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Two schemes, administered until recently by the Department of Trade and Industry, to compensate miners for damage to their health has resulted in the settlement of some 575,000 claims by March 2007, the payment of £3.6 billion in compensation and administration costs of £1.9 billion.

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A report out today by the National Audit Office has found that the Department faced a formidable challenge but there were significant weaknesses in the planning and early implementation of the schemes, which led to delays in paying compensation to some claimants and additional costs. However, in the later stages of implementation and the preparations for the completion of the schemes, the Department’s approach became more robust as it applied lessons from its experience.

In January 1998 the Department took over the responsibility for the personal injury liabilities of the British Coal Corporation. The High Court had found the Corporation negligent in respect of two mining-related conditions: lung disease caused by coal dust (Chronic Obstructive Pulmonary Disease, COPD); and hand-injuries caused by using vibrating equipment (Vibration White Finger, VWF).

The potential schemes were very large and raised challenging issues reflecting the complexity of the coal industry, the nature of the illnesses involved and the long time period over which the Corporation had been found negligent. Additionally the Department was under pressure from all parties to get the schemes up and running.

When all of the 760,000 claims are settled, the Department expects to have spent some £2.3 billion in administration costs, including £1.3 billion for claimants legal fees, and to have paid £4.1 billion in compensation. At the end of March 2007, the Department had settled around 430,000 COPD and 145,000 VWF claims.

The report found that the Department produced limited strategic oversight or forward planning ahead of the court decisions and, crucially, insufficient Departmental staff were initially allocated to the task. It did not take actuarial advice on the scale of the liability and the forecasts that were made, initially by the Corporation, underestimated the number of potential claimants. The initial procedures put in place proved to be particularly complex to administer.

The original Agreements were negotiated with claimants’ solicitors in 1999, and approved by the Court. These set out how the schemes would work and included a schedule of fees for remunerating claimants’ legal representatives which were paid by the Department. There were weaknesses in the Department’s approach to negotiating the original fee rates with solicitors. In April 2007 a Cost Judge prepared an analysis on the costs payable under the original tariff in the COPD scheme; had costs payable to solicitors been in line with his findings, the total amount payable by the Department to solicitors would have been £295 million less. The National Audit Office is not suggesting the Department was able to negotiate an agreement from the outset at the levels identified by the Cost Judge, but it reinforces the desirability of having review clauses in such agreements.

Once the scale of the problems with processing claims became clear, the Department made significant changes to its approach. It enlarged its in-house team and recruited a broader range of external skills. It improved strategic oversight and programme management. Further work with contractors, such as the computerisation of records, helped to speed up processing and deliver efficiency gains.

To help clear the volume of outstanding COPD claims, which had reached 400,000 in 2004, the Department, working with solicitors and the Court, introduced a fast-track option based on simplified procedures. Some 170,000 claimants have now chosen this option. The Department took action in the courts to reduce the fees payable to solicitors for handling such claims – resulting ultimately in a saving of the order of £100 million for the taxpayer.

The Department has set aspirational dates for the effective completion of both schemes – February 2009 for COPD and October 2007 for VWF. By the end of March 2007, just over 168,000 COPD claims and 27,000 VWF claims remained outstanding. A significant proportion of the remaining claims raise complicated issues, some to be resolved. The Department has mapped out the risks it now faces, including the need to work effectively with its contractors and solicitors, and has sought to put in place arrangements to manage these issues.

“The former Department of Trade and Industry has settled some 575,000 coal health compensation claims which in itself would be a major achievement, but it did not prepare itself properly for introducing the schemes for these two serious mining related injuries. In the early stages the consequences were significant. The taxpayer has paid too much in administration costs and many claimants, some of whom are elderly and infirm, have had to wait a long time for their compensation.

“But the Department also showed what can be achieved once it started to get its act together. These schemes illustrate important lessons for other government departments when establishing and implementing future compensation schemes.”

Sir John Bourn


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