Minister for Community Safety Fergus Ewing MSP ~ T: 0845 774 1741 The Scottish E: [email protected] Government Bill Aitken MSP Convener Justice Committee Scottish Parliament Edinburgh EH99 1SP Your ref: Our ref: 25 February 2009 DAMAGES (ASBESTOS-RELATED CONDITIONS) (SCOTLAND) BILL I am writing to provide a reassessment of the financial implications of the Damages (Asbestos-related Conditions) (Scotland) Bill, in accordance with the shared wishes of the Scottish Government and Parliament as expressed in the motion passed at the conclusion of Stage 1. The information should help to give reassurance that, as initially recommended by your Committee in its report of 13 October 2008, the Scottish Government has made every effort to reconsider the adequacy of the Financial Memorandum and to establish whether the UK Government will invoke the Statement of Funding Policy. I intend to arrange for the formal submission of a new Financial Memorandum, picking up the relevant points. Statement of Funding Policy (SFP) Let me address the SFP first. As you know from the correspondence that I shared with you in the autumn, the Parliamentary Under-Secretary at the Ministry of Justice, Bridget Prentice MP, had indicated that until such time as the UK Government has announced its approach to pleural plaques south of the border, it will not confirm its position on the SFP. Unfortunately, that announcement has not yet been made. It was to have been made in November, but was postponed with no firm timetable being set (as far as we are aware). A letter last month from Ms Prentice, in response to my letters of 9 October, 14 November and 7 January, simply indicated that, as had already been stated in a Westminster Hall debate in November, the announcement would be made "soon" and, until then, no indication - not even a contingent one - can be given as regards the SFP. In the circumstances, therefore, I am regrettably unable to provide new information about whether the UK Government will invoke the SFP. All I can do is restate that - for the reasons that were given in the earlier correspondence - it is quite legitimate to believe that UK Government Departments ought to St Andrew's House, Regent Road, Edinburgh EH13DG www.scotland.gov.uk continue to accept responsibility for the financial consequences of their asbestos-related liabilities, as they have in the past. Reassessment Process Turning to the overall financial implications of the Bill, I can assure you that the aim of the Scottish Government is to reach the most robust projections possible. Consequently, we shared the concern about the wide disparity in projections at Stage 1, as encapsulated in paragraph 5.5 of the written evidence of the Association of British Insurers (ABI) 1: "[The Scottish Government] suggests that the annual cost to defendants will be between £5.5m and £6.5m; figures from the UK Government suggest that the annual cost in Scotland would be between £76m and £607m, and the total cost in Scotland would be between £1.1bn and £8.6bn". That statement requires to be treated with some caution because, for example • as is evident from the table entitled "summary of additional costs arising from the Bill" at the conclusion of the Financial Memorandum, the annual figures of £5.5m and £6.5m related only to private sector defenders, and did not represent the Scottish Government's projection of the full annual costs associated with the Bill, which were rather higher; • the annual figures of £76m and £607m, and the total figures of £1.1bn and £8.6bn, do not appear in the UK Government's consultation paper but seem to reflect a calculation by the ABI, based on its contention that 30% of asbestos liabilities are in Scotland (paragraph B1 of the ABl's written evidence). Nevertheless, the disparity is still very significant and requires to be explored. Therefore, I enclose a paper which provides a reassessment of the financial implications, based on all the information now available to us. It may be helpful if I outline the process that we adopted to produce this. Essentially, I instructed officials to do 3 things: • the first was to look afresh at the data that were previously supplied to us, notably by stakeholders in response to our consultation exercise on the provisional Regulatory Impact Assessment in February-April 2008. (Members will be aware 2 that we have already published all of the non-confidential responses .) • the second was to review material that has come to light subsequently. This included the evidence that stakeholders gave to your Committee at Stage 1. It also included the consultation paper issued by the Ministry of Justice in July. (Though we have not been afforded formal access to all the responses that were received by the Ministry of Justice, we have considered those which we were able to track down because they were published on the internet by their authors.) It included too the consultation paper issued by the Northern Ireland Government in October. • the third was to seek out and consider new material. For example, as you suggested, we made direct contact with The Actuarial Profession to seek their views, speCifically those of its UK Asbestos Working Party. Their contribution is attached in an Annex to the enclosed paper. Also attached in that Annex is new correspondence from the AB!. The ABI identified a number of law firms thought to be involved in pursuing pleural plaques cases in Scotland, so officials wrote to each of them to seek information about the nature of their activity. I www.scottish.parliament.ukls3/committees/iustice/inquiries/damages/D8.ASI. pdf 2 www.scotiand.gov.uk/Publications/2008/09/Johnston- NEI -responsesl content St Andrew's House, Regent Road, Edinburgh EH13DG www.scotland.gov.uk I put on record that the Scottish Government is grateful for the co-operation received from a number of stakeholders - including supporters, opponents and neutrals as regards the merits of the Bill - in this endeavour. Unfortunately, we have not been provided with any information about the work that the Ministry of Justice have in hand to reassess the financial projections set out in their July consultation paper. Nor did they feel able to share factual information about the assumptions underlying their original projections. Revised Financial Estimates The enclosed paper notes that The Actuarial Profession has commented in relation to mesothelioma projections that "as information emerges on mesothelioma the range of potential outcomes is widening rather than the reverse." Our further work on pleural plaques has suggested something similar. However, as shown in the paper, we have been able to reach tentative conclusions about the order of magnitude of the Bill's financial implications with the headline figures - based on the assumptions and subject to the uncertainties described in the paper - being as follows: • the number of backed-up claims in Scotland could be between 690 and 1040, which will cost between £14.66m and £22.88m in total (the midpoint of which is £18.77m). This compares with a projection in June's Financial Memorandum of c. £20m. • if the peak year for claims is 2015, then in that year the number of new claims created in Scotland could be between 341 and 848, which will cost between £7.25m and £18.79m for that year (the midpoint of which is £13.02m). This compares with a projection in June's Financial Memorandum of c. £7m-£8m in 2015. • from the enactment of the legislation up to and including the anticipated peak year - and assuming that in 2009 claims will be created which, had it not been for the Appeal Court and House of Lords judgements, would otherwise have been created in 2006-2008 - the total number of new claims created in Scotland could be between 2826 and 5928, which will cost between £60.05m and £131.31m (the midpoint of which is £95.68m). In present value terms that equates to between £53.60m and £116.30m (the midpoint of which is £84.95m). No aggregate estimates for this period were provided in the Financial Memorandum. To the extent that our estimates are now higher than they were in June 2008, this is primarily the result of two factors. First, in light of new data and representations from the insurance industry, we now proceed on the basis that between 10% and 40% of claims in Scotland have historically been pursued by firms other than Thompsons (whereas we had originally worked from a single figure of 10%). Second, in light of new information and concerns about the validity of using projections of trends in future mesothelioma deaths as a proxy for trends in future pleural plaques claims, and while acknowledging the degree of uncertainty associated with it, we have explored an alternative approach to determining what the future rate of change might be. We have also made revisions in order to take account of the fact that not all claims are successful, and this has the effect of making the estimated costs lower than they would otherwise be. Although our overall estimates of the Bill's anticipated financial implications remain broadly of the same magnitude as those set out in June's Financial Memorandum, what this new exercise has done is: • enhance our confidence that the more extreme projections in some of the submissions made to the Justice Committee lack any real foundation; but St Andrew's House, Regent Road, Edinburgh EH1 3DG www.scotland.gov.uk DAMAGES (ASBESTOS-RELATED CONDITIONS) (SCOTLAND) BILL FINANCIAL IMPLICATIONS Actuarial Projections 1. The extent and consequences of conditions arising from exposure to asbestos have long been of concern, not least to the insurance and actuarial professions.