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Select Committee on Public Accounts Eleventh Report

1 Implementation of the compensation scheme

1. In July 2000 the Department for Business, Enterprise and Regulatory Reform (then the Department of Trade and Industry) announced a scheme to compensate former trawlermen who had lost their jobs when the distant water fishing industry collapsed in the late 1970s. The collapse had been due, in part, to the loss of access by UK boats to Icelandic waters following agreements between the UK and Icelandic governments at the end of the 'Cod Wars'. Most trawlermen did not receive statutory redundancy payments at the time, and vessel owners who received compensation for the decommissioning of their vessels were under no obligation to pass any payments on to trawlermen.

2. In 1993, following a successful case in the High Court, trawlermen who could demonstrate two years continuous service with a single employer were able to claim payments in keeping with statutory redundancy payment rules. The Government set up arrangements to make ex gratia payments in these cases. But the former trawlermen considered the arrangements provided insufficient compensation for the loss of their industry, because their employment patterns had often required them to move between employers. The scheme announcement in 2000 followed a long campaign by trawlermen and their representatives for better compensation.[3]

3. The scheme was open for claims between October 2000 and October 2002. Over £42 million has been paid to 4,400 former trawlermen and their dependents under the scheme, representing 63% of the 7,000 claims received.[4] The Department's aim was to target former trawlermen whose livelihoods had been affected directly by the outcome of the 'Cod Wars', and to distinguish these trawlermen from those who had lost their jobs as part of the wider decline of the UK's distant water industry. The Department expected to determine from fishing records which vessel a former trawlerman had worked on at any given time.

4. Records did not, however, indicate which vessels had fished in Icelandic waters and when. The Department therefore developed a "proxy" whereby a vessel qualified for the purposes of the scheme if it had undertaken at least two independently-verified trips to Icelandic waters in its lifetime. Compensation payments were linked to the length of time spent working on qualifying vessels, which could be limited by a 'break-in-service' if the former trawlerman had spent a period greater than 12 weeks on paid work outside the industry (on non-Icelandic water vessels or elsewhere).[5]

5. The Department dealt with many claims quickly but had difficulty applying its own scheme rules to a significant proportion of claims and obtaining evidence to support others. Long delays and frustration for some claimants resulted. The median time for the Department to reach an initial decision was eight months compared, for example, to over 20 months under the Coal Health Compensation Schemes also administered by the Department. But some claims took significantly longer with the Department making the last decisions on claims and payments in July 2006, almost four years after the scheme opened (Figure 1).[6]

Figure 1: The profile of processing of claims

Source: National Audit Office

6. The Department did not test the impact of the scheme's rules on different types of applicant before launching the scheme. As a consequence, some rules needed to be reviewed and amended as the scheme evolved. These difficulties added significantly to the complexity of administering the scheme, requiring some claims to be set aside to await decisions, and some cases to be revisited as the scheme evolved.[7] A number of complications arose:

Under the initial scheme's rules periods of imprisonment counted as an allowable break-in-service if part of a longer period of entitlement. This led to the perverse outcome that a small number of former trawlermen were paid for time spent in prison, because this did not break continuity of service. The Department reported that about 30 cases involved time spent in prison, including two for serious offences. The Department amended the scheme's rules to preclude time in prison from eligibility in November 2003.[8]
Initially, the Department did not define precisely what it meant by Icelandic waters. In March 2002, the Department defined Icelandic waters as extending to 200 imperial miles from Iceland rather than nautical miles. In March 2004, the Department decided to extend the limit to include boats recorded as fishing around the Faroe Islands, thereby adding 21 vessels to the qualifying list.[9]
A pool system operated in some ports whereby trawlermen who could not get work on a distant water trip could be required by the local employment office and vessel owners to work on a North Sea or middle water vessel or risk losing their unemployment benefit. If these periods on other boats exceeded 12 weeks, the work was deemed a break-in-service and reduced the amounts payable to claimants. The Department had not foreseen this outcome in its option papers during the design of the scheme. The Department argued that these trawlermen were less dependent on Icelandic water fishing and therefore the outcome was reasonable. The Ombudsman ruled against the Department on this point in February 2007 when she reported on a specific case put to her by a relative of a former trawlerman.[10]

7. In many instances, the Department lacked the information it needed to calculate and verify the amount of compensation due. The Department did not have a complete and accurate list of vessels meeting its qualifying criteria when the scheme was launched. Shortly before the scheme was launched in October 2000 the Hull branch of the British Fishermen's Association supplied the Department with a list of vessels it believed had operated in Icelandic waters, but the Department did not check before the scheme opened whether these vessels met its qualifying criteria, nor whether there were other vessels which did meet the qualifying criteria. Verification work did not begin until early 2001 after the Department had realised that many vessels named in claims were not on the original list. The Department did not finalise its list until March 2004.[11]

8. The Department did not have a right of access to some of the information which could help it to verify claims. A former trawlerman's National Insurance Contribution records could indicate whether he had undertaken other paid work during gaps in fishing records of greater than 12 weeks, which would break continuity of service. The Department had a statutory right of access to National Insurance Contribution records when it operated the ex gratia scheme between 1993 and 1995. But it did not realise when it began the Icelandic water scheme that this right of access had been lost as a result of a machinery of Government change which meant this information was no longer kept within the Department. The Department finally reached agreement with the Inland Revenue in 2002 that records could be released with the former trawlerman's consent.[12]

9. The Department had to exercise discretion in cases where there was insufficient evidence but did not always record the reasoning supporting its decisions. In a sample of 100 claims the National Audit Office was unable to confirm with certainty the accuracy of 25 claims due to a lack of available evidence. The Department had given the benefit of doubt to claimants unless there was clear evidence to the contrary. In 11 further cases, the National Audit Office had identified errors in payments (9 overpayments and 2 underpayments), partly attributable to human error but also to the subsequent receipt of evidence by the Department refuting some aspects of the claims.[13]

10. In February 2007 the Parliamentary and Health Service Ombudsman found that five complainants had suffered an injustice as a result of maladministration by the Department. Eligibility rules for compensation were found to be inconsistent with the objectives of the scheme and these individuals were judged to have been treated unfairly. The Ombudsman made five recommendations to remedy this injustice (Figure 2). The Department apologised to the complainants and made consolatory payments to reflect the injustice caused. As recommended in the Ombudsman's report, officials completed a review of the scheme by November 2007 and made recommendations to Ministers. The Department expects Ministers to make an announcement in due course on whether any further action is needed. HM Treasury reported that it had published revised guidance to Departments in October 2007 on setting up schemes of this kind, drawing on lessons to be learned from the Ombudsman's report and the report from the Comptroller and Auditor General.[14]

Figure 2: The Ombudsman's recommendations and the Government's response

Recommendations	Government response
"My first recommendation is that DTI should apologise to and make a consolatory payment to Mrs A, and to the other complainants identified in this report, to reflect tangibly the inconvenience and distress caused by the maladministration I have identified."	The Department agreed to make a consolatory payment of £1,000 to each of the complainants identified in the Ombudsman's report, and apologised to them for the shortcomings that she identified.
"My second recommendation is that DTI should review the eligibility criteria and scheme rules to ensure that they are consistent with the policy intention underlying the scheme."	The Department agreed to undertake a review of the eligibility criteria and scheme rules to ensure that they are consistent with the policy intention underlying the scheme, and said that it intended to start that review immediately. Officials are awaiting a Ministerial decision on next steps, having completed their review.
"My third recommendation is that, once that is done, DTI should fully reconsider Mrs A's case, and the cases of the other complainants identified in this report, in line with the criteria which it determines are consistent with the policy intention as a result of the above review. In the event of any additional award, interest for loss of use of those funds should also be paid"	The Department accepted the third and fourth recommendations saying that it would design a scheme to ensure the rules were consistent with the policy intention, should Ministers decide that the criteria were not consistent with the policy intention, and that new criteria should be devised. If the criteria were then designed in such a way as to widen eligibility, they would reassess all claims (where the maximum payment of £20,000 had not already been made) against the new criteria. Any additional entitlement would be paid with interest. In addition, the Department would apologise and make consolatory payments to all those who received additional awards as a result, to reflect the injustice they would have suffered. If any criteria were narrowed, the Department would not seek to recover payments from those who had received more than they would have been entitled to under the revised criteria.
"My fourth recommendation is that, following the review, DTI should consider the cases of any individuals who claim to have suffered similar injustice as a consequence of the maladministration I have identified. If that is shown to be the case, DTI should apologise and make consolatory payments to them; should review their cases in line with criteria it determines are consistent with the policy intention; and, in the event of any additional award, interest for loss of use of those funds should be paid"
"My final recommendation relates to ex gratia compensation schemes more generally. During my investigation—and others that I have conducted into similar schemes—it struck me that no central guidance exists for public bodies that specifically relates to the development and operation of ex gratia compensation schemes. Such guidance can, in my view, only be helpful to them—and may well assist in preventing a reoccurrence of the problems I have identified in this report. I therefore recommend that such guidance be developed across government."	The Government accepted the need for central guidance on the development and operation of ex gratia compensation schemes, and HM Treasury published guidance on schemes of redress in October 2007 as part of Managing Public Money.