manner of means, but IT projects seem to run away with themselves. From our side, it certainly seems that there would be a lot of IT requirements if there was a central Scottish social security recovery of benefits office that was talking to local benefits agencies and working out exactly what was to happen and when it was to happen.

I had a quick look at the UK compensation recovery unit figures to see how many cases were notified last year, and I saw that about 484,000 cases were registered. If Scotland accounts for 8 per cent of the general population of the UK, and we look at it that way, that is about 38,700 cases per year that would need to be registered and looked at, and for which there would have to be a check with the benefits office to see whether there were benefits there before coming back and issuing certificates. There must be a bit of manpower or IT resource required behind that but, unfortunately, I cannot give you any more detail on the deliverables.

Thank you.

John Mason, did you want to come in on any of the different elements of the costs?

I think that that was a reasonable answer to the previous question.

Bob Doris would like to come in.

In asking my question, I should caveat it by saying that I absolutely agree that the idea of having a single point of contact and as little disruption as possible for claimants, defenders and the sector makes absolute sense. However, I am looking at the amount-recoverable estimates from Social Security Scotland compared with the set-up and on-going running costs. It could effectively be cost neutral at the end of the day, or it might not collect very much.

I suppose that there are commercial negotiations behind the scenes between the DWP and Social Security Scotland, so the more figures that are put in the public domain, the more the DWP can squeeze for a better deal for itself in relation to this. We could get to a point in the future where the figures show that it makes sense to set up a stand-alone Scottish system, which could still dovetail nicely with the UK system. The bill does not suggest that, and I am not suggesting that—I am asking a question about future proofing, given that it is pretty self-evident from the numbers, if I have looked at them accurately, that the benefit to the Scottish taxpayer of doing this at all is relatively minimal in the first instance. If we fast forward five or 10 years, and the numbers show that there is a business case to set up a stand-alone Scottish system, do you have any reflections on how that could be done, and whether there is a way of dovetailing nicely with the wider UK system?

I think that that is a leap into the unknown. The legislation that we have in Scotland talks about five discrete benefits, one of which relates to loss of earnings, with the others relating to care and mobility components. The UK legislation has 20 different benefits, and 11 of those all relate to loss of earnings—the loss of earnings being the one that I see day in, day out on certificates. In answer to your question, it is possible. It may need to be considered as we go, but it is a huge leap into the unknown in terms of knowing what you are going to get back, when you are going to get it back and how much it is going to cost to implement.

On the agency agreement—I am not part of this negotiation, obviously—if the Scottish ministers were minded to do it on a percentage basis of what is recovered and goes back to the DWP, you would future proof your agreement with the DWP.

That is helpful. I see nods from the other witnesses.

I absolutely recognise your premise. You are talking about a lot of different variables. As you say, in five or 10 years’ time, it could be a different proposition, as could the Scottish fiscal position. Would a budget in 10 years’ time have the capacity to pay for a one-off set-up cost if a system was deemed to be required at that point in time?

The other big variable is that, as Alan Rogerson said, we are talking about five discrete payments. Would a future Government want to extend that? We know that the intention is to increase the value of the Scottish child payment over time. Would that go beyond inflation? Would new payments come in? All those factors would come into account.

It is very hard to say today what a five or 10-year case would look like when many different components could change.

That is very helpful and important to put on the record. The key thing is that, whatever happens in the future, we take the insurance industry and litigators with us in that process to ensure that there is no disruption to the most important thing, which, as Lynne Macfarlane keeps going on about, is the front-end business of ensuring that people get the compensation that they deserve.

I have a couple of questions. I am sorry—my mind is working a bit slowly this morning. I go back to the question about the appeal processes being different for Social Security Scotland and the DWP. Is it possible under the agreement, if it is signed by the two parties, that one party could waive its right of appeal and allow either Social Security Scotland or the DWP to do the whole process? Would that legally be possible?

Yes, that could be possible, but it is certainly not set out in the bill as proposed. At the moment, the bill sets out that an appeal should be to the Scottish ministers, in relation to Scottish benefits.

From a practitioner’s perspective, would it be easier to have one port of call for an appeal?

Yes; I think that it would be a lot easier and a lot more practical. From a practitioner’s point of view, it would be easier to prepare for an appeal to one point of appeal rather than to two different points of appeal where there is a possibility for divergence of views.

This is my final question, you will be glad to hear. The bill includes a power to create a criminal offence for failure to comply with the requirements of an investigation. Are witnesses familiar with any similar powers in the current system, and do you have any comment on whether it is reasonable to make it a criminal offence to neglect to comply with an investigation?

Your light has gone on, Lynne, so we obviously think that the question is for you.

I will let Alan take that.

I am not aware of that at all. I would need to go back and have a look at that, Mr Balfour. I have not seen that in the legislation. As I understand it, most of the legislation is lifted straight from the UK legislation, so perhaps that provision exists in the UK legislation. I have never heard of it being acted on, so I am not sure.

In my 25 years of litigation experience, I have never encountered it.

There is always a first time.

Does anyone have any further supplementary questions to put to our witnesses?

We have plenty of time in hand, so thank you very much. That concludes the evidence session. Thank you very much for joining us. After recess, we will hold a final evidence session with the Cabinet Secretary for Social Justice before we report on our findings.

I now suspend the meeting briefly to allow for a panel change before we move on to the next item.

09:39 Meeting suspended.  

09:49 On resuming—