England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY

		23rd November 2006

Mrs Justice Swift :

The Background

1. The Claimant, Lee Carl Thompstone, was born on 15 March 1999 and is now aged seven years eight months. He claimed damages for personal injury and consequential losses incurred as a result of the negligence of the Defendant in the management of his birth. The Defendant did not dispute liability and causation. The only issue to be resolved was therefore that of quantum.
2. The Claimant suffers from a spastic quadriplegic cerebral palsy as a result of anoxia at birth. He has, and will always have, a high level of physical and intellectual disability. He requires adapted accommodation, specialised aids, equipment and transport and therapies of various kinds. He will incur higher expenses than an able-bodied person for holidays and certain other items. He will never be employable so will incur loss of earnings. When he reaches adulthood, he will be incapable of managing his affairs so that Court of Protection and receivership expenses will be incurred. All these heads of damage (together with damages for pain, suffering and loss of amenity) have been the subject of agreement between the parties.
3. The Claimant will also require a high level of care for the rest of his life. As is usual in cases of this type, the claim for the cost of care forms by far the largest head of damage. While some measure of agreement about the care claim has been reached by the parties, there remain important disputes between them which I must resolve.
4. At a hearing on 29 March 2006, I approved the acceptance by the Claimant of agreed lump sums in settlement of all the heads of damage referred to above, save for loss of earnings and the cost of care. There was agreement, which I approved, in relation to the value of past gratuitous care up to 1 June 2005. No agreement had at that time been reached as to the appropriate award for past gratuitous care after 1 June 2005. In addition, I approved an agreement as to the appropriate annual cost ('the annual multiplicand') of future care for each of three periods of the Claimant's life. These multiplicands were as follows:

£43,000 to age 11

£57,400 from age 11 to age 19

£91,000 from age 19 for life.

5. The Claimant has a reduced life expectancy which the paediatric experts estimated was to the age of 60 (the Defendant's expert) and to the age of 64 (the Claimant's expert). At the hearing, I approved an agreement by the parties (based on a life expectancy to 62 years) as to the multiplier which would be appropriate (provided that the trial of outstanding issues commenced no later than 26 June 2006) if the award of damages for future care were to be made on a lump sum basis.
6. At the hearing, Leading Counsel for the Claimant, Mr David Allan QC, made clear that the Claimant's preference was for the award for future care to be by way of a periodical payments order. That would have the advantage of guaranteeing to the Claimant annual payments for the whole of his life, however long he survived. The question was whether those annual payments would be sufficient to meet the costs of care. At the hearing, Mr Allan referred to financial advice received by the Claimant's legal advisers. This advice indicated that, if a periodical payments order were to provide for annual increases in the costs of care in line with the retail price index (RPI), it was likely that, over time, the periodical payments would not keep pace with the increased costs of care, so that the Claimant would be unable in later life to meet his care needs. Mr Allan indicated that, for that reason, the Claimant would be seeking to persuade the Court to make an order for periodical payments providing for annual increases to be referable to some other index which better reflected increases in the wages payable to carers. At this stage, it was intended that the Court should also be invited to make a periodical payments order linked to an alternative index in respect of the claim for future loss of earnings. The Defendant opposed the use of an index other than the RPI, so plainly there had to be a hearing of the issue. The parties had agreed directions, including the giving of permission for the adducing of expert evidence, and trial of the issue of indexation was adjourned to 26 June 2006.
7. The case came before me again on 9 June 2006. By that time, it was known that the appeal in the case of Flora v Wakom (Heathrow) Ltd [2006] EWCA Civ 1103, a decision of Sir Michael Turner (sitting as a Judge of the High Court), was due to be heard by the Court of Appeal in early July and it was thought that, in the course of its judgment in the case, the Court of Appeal might give some guidance on the interpretation of the relevant statutory provisions. Consequently, it was agreed by the parties that trial of the issue of indexation in this case should be adjourned until a date after the Court of Appeal had delivered its judgment.
8. At the time of the hearing on 9 June 2006, the parties had agreed a further global figure, which I approved, to cover awards for future loss of earnings and future educational costs, together with the value of past gratuitous care, past case management costs and past private care costs up to the date of the hearing. The claim for a periodical payments order for future loss of earnings was, therefore, not pursued.
9. The Court of Appeal handed down its judgment in Flora on 28 July 2006 and the case came before me for hearing, commencing on 30 October.

The Issues

10. At the hearing on 9 June 2006, the parties agreed that the following issues fell to be determined:

(i) Whether an order for periodical payments in respect of the cost of future care should be varied by reference to the RPI, pursuant to section 2(8) of the Damages Act 1996 (the 1996 Act), or whether such order should contain a provision and, if so, what provision, modifying the effect of sub-section (8), pursuant to section 2(9) of the 1996 Act;

(ii) Following my determination of (i) above, whether the award for the cost of future care should be by an order for periodical payments or by lump sum.

11. In addition, there were two further issues outstanding from the previous hearings, namely:

(iii) Valuation of the costs of past gratuitous care, case management costs and private care costs from 26 June 2006 to the date of my judgment;

(iv) In the event that I were to decide that the award for the cost of future care should be by way of an order for lump sum, determination of the appropriate lifetime multiplier. This would be necessary since the trial of the issue of indexation would commence later than 26 June 2006 (see paragraph 5) and the agreement as to the multiplier reached by the parties on 29 March 2006 would therefore no longer stand.

12. Although the issue of indexation is one which affects many high value personal injury claims, the parties were in agreement that I should approach this case on an individual (rather than a generic) basis and this I have done.

The Evidence

13. I heard evidence from three expert witnesses for the Claimant. They were Dr Victoria Wass (an academic labour economist based at the Cardiff Business School), Mr Richard Cropper (an independent financial adviser specialising in providing advice to the recipients of personal injury and fatal accidents damages) and Mr Anthony Carus (a consulting actuary). The Defendant relied on the evidence of Mr Hugh Gregory (an accountant with considerable experience of forensic accountancy), Mr Raymond Storry (a principal researcher with Income Data Services) and Mr Joe Monk (a member of the firm of consulting actuaries which advises the NHSLA).

Different Forms of Damages Awards

Lump Sum Awards

14. In the past, damages awards have in general been paid by way of a single lump sum, comprising (as applicable) awards for pain, suffering and loss of amenity, past losses, interest and future losses. In the case of a claim for future loss, a lump sum is calculated by reference to a series of multiplicands, representing the claimant's future annual loss or cost in respect of each head of damage. To those multiplicands are applied multipliers derived from a combination of the Claimant's estimated life expectancy and a discount rate based on an assumption that the capital, notionally invested, will produce an annual return equivalent to 2.5% net per annum (pa) over and above the increase in the RPI.
15. A lump sum award has a number of advantages. It is final, simple and offers flexibility to a claimant, who can decide for himself how to prioritise his various needs and wants. However, the 'once and for all' approach frequently results in over- or under-compensation. The multiplier is calculated by reference to average life expectancy which may have little bearing on the actual life expectancy of the individual claimant concerned. A claimant may die well before his expected time; in that event, the defendant cannot recover the excess of damages paid and that excess constitutes a windfall for the claimant's family. Conversely, a claimant may survive longer than expected, in which case his damages may be insufficient to meet his needs during the last years of his life. Investment returns will vary according to an individual's investment strategy and the economic conditions prevailing at the time. The returns may be above or below those assumed by the discount rate. In addition, a claimant's needs may alter from those anticipated at the time of trial or settlement, and costs which were estimated at rates current at the trial date may increase significantly thereafter.

Structured Settlements

16. In an attempt to meet some of these difficulties and, in particular, to ensure that claimants were protected against the risk that, at some point, their damages might be exhausted, a new means of paying damages by way of 'structured settlement' was developed. From 1988, the purchase of an annuity by a defendant or its insurer out of, and at the same time, as an award of compensation resulted in the annual payments from the annuity being tax-free in a claimant's hands. The first structured settlement was agreed in 1989 and provided for the payment to the claimant of a combination of a lump sum and a stream of tax-free payments payable for her lifetime. Since 1989, there have been various developments in the arrangements for structured settlements which I need not describe here. Various factors have served to limit the number of claims resolved by means of a structured settlement. A major restriction was that structured settlements could be implemented only with the agreement of both parties.

Changes to the System

17. Section 2(1) of the 1996 Act permitted the court to make an order that damages were wholly or partly to take the form of periodical payments. Such an order could, however, only be made if both parties agreed.
18. The shortcomings of the existing system were highlighted by Lord Steyn in the leading case of Wells v Wells [1999] 1 AC 345 at 384B:

" … there is a major structural flaw in the present system. It is the inflexibility of the lump sum system which requires an assessment of damages once and for all of future pecuniary losses. In the case of the great majority of relatively minor injuries the plaintiff will have recovered before his damages are assessed and the lump sum system works satisfactorily. But the lump sum system causes acute problems in cases of serious injuries with consequences enduring after the assessment of damages. In such cases the judge must often resort to guesswork about the future. Inevitably, judges will strain to ensure that a seriously injured plaintiff is properly cared for whatever the future may have in store for him. It is a wasteful system since the courts are sometimes compelled to award large sums that turn out not to be needed. It is true, of course, that there is statutory provision for periodic payments: see section 2 of the Damages Act 1996. But the court only has this power if both parties agree. Such agreement is never, or virtually never, forthcoming. The present power to order periodic payments is a dead letter. The solution is relatively straightforward. The court ought to be given the power of its own motion to make an award for periodic payments rather than a lump sum in appropriate cases. Such a power is perfectly consistent with the principle of full compensation for pecuniary loss. Except perhaps for the distaste of personal injury lawyers for change to a familiar system, I can think of no substantial argument to the contrary. But the judges cannot make the change. Only Parliament can solve the problem."

19. In 2002, the Master of the Rolls' Working Party published its report entitled "Structured Settlements". The disadvantages of a conventional lump sum award were summarised at paragraph 12 of the report:

"The one thing which is certain about a once and for all lump sum award in respect of future loss is that it will inevitably either over-compensate or under-compensate. This will happen particularly where the claimant survives beyond the life expectancy estimated at the time of trial, or alternatively dies earlier. It will frequently be the case in practice that there is over-compensation in six figure sums, or, correspondingly, that a combination of increased life expectancy, the cost of care, and (it may be) the cost of new but necessary medical treatments is such that the sum needed exceeds anything that might have been awarded at the date of trial."

20. The Working Party therefore concluded at paragraph 21:

" … of the features we have identified that of accuracy is the most important. We are concerned that a consequence of a system of once and for all lump sum awards is that there will be under or over-compensation (in some cases considerable) and particularly concerned that a proportion of claimants whose life expectancy is uncertain, and who need significant continuing care, might be left with significant uncompensated need. It adds to our concern that this is likely to occur later in life when the consequences will be particularly hard to manage. It is also of concern that appreciation of this may give rise to excessive prudence and under expenditure in earlier years. Accordingly, we prefer a system that is better able to meet future needs as and when they arise. Such a system may also have its defects – as we shall go on to point out – but we believe the advantages outweigh them."

21. Following the report of the Working Party, amendments were made to the 1996 Act. As a result of these amendments, contained in the Courts Act 2003, it has since 1 April 2005 been open to a court to make an order for periodical payments whether or not the parties agree. Indeed, it is now mandatory, when a court is making an award of damages for future pecuniary loss in respect of personal injury, for it to consider whether the damages - or part of them – should be paid by way of periodical payments.

Periodical Payments Orders

22. Periodical payments avoid many of the problems caused by lump sum awards. They provide a guarantee for a claimant that he will continue to receive regular annual payments for the duration of his life so that his damages will never be exhausted. The annual payments will be free of tax, which removes any uncertainties associated with possible future changes to the arrangements for taxation of investment income. The fact that the annual payments cease on death means that there is far less risk of large sums paid by defendants going to persons other than the injured person for whose benefit they were intended. All these factors represent considerable advantages over the lump sum award.
23. When a lump sum award is made, the responsibility for deciding how to invest his damages lies with the claimant or those acting on his behalf. It is for him (or them) to husband his resources carefully, with a view to ensuring that they have the best possible opportunity to meet his lifelong needs. Where the claimant has a large sum of damages and a long life expectancy, his damages will require skilled financial management in order, not only to guard against the risk that he might survive longer than the estimate of life expectancy on which the multiplier was calculated, but also to meet the cost of his annual needs, which cost will increase year by year from the date when the award is made.
24. The management of a claimant's damages involves taking decisions about risk. All investments carry with them some element of risk. The more risk an investor is prepared to take, the greater the potential returns. An investment that offers the prospect of high returns in terms of capital growth also in general carries with it the risk that the capital value of the investment might decrease. An investment carrying a lower rate of risk is likely to produce lower returns but greater security of capital. Ideally, a claimant who is entirely reliant on his damages for his future quality of life should not be compelled to expose himself to a significant degree of investment risk. However, for a claimant with a long life expectancy and a 'once and for all' damages award, this is often unavoidable. He will probably be advised to invest in a combination of low risk and higher risk investments, this being the only way in which he can hope to be in a position to meet increasing annual costs and the potential additional expense associated with a longer than expected life expectancy.
25. One important effect of a periodical payments order is to transfer the risk associated with the investment of damages away from the claimant. The award will guarantee the claimant annual payments for his lifetime. Furthermore, the amendments to the 1996 Act provide for uplifts to the annual payments in accordance with the RPI. Provided that indexation to the RPI accurately reflects actual increases in the relevant annual costs, the claimant will be protected against the effects of future increases in those costs.
26. If, however, the annual uplifts do not properly reflect the actual increases in the relevant costs, the claimant will have no means of protecting himself against the consequences of the shortfall. He will not have the option of pursuing an investment policy aimed at achieving capital growth in order to meet shortfalls in the future. The transfer of risk away from him results also in a loss of opportunity for gain. He could be caught in a situation whereby his annual payments fall further and further below the level which, at the time the periodical payments order was made, was agreed or assessed as being required to meet his needs.

Awards for Future Care Costs

27. In most serious personal injury cases, the largest component of the award of damages is the cost of future care. The provision of a proper level of good quality care throughout life is vital to a severely injured claimant's future well being and quality of life. The importance of this head of damage has been recognised by the courts. In Wells, Lord Hutton said at 403C-D:

"Unlike the great majority of persons who invest their capital, it is vital for the plaintiffs that they receive constant and costly nursing care for the remainder of their lives and that they should be able to pay for it, and any fall in income or depreciation in the capital value of their investments will affect them much more severely than persons in better health who depend on their investments for support."

In the same case, Lord Hope observed at 400E:

"Whatever policy reasons there might have been for regarding it as acceptable that there may be less than a full recovery in regard to wage loss – and I should make it clear that I do not subscribe to that policy – there can be no good reason for a shortfall in the amount required for future care or to meet all the other outlays which have been rendered necessary by the disability. The calculation should make the best use of such tools to assist that process as are available."

Lord Clyde made the same point at 394G:

"The problem of sufficiently providing for the future care of the very severely disabled plaintiff gives rise to particular concern since any inadequacy of the award in that respect could be particularly serious."

28. The effect of a shortfall in the damages available for future care is that the claimant will be dependent on the State to make up the balance needed to meet his care needs. Such assistance may or may not be forthcoming.

The Principle of Full Compensation

29. Awards of damages should be calculated so as to achieve, as nearly as possible, full compensation for the claimant. In Wells, Lord Hope set out what is sometimes known as the '100% principle' at 390A:

" … the object of the award of damages for future expenditure is to place the injured party as nearly as possible in the same financial position as he or she would have been in but for the accident. The aim is to award such a sum of money as will amount to no more, and at the same time no less, than the net loss."

In the same case, Lord Lloyd said at 363H:

"It is of the nature of a lump sum payment that it may, in respect of future pecuniary loss, prove to be either too little or too much. So far as the multiplier is concerned, the plaintiff may die the next day, or he may live beyond his normal expectation of life. So far as the multiplicand is concerned, the cost of future care may exceed everyone's best estimate. Or a new cure or less expensive form of treatment may be discovered. But these uncertainties do not affect the basic principle. The purpose of the award is to put the plaintiff in the same position, financially, as if he had not been injured. The sum should be calculated as accurately as possible, making just allowance, where this is appropriate, for contingencies. But once the calculation is done, there is no justification for imposing an artificial cap on the multiplier. There is no room for a judicial scaling down."

30. In the case of Flora, the Court considered the '100% principle' in the context of the indexation of periodical payments. At paragraph 19 of his judgment, Brooke LJ said:

"There is no indication in s 2 of the 1996 Act, as substituted, that Parliament intended to depart from this well-known principle (i.e. the 100% principle) … "

He repeated his view at paragraph 28 and then went on to say at paragraph 29:

"For this reason I reject the argument that in enacting s 2(8) and 2(9) of the 1996 Act Parliament must be taken to have intended to provide compensation lower than that which would be awarded through adherence to the 100% principle if a periodical payments order was to be made."

31. It follows, therefore, that indexation of a periodical payments order must be directed at ensuring, as far as is possible, that the real value of the annual payments is retained over the whole period for which the payments will be payable. Any other result would mean that the '100% principle' was breached and would result in injustice to a claimant in respect of whom a periodical payments order was made. It would also have the effect of rendering the new statutory provisions nugatory. If it were clear to claimants' advisers and to courts hearing personal injury cases that the real value of periodical payments would not be retained in the future, orders for periodical payments would not be agreed or made. Instead, awards of damages by way of lump sums – with all the attendant disadvantages which have been identified and addressed – would continue to be the norm. It was this possibility to which Brooke LJ referred in Flora when he said at paragraph 35:

"In enacting s 2 of the 1998 (sic) Act, as substituted, it cannot have been Parliament's purpose to create a scheme which no properly advised claimant would ever wish to use."

The problem is illustrated by the recent case of A v B Hospitals NHS Trust [2006] EWHC 2833, in which the claimant contended successfully that a lump sum award would meet his needs better than a periodical payments order indexed to the RPI.

The Statutory Provisions

32. I come now to the statutory provisions which have been in force since 1 April 2005.
33. Section 2(1) of the 1996 Act (as substituted by the Courts Act 2003) provides:

" A court awarding damages for future pecuniary loss in respect of personal injury:-

(a) may order that the damages are wholly or partly to take the form of periodical payments, and

(b) shall consider whether to make the order."

34. The new section 2(8) and (9) provide:

"(8) An order for periodical payments shall be treated as providing for the amount of payments to vary by reference to the retail price index (within the meaning of section 833(2) of the Income and Corporation Taxes Act 1988) at such times, and in such a manner, as may be determined by or in accordance with Civil Procedure Rules.

(9) But an order for periodical payments may include provision:-

(a) disapplying subsection (8), or

(b) modifying the effect of subsection (8)."

35. The dispute in this case relates to the way in which these provisions should be interpreted and applied. The Claimant seeks an order modifying the effect of section 2(8) of the 1996 Act by the substitution of an index other then the RPI.
36. The rules governing the award of damages by way of periodical payments are set out in CPR 41.4-41.10. CPR 41.8(1) provides:

"Where the court awards damages in the form of periodical payments, the order must specify —

(a) the annual amount awarded, how each payment is to be made during the year and at what intervals;

(b) the amount awarded for future —

(i) loss of earnings and other income; and

(ii) care and medical costs and other recurring or capital costs;

(c) that the claimant's annual future pecuniary losses, as assessed by the court, are to be paid for the duration of the claimant's life, or such other period as the court orders; and

(d) that the amount of the payments shall vary annually by reference to the retail price index, unless the court orders otherwise under section 2(9) of the 1996 Act."

37. CPR 41.7 further provides:

"When considering-

(a) [inapplicable in this case]

(b) to make an order under section 2(1)(a) of the 1996 Act,

the court shall have regard to all the circumstances of the case and in particular the form of award which best meets the claimant's needs, having regard to the factors set out in the practice direction."

38. The relevant practice direction provides, at 41BPD.1:

"The factors which the court shall have regard to under rule 41.7 include:

(1) the scale of the annual payments taking into account any deductions for contributory negligence;

(2) the form of award preferred by the claimant including-

(a) the reasons for the claimant's preference; and

(b) the nature of any financial advice received by the claimant when considering the form of award; and

(3) the form of award preferred by the defendant including the reasons for the defendant's preference."

Security of Payments

39. Section 2(3) of the 1996 Act provides:

"A court may not make an order for periodical payments unless satisfied that the continuity of payment under the order is reasonably secure."

40. Section 2(4) provides:

"For the purpose of subsection (3) the continuity of payment under the order is reasonably secure if—

(a) [inapplicable in this case]

(b) [inapplicable in this case]

(c) the source of payment is a government or health service body."

41. Under the Clinical Negligence Scheme for Trusts (CNST), a defendant hospital trust pays an annual premium and the periodical payments are paid by the National Health Service Litigation Authority (NHSLA). By the Damages (Government and Health Services Bodies) Order 2005, the NHSLA is designated as a health service body. In the past, questions arose as to whether a foundation trust (or a hospital trust which might in the future convert to a foundation trust) could be regarded as 'reasonably secure' within the meaning of the 1996 Act. The issue was addressed in the case of YM v Gloucestershire Hospital NHS Foundation Trust [2006] EWHC 820 (QB). In that case, the court approved a solution whereby the defendant trust and the NHSLA entered into an agreement. By that agreement, the NHSLA agreed to take on the liability to make periodical payments to the Claimant, while the trust agreed that, in the event of its departure from the CNST, it would pay a lump sum to the NHSLA to cover all continuing future liabilities subject to periodical payments made under CNST cases. On the basis of that agreement and an order in an approved form ('the Model Form of Order'), Forbes J held that the periodical payments were reasonably secure. Such an agreement has been entered into by the present Defendant.

The Correct Approach to Sections 2(8) and 2(9)

42. The interpretation and application of section 2(8) and (9) of the 1996 Act were considered by the Court of Appeal in the case of Flora. The defendants in a claim concerning an accident at work had sought before Sir Michael Turner to strike out that part of the claimant's statement of case in which he contended that the index by reference to which periodical payments were increased should be modified under the provisions of section 2(9) so as to provide for an index other than the RPI to be used. The defendants argued that the claimant's case had no realistic prospect of success. They invited the court to refuse the claimant permission to rely on evidence from an expert as to the appropriate index to be applied. Sir Michael declined to strike out the relevant section of the claimant's statement of case and to exclude the expert evidence. The defendants appealed against his decision.
43. The Court of Appeal expressed no views about the merits of the competing arguments on indexation. However, mindful of the fact that the issue of indexation was affecting many cases and that the interpretation of section 2(8) and (9) was a source of concern to courts all round the country, the Court gave guidance on the interpretation of section 2(8) and (9) in the judgment of Lord Justice Brooke, with which the two other members of the Court agreed.
44. The Court rejected the defendants' contention that the provisions of section 2(9) could be triggered only in an exceptional case. It considered that the proper approach was for the trial judge to hear the evidence relating to alternative methods of indexation and then to make such order as he considered 'fair and appropriate' (paragraph 30) or 'fair and reasonable' (paragraph 31). At paragraph 37 Brooke LJ described the judge's task in this way:

" ... the claimant should be allowed to advance his statement of case and adduce Dr Wass's evidence at the trial of this action. It will then be for the trial judge to decide whether it is appropriate to use the powers given to him by Parliament in s 2(9) and to make such order for index-linking the periodical payments (if a periodical payments order is in fact made) as he considers appropriate and fair in all the circumstances …".

45. It seems to me that the decision as to what is fair, reasonable and appropriate must be informed by the purpose of indexation, which, as I have already observed, is directed at ensuring, as far as is possible, that the real value of the annual payments is retained over the whole period for which the payments will be payable.
46. The Defendant accepts that, for present purposes, it is bound by the decision in Flora. It has signified its intention to reserve for argument in the House of Lords its contentions as to the correct approach to the statutory construction of section 2(8) and (9).
47. In relation to the approach that I should adopt, Mr Paul Rees, QC, for the Defendant, makes a number of points. First, he submits that, in seeking to persuade the court to invoke section 2(9), the Claimant bears the legal burden of proof. It is, he argues, for the Claimant to establish on a balance of probabilities his case as to the correct index to be applied. He must do that by reference to the assertions set out in his statements of case. This, Mr Rees says, the Claimant has wholly failed to do.
48. Mr Rees points out that the Claimant's Schedule of Loss did not refer to the form of award being sought and the relevant calculations were set out on the conventional multiplier/multiplicand basis. The Claimant's preference for a periodical payments order (subject to the issue of indexation) was, however, made known to the Defendant before the approval hearing on 29 March 2006. At that hearing, it was agreed that the first issue to be tried at the adjourned hearing was:

"Whether an order for periodical payments in respect of the cost of future care and loss of earnings should be varied by reference to the RPI, pursuant to section 2(8) of the Damages Act 1996 or whether such order should contain a provision and, if so, what provision, modifying the effect of sub-section (8), pursuant to section 2(9) of the 1996 Act."

49. At the hearing on 9 June 2006, the issue was described in the same terms, save that it was now confined to the cost of future care alone. However, the consent order made on that day included a provision requiring the Claimant, on or before 4pm on 30 June 2006, to inform the Defendant as to the index which he contended should determine future variations of periodical payments for the cost of care. Mr Allan concedes that that was an error and that the provision should have required the Claimant to identify the 'index or indices' which he contended should be used. By a letter dated 29 June 2006, the Claimant's solicitors informed the Defendant's solicitors that:

"The Claimant contends that in respect of any periodical payments for future care, indexation to the Retail Prices Index is inappropriate and that one of the following indices would be more appropriate: 1. Average Earnings Index (AEI). 2. ASHE (The Annual Survey of Hours and Earnings) 50 (median). 3. ASHE 80 (6115)."

50. It is on that basis that this trial has proceeded. In evidence, the Claimant's expert witness, Dr Wass, identified a number of potential measures (I use the word 'measures' in place of 'indices' since not all the measures under consideration are indices) that could be adopted in place of the RPI and discussed their characteristics, together with their strengths and weaknesses. She narrowed the field down to the three measures referred to in the letter of 29 June 2006, each of which she suggested would provide an appropriate alternative to the RPI. However, she declined to express a preference for any one measure, preferring to leave it to the court to decide. Mr Allan adopted the same stance in his final submissions.
51. The Defendant submits that, quite apart from the fact that the response of the Claimant's solicitors did not comply with the terms of the consent order, it is wholly unacceptable for a Claimant to put a number of different options before the court, without electing to base his case on one of those options. To do so is, Mr Rees said, to ask the court to adopt a quasi-inquisitorial role. Moreover, he contended that, in adopting such a stance, the Claimant must inevitably fail in his duty to discharge the burden of proof.
52. I cannot accept that analysis, which does not seem to me to accord with the approach advocated by Brooke LJ in Flora, or with the terms of section 2(9) or the relevant CPR rule. My task is to decide what form of order will best meet the Claimant's needs and, so far as section 2(8) and (9) is concerned, to determine what is appropriate, fair and reasonable. These matters do not lend themselves to determination by the burden of proof. Insofar as the Claimant does bear any burden, it seems to me that this is an evidential burden, i.e. an obligation to adduce evidence sufficient to establish a case that the RPI is an inappropriate measure of indexation and that there is at least one alternative, more appropriate, measure that the court might adopt in its stead. The response of the Claimant's solicitors of 29 June 2006 set out his case in precisely those terms and he has called evidence in support of his assertions. Once the Claimant has discharged that evidential burden, it is in my view for the court to decide on the evidence before it what is appropriate, fair and reasonable.
53. It is necessary also to consider the stance taken by the Claimant in the particular context of this case. It is the first case in which this important issue of indexation has been argued. The Claimant's expert identified three potential alternative measures but took the view that it was for the court to decide how much weight should be placed on the merits and demerits of each. In my view, that was a perfectly proper – indeed helpful – approach. It did not disadvantage the Defendant. Its experts were able to deal with the various alternative measures and to take part in the joint discussions between experts which resulted in a full and helpful Joint Statement. I heard detailed evidence from the relevant experts about all three potential alternative measures, together with a number of other measures which were not favoured by the Claimant's expert. It seems to me highly desirable, in order to achieve a final resolution of this important issue as soon as possible, that this court and other courts should have the opportunity of examining the various potential alternatives to the RPI and of comparing their various characteristics. If, in every such case, the Claimant were to be restricted to putting forward (and the court to examining) only one alternative measure in isolation, this would seem to me to put artificial and unhelpful limitations on the decision-making process. I should add that there is no support, whether in section 2 of the 1996 Act or in the CPR, for the Defendant's contention that a claimant who invokes the powers of the court under the provisions of section 2(9) must be put to his election as to the alternative measure relied upon and that, if he does not, he must fail.
54. In the previous paragraph, I spoke of 'examining the various potential alternatives to the RPI and of comparing their various characteristics'. Mr Rees contended that I should not embark upon any comparison of the characteristics or appropriateness of the alternative measures as against each other or as against the RPI. Instead, I should make a 'stand alone' decision on each alternative measure, such decision being based solely on the merits and demerits of that measure. (This contention is of course subject to his contention that the Claimant should have elected to pursue only one alternative measure and that my scrutiny should therefore be confined to that one measure). I do not accept the contention. It seems to me clear that a consideration of the appropriateness, fairness and reasonableness of substituting another measure for the RPI must necessarily involve some examination of how each of the various measures compare with the other available measures and with the RPI. Such comparisons of course form only part of the exercise to be performed.
55. The Defendant further submits that what the Claimant is seeking is not the 'modification' of the effect of subsection (8) at all. It is said that what is sought is the far more radical step of deleting the provision for indexation by reference to the RPI and substituting indexation by reference to an alternative measure. That, it is argued, is not permissible under the provisions of section 2(9). The difficulty with that contention is that the Court of Appeal in Flora plainly envisaged that section 2(9) could be invoked in circumstances similar to those which exist in this case. It is clear from the judgment of Brooke LJ that the Court was contemplating the possibility that one course open to the trial judge would be to replace indexation by reference to RPI with indexation by reference to some other measure. In any event, it seems to me that the substitution of one measure by another could, without straining the boundaries of language, constitute a 'modification of the effect' of section 2(8). If it did not, the potential application of section 2(9) would be very seriously restricted indeed. In addition, the terms of CPR 41.8(1)(d) are in my view entirely consistent with the wider interpretation of section 2(9). For these reasons, I do not accept the Defendant's argument on this point.

Distributive Justice

56. Notwithstanding the agreement that I should approach this case on an individual basis, the Defendant urged me that, in making my decision, I should apply the principle of distributive justice.
57. The Defendant called expert actuarial evidence as to the financial impact which the substitution of an alternative measure for the RPI would have on the NHS. This evidence was based on the assumption that, in the long term, earnings growth would exceed growth in the RPI by 1.4%. Mr Joe Monk, the Defendant's actuarial expert, estimated that the increase in the present value of open claims and incurred but not reported liabilities would be £1.678 billion. In addition, Mr Monk estimated that the additional annual cost (i.e. the cost required to meet future incidents that will arise) for the financial year 2007/8 would be £255 million, an increase of 21% over previous estimates. The Defendant said that an increase of this order would inevitably mean that the NHS had less money to spend on patient care.
58. It was contended on behalf of the Defendant that I should apply the principle of distributive justice, first when deciding whether the 'remedy' of modification should be available to the Claimant and, second, when deciding whether to exercise my powers under section 2(9). Mr Rees submitted that I should balance the competing needs of litigants in this Claimant's position against those of other members of the public, who require a well-resourced health service and should thus decide how 'justice' should be distributed. For the Claimant, Mr Allan argued that it was not open to me to take these considerations into account and that the evidence of Mr Monk was therefore irrelevant and inadmissible. He did not, however, invite me to make a preliminary ruling on the admissibility of the evidence, which might have led to an appeal on that preliminary issue and therefore to further delay in the hearing of the substantive issue.
59. In support of his contention, Mr Rees cited well-known passages from the speech of Lord Hoffmann in the case of White and Others v Chief Constable of South Yorkshire [1999] 2 AC 455, at 501G-504D, 510C-F and 511A-D, and from the speech of Lord Steyn in McFarlane v Tayside Health Board [2000] 2 AC 59, at 82A-83E. In these cases, the principles of distributive justice were used in determining whether or not a remedy was available to the claimant. In White, the principle of distributive justice was relied on in deciding that no duty of care was owed to police officers to protect them from psychiatric injury in circumstances in which there was no breach of the duty to protect them from physical injury. In McFarlane, the House of Lords declined to impose liability for economic losses suffered by parents as a result of the birth, due to negligence, of an unwanted, healthy child. These are, as Mr Allan pointed out, circumstances very far removed from the issue for decision in this case. Mr Rees went on to cite passages from the judgment of Lord Woolf MR in the case of Heil v Rankin [2001] QB 260, where the Court of Appeal took into account the financial impact of an increase in the level of damages for pain, suffering and loss of amenity on the public at large. He contended that some support for the Defendant's stance was also to be derived from various passages in the speeches in Wells, although, in that case, there had been no evidence as to financial impact before the House and the principle of distributive justice was not argued. Mr Rees argued that, in the novel area of law with which this case is concerned, it would be appropriate for the principle of distributive justice to be developed and applied. He emphasised that the Defendant was asking me to apply legal principle, rather than public policy.
60. I do not accept the contention that I should apply the principle of distributive justice. In Flora, the defendants sought to raise the issue of affordability. At paragraph 29 of his judgment, Brooke LJ said:

"I reject the argument that the courts should consider questions of affordability when determining what order to make because, as Lord Steyn said in Wells v Wells at pp 383B – 384A, policy arguments based on affordability are a matter for Parliament and not for the courts. It is true that in Heil v Rankin [2001] QB 272 this court took into account questions of affordability at para 95 when determining what amount for general damages, for pain, suffering and loss of [amenity] the public would perceive as fair, reasonable and just. There is no material, however, on which a court could safely rely in deciding whether the public would perceive it to be fair, reasonable and just for compensation for future pecuniary losses to be reduced simply on affordability grounds. It would have been easy for Parliament to decree that this should be so (and to be willing to incur the accompanying political odium for doing so) but there is no evidence in the language of s 2 of the 1996 Act that this was Parliament's intention."

61. The Defendant in this case submits that 'affordability' is different from distributive justice and that the latter was not argued in Flora. Moreover, Mr Rees suggested that the decision of the Court of Appeal was affected by the fact that it had no material about impact, whereas in this case, the Court has that evidence. He sought also to distinguish Flora on the basis that the defendants in that case were insurers, rather than the NHS. I cannot accept those submissions and regard myself as bound by the decision in Flora. It seems to me that the defendants' arguments on 'affordability' in Flora would have been essentially the same as those advanced by the Defendant in this case, albeit that the potential impact on the public would have been in the form of increased insurance premiums, rather than a reduction in the resources available for health care. It does not seem to be just – or indeed practicable – for the courts to adopt different approaches as to the affordability of an alternative measure of indexation, depending on whether the defendant is the NHS or an insurer. Furthermore, I accept Mr Allan's submission that, in referring to the absence of material about public perception, Brooke LJ was not merely saying that there was none before the Court in Flora, but rather that no meaningful evidence about the perception of the public could ever be available to a court deciding this issue. For my own part, I do not see how a court could possibly determine where, in the perception of the public, justice would lie in the present case. Indeed, I suspect that, if the public were consulted, a wide variety of views would emerge. The exercise which I am asked to carry out – namely the balancing of the competing claims of litigants in the Claimant's position and of the public at large – seems to me to be one involving complex decisions about social policy which are not for the courts.
62. Assuming that indexation of the Claimant's periodical payments to the RPI would mean that the real value of those payments was likely to be eroded in the future (an assumption which appears to have been made in Flora, although not conceded by the Defendant in the present case), a decision based on distributive justice would also have the potential to breach the '100% principle'. It was in part for that reason that the Court of Appeal in Flora declined to take into account issues of affordability. Mr Rees argued that the '100% principle' would not be breached because it was always open to a court to order (or a claimant to accept) damages by way of lump sum (awarded on the '100% principle'), rather than periodical payments. I do not accept that argument. I am aware of no indication that, in enacting section 2 of the 1996 Act (as amended), Parliament intended that a claimant who was awarded damages in the form of periodical payments should receive damages on anything other than the '100% principle'. The inevitable result of a regime whereby damages in the form of periodical payments were awarded on a less than 100% basis would be that periodical payments would fall into disuse. That cannot be what Parliament intended. In any event, however, the Court of Appeal in Flora plainly did not accept that the existence of an alternative form of award was any answer to an argument based on the '100% principle': see paragraphs 30 and 31 above.
63. In seeking to persuade me that the principle of distributive justice was not applicable to this case, Mr Allan cited a passage from the judgment of Lord Woolf MR in Heil v Rankin. At paragraph 38, he said:

" … in setting the tariff the court should not ignore the economic impact of the level of damages which it selects. The economic consequences of a level of damages will not dictate the decision, but they will inform the decision. They are part of the background facts against which the decision must be taken. The court is not interested in the detail but it is interested in the broad picture. A distinction exists here between the task of the court when determining the level of pecuniary loss and when determining the level of non-pecuniary loss. In the case of pecuniary loss, and issues such as that which engaged the House of Lords in Wells v Wells, the court is only required to make the correct calculation. Economic consequences are then irrelevant. When the question is the level of damages for non-pecuniary loss the court is engaged in a different exercise. As we have said, it is concerned with determining what is the fair, reasonable and just equivalent in monetary terms of an injury and the resultant PSLA. The decision has to be taken against the background of the society in which the court makes the award."

64. Mr Allan relies on the clear distinction drawn in that passage between the consideration of economic impact in relation to pecuniary loss on the one hand and non-pecuniary loss on the other. He referred also to a passage in the speech of Lord Steyn in Wells. Having considered the argument mounted by an academic who was advocating rejection of the '100% principle' on the ground, inter alia, of cost, he observed at 383H-384A:

"Not only do these arguments contemplate a radical departure from established principle but controversial issues regarding resources and social policy would be at stake. Such policy arguments are a matter for Parliament and not the judiciary."

In the same case, Lord Hutton said at 405D-F:

"The consequences of the present judgments of this House will be a very substantial rise in the level of awards to plaintiffs who by reason of the negligence of others sustain very grave injuries requiring nursing care in future years and causing a loss of future earnings capacity, and there will be resultant increases in insurance premiums. But under the present principles of law governing the assessment of damages which provide that injured persons should receive full compensation plaintiffs are entitled to such increased awards. If the law is to be changed it can only be done by Parliament which, unlike the judges, is in a position to balance the many social, financial and economic factors which would have to be considered if such a change were contemplated."

These three passages provide further support for the argument that I should not apply the principle of distributive justice in making my decision in this case.

65. In the light of my conclusion that I should not take into account the principle of distributive justice, I need not look at the evidence of financial impact in any detail. I should observe, however, that I do not accept the figure of £1.678 billion as being an accurate estimate of the increased liabilities of the NHS which would result from the use of a measure of indexation other than the RPI. I am bound to say that my confidence in the accuracy of the estimated sum was not increased by the casual – even dismissive – way in which Mr Monk gave his evidence. Nor do I accept that expressing the financial impact on the NHS simply by reference to a 'headline figure' representing the increase in the present value of liabilities reflects the whole picture.
66. Mr Monk's estimate was based on a sample of 96 cases which had been concluded by the NHSLA and the Medical Protection Society. The data from some of those cases contained obvious inadequacies which called their general reliability into question. In addition, Mr Monk's calculation of the appropriate multiplier to be applied in obstetric cases was based on an 'assumed age' of 15, which was intended to reflect both the claimants' age at settlement or trial and any impairment of life expectancy they might have. In his first Report, Mr Monk had used an 'assumed age' of 10 years. The revised 'assumed age' was apparently based on a recent 'reserving exercise' carried out by Mr Monk's firm. No details of that exercise were disclosed, and it was impossible to say whether or not the revised assumption was justified. The 'assumed age' seemed somewhat low to me for cases of this type. In this case, for example, the 'assumed age', taking into account loss of life expectancy and age at the date of trial, would have been 28 years.
67. Furthermore, the proportion of the damages award represented by damages for future care was calculated by reference to the average of the amounts contended for by claimants in their Schedules of Loss and defendants in their Counter Schedules. This appears a somewhat rough and ready approach although I accept that any under- or over-estimate which may have resulted from this assumption may not have made a very significant difference to the final figure.
68. Potentially more significant was Mr Monk's assumption that all cases over a value of £50,000 would be subject to increase. I accept that a change in the indexation arrangements would lead to more awards of damages by way of periodical payments. There may also be some uplift in settlements on a lump sum basis where the alternative of a periodical payments order could be used by a claimant as a bargaining counter. But there would be many cases (e.g. those which settled for significantly less than their full value because of difficulties in establishing liability or causation, or where a claimant preferred the flexibility of a lump sum award) where damages would be paid by way of lump sum and where there would be little or no scope for an increase. Mr Monk's assumption that indexation by reference to a measure other than the RPI in cases where periodical payments were made would inevitably lead to a change in the discount rate applicable to lump sum awards was not in my view justified. It seems to me likely that these various assumptions will have resulted in a significant over-estimate of the increase in the value of the liabilities of the NHS as a result of a change in the indexation arrangements.
69. Mr Monk's estimate of £1.678 billion is an accounting figure which Government Departments are required to produce under the new resource accounting and budgeting arrangements introduced in April 2001. Under these arrangements, costs are deemed to have accrued as they are incurred, rather than when they are paid. Thus, in the case of the NHS, they will include damages payable decades hence in respect of cases where negligence has occurred but has not yet been reported. The NHS does not hold physical reserves to back its liabilities; they will be met year by year as they become payable. Although I was told that resource accounting and budgeting was now the basis for controlling and planning public expenditure, it is not clear to me what practical effect the existence of an increased level of liabilities would have on NHS expenditure in the short term.
70. To be set against the increase in the figure for the present value of liabilities which would accrue from a change in the indexation arrangements is the benefit to the NHS of paying damages by way of periodical payments rather than by way of lump sum. This benefit was described by Mr Walker, Chief Executive and Accounting Officer of the NHSLA, in the case of YM, as the cash flow value of retaining the lump sum and replacing it with an annual stream of payments into the future. It formed the basis of the defendant's argument in the case of A v B Hospitals NHS Trust. Payment of damages by way of periodical payments also avoids the risk of an overpayment of damages to a claimant who dies earlier than expected and prevents the situation where, after a period, there is a shortfall in the damages for care and the State has to assume responsibility for the cost of caring for a claimant. I am unable to quantify these benefits but the fact that they exist leads me to conclude that the bare statement that the present value of the liabilities of the NHS would be significantly increased as a result of a change in the measure of indexation does not represent the whole picture.
71. I have no difficulty, however, in accepting that, if periodical payments for the future cost of care were to be indexed by reference to an earnings-related measure and if that measure were to increase at a faster rate than the RPI, the cost to the NHS is likely to be very significant. As I have said, however, this is not a factor which I can properly take into account.

Over-Compensation under Other Heads of Damage

72. The Defendant further argues that, in respect of heads of damage other than future care, which have been the subject of a lump sum payment, there will be the opportunity for the Claimant to obtain investment returns which outperform the assumptions upon which the damages under those heads have been calculated. It relies in particular upon the award of damages for accommodation. Damages under that head have been calculated according to the principles set out in Roberts v Johnstone [1989] QB 878. The Claimant was awarded an agreed lump sum, representing, inter alia, the notional interest (calculated at 2.5% pa) on the capital required to purchase a property suited to his needs. The growth in the value of that property is likely, the Defendant says (and I accept), to outstrip the growth in the RPI. The capital gain which will result should, it is contended, be taken into account in the consideration of what is fair, reasonable and appropriate with regard to indexation.
73. There seem to me to be a number of difficulties with that argument. First, the Defendant is in effect asking me to make a decision in relation to indexation of periodical payments for future care which breaches the '100% principle' on the ground that the Claimant has recovered in excess of the '100% principle' in relation to his accommodation claim. However, it seems clear that the formula for the calculation of damages set out in Roberts v Johnstone (and later endorsed in Wells) was considered by the Court of Appeal (and by the House of Lords in Wells) to accord with the '100% principle'. In those circumstances, it is not open to me to conclude that there was any over-compensation under that head.
74. Furthermore, any increase in value of the Claimant's property is of little use to him in practical terms. The property has been chosen to meet his lifelong needs. If the annual cost of future care were to increase above the amount of his periodical payments, he could not sell or mortgage the property to meet the shortfall. I am of course aware that there exist equity release schemes by which it is possible to raise funds on the security of a property. However, I have heard no evidence on that topic and am aware that there are significant limitations on the availability of such arrangements. That being the case, I could not possibly infer that an arrangement of that kind would be open to the Claimant. Thus, even if I were persuaded (which I am not) that I should, in reaching my decision, take into account the likely increase in value of the Claimant's house, I would have to take into account also the fact that the increase is unlikely to assist him to meet any shortfall in future care costs.
75. So far as the other heads of damage are concerned, the Defendant contends that the Claimant will have the opportunity of investing the lump sums which he has received so as to obtain a return in excess of the 2.5% pa assumed by the multiplier used to calculate his pecuniary loss. It is contended that I should take this factor into account in making my decision. In my view, it would not be right to do so. The sums awarded for pecuniary loss were all agreed on a full compensation basis, in order to meet the Claimant's actual past and future losses and future needs. I cannot, in making my decision, assume an element of over-compensation. In any event, I could not possibly infer on the evidence before me that there will be a surplus in the Claimant's funds such as to enable him to meet any shortfall in his care costs resulting from indexation to the RPI.

The Four Relevant Measures

76. It would be convenient if, at this point, I were to describe briefly the nature and characteristics of each of the four measures (i.e. including the RPI) with which I have been concerned in this case. Later in my judgment, I shall discuss some of the advantages and disadvantages of each measure as a basis of indexation.
77. Much of the evidence about the various measures came from Dr Wass. Her evidence was well researched and her answers in oral evidence careful and considered. She was frank and open about the drawbacks of the various measures under discussion. I found her an impressive witness.
78. Two of the measures (i.e. the RPI and the AEI) are indices and are designed to measure growth in the cost of goods and services (the RPI) and growth in average earnings (the AEI). ASHE measures earnings levels. It is agreed by the financial experts that it makes no practical difference whether a measure is reported as an earnings level or as a growth rate since it is possible by calculation to obtain growth from earnings levels. Measures of both earnings growth and earnings levels are to be distinguished from agreed pay rates. An example of an agreed pay rate is the National Joint Council (NJC) pay spine, which sets out pay rates which cover all local government employees employed by those local authorities which choose to opt in to the NJC.
79. It is agreed by the experts that there exists no measure relating specifically and solely to the earnings of home carers. Still less is there a measure relating to the specific labour market with which this case is concerned, i.e. the labour market applicable to a small private sector home care package in the North West of England. The Defendant contends that the absence of such a measure is fatal to the Claimant's case since it means that there exists no historical or current data relevant to his care package. The Claimant contends that there are alternative data series which, although not specific to the Claimant's care package, would nevertheless provide a reliable measure of future growth in the earnings of carers such as those whom he will employ. I shall consider these rival contentions later in my judgment.

The Retail Prices Index

80. The RPI is a measure that tracks changes in the cost of a basket of goods and services. The basket is compiled with a view to reflecting typical household consumption. Its contents are revised annually to ensure that the basket keeps pace with current purchasing trends. Data are collected directly and by survey. The RPI is published monthly by the Office for National Statistics (ONS). It is reported as an index, i.e. as a measure of growth, reflecting the Government's interest in price inflation rather than price levels. It is readily accessible and widely used.
81. The prices of more than 650 representative consumer goods and services are used to compile the RPI; these are weighted to reflect household consumption patterns. The index is split into 12 sections, each of which has a number of subsections. The item 'in home care assistant fees' is included within the 'domestic services' subsection of the 'household services' section. It is common ground between the parties that 'domestic services' comprise only 12 points in the 1000 point index and that 'in home care assistant fees' comprise 0.12% of the constituents that go to make up the RPI.
82. The three alternatives to the RPI favoured by the Claimant's experts are the AEI, ASHE median and ASHE 6115.

The Average Earnings Index

83. The AEI is an index that measures growth in the simple average (i.e. mean) earnings of the sample weighted to population proportions. Data are collected monthly from a survey of 8,400 employers, each employing over 20 workers. The survey covers nine million employees. Calculations are based on employers' total pay bills divided by the number of employees, both full-time and part-time. The AEI is published monthly by the ONS as a monthly, quarterly and annual average. It is reported as an index and described in ONS literature as 'Great Britain's key indicator of how fast earnings are growing'. The weightings are revised as necessary in order to ensure that they remain representative of the working population.
84. The AEI is an aggregate measure in that it includes data from all occupations. Disaggregated earnings data from broad occupational groups (e.g. Health and Social Work) are also available. The Claimant does not contend that the disaggregated AEI data would provide a reliable measure for the purposes of this case.
85. The AEI is not designed to measure earnings levels. In order to ascertain the average earnings level of employees included in the AEI, Dr Wass used the ASHE mean (see below). She regarded this as appropriate because the ASHE survey contains data from a similarly representative sample of employees. Her view was that the ASHE mean earnings level of £12.50 per hour was a good indicator of the average earnings of employees contained in the AEI sample.
86. The earnings used to compile the AEI are not limited to basic wages. They include overtime and unsocial hours payments, productivity payments and other benefits. They also include bonus payments although, since 2000, figures excluding bonuses have been available. In the future, the published data will be extended to include measures of average weekly earnings levels and of non-wage costs.

The Annual Survey of Hours and Earnings Median Earnings Level (ASHE Median)

87. ASHE is an annual earnings survey which replaced the New Earnings Survey (NES). Earnings are reported as an actual level, rather than as an index. ASHE earnings data are available as a consistent series only from 1998. Like the AEI, ASHE is an aggregate measure, which includes data from all occupations. Data are collected by means of an annual 1% sample survey of 245,000 full-time and part-time employees. The survey is completed by employers. Before 2004, the main sample was based on 1% of employees paying National Insurance contributions on a PAYE basis. Since 2004, the survey has been supplemented by employees earning less than the National Insurance threshold who are employed by VAT-registered employers. ASHE is published annually by the ONS. Data is collected in April (so as to cover the first pay period that includes 6 April) and collated during the summer. Provisional figures are released at the end of October and may be subject to revision. The final figures are published the following October. There is, therefore, a time lag of 18 months between data collection and the publication of final figures. The final figures contain revisions, where necessary, to the provisional figures. On occasion, the final figures for one year will undergo further revision the following year.
88. Earnings levels at a number of percentile points across the entire occupational earnings distribution are published, together with the mean and the median (i.e. the level at which 50% of employees earn more and 50% less) earnings levels. Dr Wass advocated the use of the median earnings level as the most appropriate to the earnings of carers employed by the Claimant. She told me that median earnings levels were now generally accepted as the most accurate measure of the centre of aggregate earnings distribution. The ASHE median earnings level is £9.56 per hour.
89. As with the AEI, ASHE earnings data are not limited to basic wages. They include overtime and unsocial hours payments, productivity payments and other benefits.

The Annual Survey of Hours and Earnings: Occupational Earnings for Care Assistants and Home Carers (ASHE 6115)

90. Disaggregated sub-sets of the ASHE data series are published by the ONS. These measure the mean and a number of percentile points across the earnings distribution for different occupational groups. These groups follow the Standard Occupational Group (SOG) classifications. ASHE SOG6115 (ASHE 6115) currently measures the earnings of care assistants and home carers. The occupational classifications are revised every 10 years (the last revision was in 2000 and the next is due in 2010) to take account of changes in the occupational composition of the population. After reclassification, there is a time lag of two years before earnings levels based on the new classifications are published. Before the 2000 revision, carers were grouped according to two classifications, namely support workers working in nursing homes (I do not have the precise definition) (SOG644) and welfare, community and youth workers (SOG371). Since 2000, the relevant classification has been 'care assistants and home carers'. Data based on the new classification was first published in 2002. In years when the classification changes, the ONS will produce two sets of data, one for each classification. This facilitates the calculation of an appropriate growth rate in each year.

The Historical Position

91. Dr Wass produced a series of Tables (at B1/89a-d), illustrating the growth in earnings by reference to various measures (including the three measures described above) compared with growth in the RPI. The Tables showed that, for the period between 1984 and 2005 (the last year for which complete data is available), the average growth in earnings exceeded the growth in RPI no matter which measure of earnings growth was used, and at which earnings level.
92. Using aggregate measures (AEI and ASHE), the average annual excess of earnings growth over growth in RPI for the period from 1998 to 2005 varied between 1.34% and 1.9%. The excess growth rate for that period, as measured by the AEI, was 1.73% pa. The excess growth rates for the same period, based on ASHE mean and ASHE median, were respectively 1.81% pa and 1.43% pa. ASHE data was not available prior to 1998 but the AEI data showed an average above-RPI growth in earnings of 1.75% for the period 1984-2005. The average above-RPI growth in the earnings of the occupational group of care assistants and home carers (ASHE 6115) between 1998 and 2005 was 2.84% at the 80^th percentile and 3.38% at the mean. For 1998-2006, it was 2.29% at the 80^th percentile and 2.82% at the mean.
93. Dr Wass told me that, historically, earnings growth has tended to be greater at higher levels of earnings. Recently, the pattern of differential earnings growth has been complicated by the introduction of the National Minimum Wage (NMW) in 1999 and subsequent increases in the NMW at rates above the growth of average earnings. This has caused the earnings of lower paid employees (including carers) to rise faster than those in higher paid jobs. During the period 1998-2005, the data shows that growth in carers' earnings outstripped growth in average earnings. This is reflected in the higher rates of growth of earnings of employees in the ASHE 6115 group over this period. Dr Wass believed that this was only a temporary phenomenon. She said that this was to some extent supported by the fact that the growth in carers' earnings for the year 2005/6 was lower than the growth in average earnings. It appeared to her, therefore, that the effect of the NMW and other factors affecting the care market may be settling.
94. The Defendant's experts did not dispute the contents of Dr Wass's Tables. Mr Gregory, the Defendant's accountancy expert, agreed that, in the past, earnings inflation had been greater than price inflation. He regarded it as probable, based on what has happened in the past, that there would be some continued differential in the future. He agreed that, over recent years, carers' earnings had risen faster than average earnings. Like Dr Wass, he attributed this to the effect of the NMW and other changes in carers' working requirements and conditions.
95. The Claimant relies on two other matters in support of the contention that increases in carers' earnings have in the past tended to outstrip increases in the RPI. The first relates to Guidance issued by the NHS Executive in July 1996 to all NHS Trust and Health Authority Chief Executives. The Guidance stated that, where a Trust or Health Authority proposed to enter into a structured settlement, it must submit a Value For Money (VFM) Report for approval by the NHS Executive. Further Guidance relating to the preparation of a VFM Report stated that, when comparing the net present value of a conventional lump sum award, an annuity-backed structured settlement and a self-funded structured settlement, one of the 'mandatory parameters' was that:

"costs of care should be assumed to rise by 2% per annum faster than the general rate of inflation".

96. The relevant Guidance remained in place until 2003. The Defendant's actuarial witness, Mr Monk, was unable to tell me whether or not a similar assumption was still made in calculations by the NHS of the VFM of a settlement by way of periodical payments. The assumption of a 2% pa above-RPI increase falls squarely within the range of annual above-RPI increases demonstrated by the historical data to which I have already referred.
97. The second matter to which the Claimant referred me was an article^[1] by the Master of the Court of Protection in which, under the heading, 'The Retail Prices Index has failed to keep pace with care cost inflation', he described the case of Charlie Beattie. He had been awarded an annuity of £64,500, linked to the RPI, in 1992. Between 1992 and 2004, the RPI (and therefore the annuity) had risen by about 35%, Mr Beattie's care costs had risen, in line with the AEI, by almost 60% over the same period. As a consequence, he had been unable to afford the care package he needed. While this is, of course, only one case, it is entirely consistent with the evidence derived from the available data and demonstrates the very real problems caused to claimants when increases in care costs exceed the growth as measured by the index used to calculate the annual uplifts.
98. Over time (and the Claimant in this case is expected to live another 55 years), a small annual percentage differential will escalate into a very large cumulative difference. That is illustrated by Dr Wass's Figure 1 at B1/17a. Annual payments of £1,000 for care costs indexed to the RPI in 1963 would have risen to £14,146 in 2005. If the salary-based costs of care had risen according to the growth in the AEI, the annual payments would have risen to £31,026 in 2005. The annual shortfall would therefore be £16,880.
99. There can be no doubt that, historically, the growth in earnings levels has been greater than the growth in the RPI. The Defendant argues, however, that there is no evidence about growth in the earnings levels of the specific type and location of carers who will be employed by this Claimant. That is plainly so. However, there is no reason to suppose that the growth in the earnings of such carers will not in the past have outstripped the growth in RPI, as has happened at all levels of earnings examined. Manchester is a large metropolitan area and I have been told of no reason why patterns of earnings growth there should not have reflected national trends. I note that the 1996 NHS Guidance did not make a distinction between care costs incurred in different locations or between different types of carers. It suggested that there was a shortfall across the board. The Defendant has called no evidence to show that, for some reason, private home carers working in the Manchester area have in the past been insulated from the general trend in earnings growth. I find that the overwhelming likelihood, verging on certainty, is that the earnings levels of the type of carers who will be caring for the Claimant will in the past have increased at a significantly faster rate than the RPI.

The Elements Contained within the Agreed Annual Multiplicands for Future Care Costs

100. The Defendant argued that, given the fact that each of the agreed multiplicands for the future cost of care contained an unknown element that did not relate to the earnings of carers, any indexation by reference to increases in earnings applied to those multiplicands would inevitably result in over-compensation. That contention was based upon a Schedule prepared by Mr Gregory, the Defendant's accountancy expert [B1/325]. For each of the three periods of the Claimant's life, Mr Gregory listed the expenses associated with care (advertising/recruitment, insurance training, payroll management and food and household expenses for carers), together with the costs of case management, as contended for in the Claimant's Schedule of Loss and the Defendant's Counter Schedule. He then calculated what proportion of the total amounts contended for were represented by these 'non-care costs'. On the basis of the Claimant's figures, 11.0-12.8% of the multiplicands to age 19 and 10% of the multiplicands from age 19 related to non-care costs. The Defendant's figures produced a range of 14.2-18.5% to age 19 and 23.3% thereafter.
101. Since the annual cost of care at various stages of the Claimant's life has been agreed, it has not fallen to me to assess the nature and extent of care required or how that need should be met. The precise breakdown of the agreed multiplicands is not known. Nevertheless there is material from which it is possible to ascertain with a reasonable degree of confidence the basis on which the agreed figures were reached. The paediatric experts, Professor Malcolm Levene and Dr Lewis Rosenbloom, agreed in their Joint Statement that the Claimant would always require a carer during the day and at night. The night carer would be required only if the Claimant woke. Subsequent to the Joint Statement, Dr Levene suggested that, for some tasks such as personal hygiene and assistance with medication, he would require the services of a second carer.
102. There was a considerable measure of agreement between the two care experts. They agreed that an appropriate rate of pay for the carers would be (at current rates) £8 per hour on weekdays and £9.75 per hour at weekends. For the first period (up to age 11), they agreed that the Claimant required four hours' care on weekdays. At weekends and during school holidays, they agreed that seven hours a day care was reasonable. The view of the Claimant's expert was that a paid carer would be needed seven nights a week, whereas the Defendant's expert allowed for only four nights. The cost of case management was agreed at £5,000 pa for this period. The agreed multiplicand of £43,000 must therefore represent case management costs of £5,000 and a compromise sum of £38,000 to cover the costs of care, together with the associated expenses referred to in paragraph 101. Given the fact that this compromise sum was significantly nearer the annual cost as assessed by the Defendant's expert (£39,119) than the assessment of the Claimant's expert (£49,030), it seems that the compromise must have been on the basis that a carer would be employed for only four nights a week.
103. Between the ages of 11 and 19, the major difference between the experts was that the Claimant's expert costed for a second carer for 28 hours a week, whereas the Defendant's care expert regarded a second carer as unnecessary. The multiplicand agreed for this period was £57,400, inclusive of case management costs which had been agreed at £5,000 pa.
104. From the age of 19 years, the agreed multiplicand was £91,000 (including agreed case management costs of £8,000 pa). The balance of £83,000 corresponded almost exactly with the assessment of the Defendant's expert. The Defendant's expert's suggestion that, from the age of 19, the Claimant might be cared for in a small residential home at a cost of £52,000 is inconsistent with the agreed multiplicand. Plainly, the claim was compromised on the basis that the Claimant would require care in his own home for his lifetime.
105. There is no doubt that there are, within the agreed multiplicands for care, some costs that are not referable to carers' earnings and which would lend themselves to indexation by reference to the RPI rather than to some measure of growth in earnings. Food and household expenses occasioned by having carers in the house, together with the cost of insurance for carers, would come into this category. Some of the other expenses are largely, if not entirely, earnings-related. Payroll expenses represent the cost of employing someone (the Defendant's care expert suggested the case manager) to manage the carers' pay. The cost of training is likely to contain at least some earnings-related element, although it may well be, as the Defendant suggests, that at least some of the training will be delivered by means of external training courses. The recruitment costs will include some provision for advertising; the balance will represent the labour cost of the person (the Defendant's care expert suggested the case manager) doing the recruiting. The Defendant contends, however, that the expenses of managing the payroll, training, recruitment and case management are all unsuitable for indexation by reference to a measure of earnings. It is said that case managers are frequently self-employed so that the rate of growth in their earnings would not be measured by any of the data series under consideration. The same goes for persons undertaking payroll, training and recruitment duties. It is also said that the case management expenses will include an unknown element for travelling expenses.
106. I do not accept that the proportion of the multiplicands referable to items which can properly be considered as 'non-care costs' is as high as that contended for by the Defendant. The case management costs will include an element for travelling expenses but by far the greater proportion will relate to the remuneration of the case manager. (For the period from age 19, the Defendant's expert assessed the travelling expenses at £360 or about 4% of the total case management expenses of £9,200.) While it is true that the earnings of self-employed case managers are not included in any of the three earnings-related measures under consideration, it seems to me highly probable that growth in those earnings will relate more closely to a measure of growth in earnings than to a measure of growth in goods and services. Case managers' remuneration (at £65 per hour) may even rise faster than carers' earnings. In the same way, growth in the earnings of those undertaking payroll, training and recruitment duties (who may, in any event be the case manager) is in my view likely to be better reflected by a measure of growth in earnings than by a measure of growth in goods and services. It seems to me, therefore, that it is only those costs which are unrelated to earnings that should properly be characterised as 'non-care costs' for this purpose.
107. Looking at the matter in the round, I have concluded that the non-earnings related elements of the annual multiplicands amount to no more than about 4-5% of the total care costs to age 19 and 2-3% thereafter.

The Weighted Average Hourly Rate for the Claimant's Carers

108. One controversial feature of the methodology employed by Dr Wass is her use of a weighted average hourly rate. In order to have an earnings level with which to compare or apply the various measures which she examined, Dr Wass calculated a single hourly rate, representing the average earnings of the Claimant's carers. In order to obtain the single hourly rate, Dr Wass calculated a weighted average hourly rate whereby the two different hourly rates for carers agreed by the care experts (£8 and £9.75 per hour) were weighted by the proportion of total hours undertaken at each rate. This produced a weighted average figure of £8.50 per hour. Because Dr Wass could not be certain how many of the four night sleeps were to take place at the weekend (thereby attracting the higher hourly rate), she had to make an assumption about this, namely that two of the four nights were worked at the weekend. She said that, if she had made a wrong assumption, this would make only the difference of 'a few pence either way'.
109. The Defendant does not criticise the mathematics used to calculate the weighted average hourly rate. However, it is submitted that it is an artificial construct, not a real earnings rate which is to be paid to a carer and is therefore unsuitable to be used in the way Dr Wass has done. The Defendant also relies on the fact that the weighted average hourly rate cannot be determined with absolute accuracy. It is proposed by the Claimant that, if ASHE 6115 is used for the purposes of indexation, the weighted average hourly rate should be used to select an appropriate percentile which will then be used in the annual uplift calculation for the whole of the life of the periodical payments order. The Defendant contends that, if the rate cannot be determined with accuracy, this will import an unacceptable degree of imprecision into the calculation.
110. The Defendant also argues that, in a case with a more complicated care package where carers are on different rates of pay, the use of a weighted average hourly rate would be unworkable. Dr Wass disagreed. She said that it would be possible to incorporate a number of different rates of pay into a weighted average hourly rate. If the care package involved the employment of staff in two or more different occupational groups (e.g. carers and qualified nurses), it would be possible to perform separate calculations, using the ASHE data for the appropriate occupational groups. It is not for me to decide this issue. It would be for others to decide whether this would prove feasible in a case where a more complex care package was to be set up. All I can say is there seems to me to be a real prospect that this could be achieved.

Discussion

111. Aggregate measures of earnings (such as the AEI and ASHE median) reflect trends in earnings at the national level. They reflect changes in employment structures and in the economy generally. Changes specific to the care market are unlikely to have any effect on the AEI and ASHE aggregate. Nevertheless, they provide a broad brush and relatively simple approach to the escalation of earnings. Dr Wass spoke of the balance to be struck between simplicity and consistency on the one hand and precision on the other. She said that, as one moves from the AEI to ASHE median and thence to ASHE 6115, one gains in precision but loses some of the simplicity and consistency of the more broad brush approach.
112. The AEI is reliable and authoritative. It is precise in terms of what it measures. It is simple to use. Annual uplifts in payments can readily be calculated by using the relevant growth rate. The Defendant argues that the fact that the data used to calculate the AEI comes from medium and large-sized employers and that the earnings figures include a range of additional payments over and above basic wage rates makes it unsuitable for use as a measure of the growth in the earnings of carers employed in a domestic setting, who will not receive additional payments of this kind.
113. In addition, the average level of earnings (taken from the ASHE mean of £12.50 per hour) is greater than the weighted average hourly rate as calculated by Dr Wass (£8.50). The Defendant contended that (even assuming, which it did not accept, that it was appropriate to use a weighted average hourly rate or the ASHE mean) the differential between the two earnings levels was such as to make it untenable to use the AEI as a measure for escalating the Claimant's future care costs.
114. Dr Wass acknowledged that indexation by reference to the AEI would involve the potential for systematic imprecision (i.e. bias) since, in general, carers' earnings are below the average level of earnings, as measured by the AEI. Given that, over the long term, higher earnings increase at a faster rate than lower earnings, the expectation is that indexation to the AEI would overstate the earnings growth for employees earning the weighted average hourly rate calculated by Dr Wass. She observed that, on the basis of historical differentials between prices and earnings, the over-recovery which would be likely to result from the indexation of care costs to the AEI would be relatively small compared with the under-recovery that would be likely to result from the indexation of care costs to the RPI. She illustrated that by referring to her Table 3 (B1/15). The Table shows that, over the period 1998-2005, average above-RPI growth measured by reference to ASHE median was 1.43%. For the same period, the excess of average annual growth in earnings levels measured by reference to the AEI over growth measured by reference to ASHE median was 0.3%. Nevertheless, she accepted that there was the potential for over-compensation.
115. Mr Gregory, the Defendant's accountancy expert, carried out a calculation, using figures contained in Dr Wass's Table 3 (B1/89b). He calculated the difference between the average annual above-RPI growth in earnings for the period 1998-2006 measured by the AEI on the one hand (predicted at 1.78% pa) and ASHE median on the other (1.31% pa). The average annual growth by reference to AEI was 0.47% pa more than the growth by reference to ASHE median. Mr Gregory then divided 1.78%. by 0.47%, which, he said, produced a value for the over-compensation of 26.4%. He explained that he had performed this calculation in order to express the increase in growth calculated by reference to AEI as a proportion of growth based on the ASHE median. He said that the result demonstrated that, over a period of 7 years, the earnings growth based on AEI would exceed that based on ASHE median by 26.4%. Extrapolated over a period of 55 years, that would produce an excess of 181.5% or 3.3% pa. The Claimant's witnesses were uncertain as to the validity of the exercise performed by Mr Gregory. Mr Carus, the Claimant's actuarial expert, said that he followed the arithmetic but failed to understand the logic of the calculation, nor what the result was intended to represent. I was left unsure as to whether the result was a reliable measure of the over-compensation which would result from indexation by reference to the AEI rather than ASHE median. This probably does not matter, however, since I accept that, over a period of years, there is the potential for a significant differential between the two to accrue.
116. At the experts' joint meeting, Dr Wass said that it was possible that AEI might not be continued indefinitely. The data on which it is based would still be collected but it would be reported differently. The ONS might not continue to publish it, although it would be available on request. She mentioned the possibility that the ONS might in the future levy a charge payable on production of the data. In oral evidence, she said that she regarded the risk of the AEI being discontinued as negligible although she could not guarantee that it would always be available. Were I persuaded that the AEI would be an appropriate measure of the growth of carers' earnings, I would not be deterred by the risk that the AEI might cease to be published. It seems highly likely that the data on which it is based will continue to be available for the foreseeable future. Furthermore, even the RPI is not guaranteed to be available for ever, a fact which was recognised in the Schedule to the Model Form of Order in the case of YM, which provided for the use of "any equivalent or comparable index which in the NHSLA's reasonable opinion replaces such index (i.e. the RPI) from time to time".
117. ASHE data are reliable and authoritative. ASHE is relatively simple to use since its earnings levels can readily be converted into a growth rate. It is precise in terms of what it measures. In particular, it provides a precise measure of the median level of all earnings. Dr Wass observed that indexation of future care costs by reference to the ASHE aggregate data across all occupations was a broad brush approach. It would enable the weighted average hourly rate she had calculated to be matched to a percentile in the ASHE earnings distribution. The earnings level at that percentile could then be used to calculate the uplift in the care costs year by year.
118. The weighted average hourly rate in this case falls between ASHE40 (hourly rate of £8.25) and ASHE median (hourly rate of £9.56). Despite the fact that the weighted average hourly rate of £8.50 lies closer to the rate at ASHE40 than to the ASHE median, Dr Wass selected the ASHE median as the more appropriate indicator. She said that this was because her experience was that the ASHE median earnings level tended to be representative of the earnings levels of carers employed in care packages similar to that of the Claimant. In her experience, the weighted average hourly rate in this case was on the low side. In any event, she took the view that, if the Court wished for a more precise indicator, it would opt for the appropriate ASHE 6115 percentile, rather than rely on aggregate data. In answer to a question from Mr Rees, Dr Wass said that ASHE median could still be used even if the weighted average hourly rate were significantly less than £8.50. However, in that event, a court may regard it as more appropriate to select the nearest percentile as the measure of escalation.
119. As with the AEI, ASHE aggregate data covers all occupations and includes a range of additional payments over and above basic wage rates. The Defendant contends that this makes it unsuitable for use as a measure of the growth in the earnings of carers employed in a domestic setting, who will not receive additional payments of this kind. Furthermore, the Defendant argues that the fact that the ASHE median earnings level is in excess of the weighted average hourly rate calculated by Dr Wass, means that indexation by reference to the ASHE median would inevitably lead to over-compensation.
120. A disaggregated occupational measure of pay such as ASHE 6115 has the advantage that it will reflect the impact of events and circumstances which are specific to that occupational group. Carers' earnings have been affected by a series of recent developments, in particular the introduction of the NMW. The effects of those developments can clearly be seen in the ASHE 6115 data covering the period 1998-2005.
121. Dr Wass suggested that indexation to ASHE 6115 would be a more individual approach to the indexation of care costs. The weighted average hourly rate could be matched to the appropriate percentile within ASHE 6115. In this case, the weighted average hourly rate of £8.50 lies close to the published 75^th percentile (£8.47 per hour). Rather than use the nearest percentile, however, Dr Wass adopted a different approach. She calculated earnings intervals around each published percentile point. This process enabled her to fill in the gaps between the published percentile points and to position the weighted average hourly rate within a range of earnings levels centred on one of the percentile points. Dr Wass calculated the earnings intervals using a well-recognised technique involving a natural Spline function. For the 80th percentile, this produced a range of £8.43-£9.51 per hour. The weighted average hourly rate of £8.50 falls within that range and Dr Wass therefore suggested that, if ASHE 6115 were to be adopted as a method of indexation, ASHE80 would be the most appropriate percentile to use. She favoured using ASHE80 rather than ASHE75 because the weighted average hourly rate did not precisely match any of the percentiles. It therefore seemed preferable to her to choose the range around the 80^th percentile.
122. The Defendant disagrees with this approach. If, which it does not accept, ASHE 6115 should be used, it is contended that the correct approach would be to use the 75^th percentile. This would, it is said, avoid the complexity and imprecision which would result from calculating earnings intervals around the percentile points and fitting the weighted average hourly rate into the appropriate interval.
123. For the Defendant, Mr Storry said that indexation of future care costs by reference to a percentile (or the median) of ASHE aggregate, or to a percentile of ASHE 6115, was based on the assumption that the occupation of care assistant will maintain its position within the overall earnings distribution throughout the life of the periodical payments order. He suggested that, contrary to that assumption, the earnings distribution might change over time. This might have the effect of causing the earnings level of carers such as those employed by the Claimant to move to a higher or lower percentile. Since uplifts to his care costs would continue to be calculated by reference to the percentile to which the carers' earnings were originally linked, this could result in the Claimant being under-compensated or over-compensated.
124. Mr Storry cited the example of the earnings of bus/coach drivers, when compared with train drivers and police officers. In 1975, all three occupations had similar earnings levels. Since then, earnings levels have diverged to the extent that train drivers and police officers now earn around 75% more than bus/coach drivers. He was able to suggest no reason why this should have occurred. He said that this analysis cast doubt on the use of a percentile of the ASHE aggregate earnings distribution as a match for a particular occupation.
125. Mr Storry acknowledged that the use of ASHE 6115 would provide a closer match than would the ASHE aggregate data. However, he said that the ASHE 6115 group still contained a 'basket' of jobs requiring different levels of skills and it was not possible to identify a particular job within the distribution. He agreed with Mr Allan that ASHE 6115 was a better measure of average carers' earnings than the RPI although he said that it measured only growth in average earnings, rather than the market rate for a specific job. He acknowledged that it was the closest measure available at present.
126. Mr Storry said that there could be changes in workforce distribution within the 'care assistants and home carers' category and these could affect earnings levels. He said that recent regulations, limiting the number of unqualified assistants who can be employed in care homes, have led more care assistants to seek NVQ qualifications. There was evidence that some employers were paying higher rates of pay to carers with qualifications. Mr Storry also mentioned another development which had occurred in one local authority area of which he was aware. In order to address the problem of 'bed blocking', a team from the NHS and the local authority were employing 'intermediate care assistants' who would attend on elderly convalescents in their homes and perform some functions (such as measuring blood pressure) usually undertaken by nursing auxiliaries. He suggested that this and other similar initiatives, if expanded, might lead to the development of a large group of higher skilled, higher paid carers at the top of the ASHE 6115 earnings distribution. This would have the effect of causing the earnings levels of unskilled carers to occupy lower percentiles than at present.
127. Mr Storry said that another possible development was an influx of unskilled migrant labour, prepared to work for the NMW or just above. That might cause the earnings levels of carers such as those to be employed by the Claimant to move to higher percentiles than at present.
128. In their Joint Statement, the experts agreed that, historically and in general terms, the distribution of occupational earnings was stable across the aggregate earnings distribution. In his oral evidence, Mr Storry appeared to cast doubt on this general proposition although he conceded that he had not read any of the supporting references cited in the Joint Statement. He said that the evidence about the earnings of bus/coach drivers suggested that the earnings distribution was not stable. He seemed unwilling even to consider whether there might be any special circumstances affecting bus/coach drivers that had given rise to the change in their position relative to train drivers and police officers. This was just one of the aspects of his evidence that I found unsatisfactory. In general, he appeared extremely reluctant to make any concession that might assist the Claimant's case. I did not find him an impressive witness. Dr Wass said that the change in the earnings of bus/coach drivers within the occupational earnings distribution was attributable to specific changes in the product market. It did not conform to observations based on empirical data over long periods of time.
129. Dr Wass compiled a Table (B1/348), comparing the position of 12 occupational groups (including ASHE 6115) in the ASHE aggregate distribution in 1998 and in 2005. She found that all but two of the occupational groups remained within the same range of percentiles in which they had started. Two groups, library assistants and carers (ASHE 6115) moved to a different, but adjacent, range of percentiles. In their cases, Dr Wass said that they had started very near to the boundary between the two relevant ranges so that it was not surprising that they had moved between the two. The difference in hourly rate between the two percentiles was very small. Carers in ASHE 6115 had moved from the range of the 25^th-30^th percentile to the range of the 30^th-40^th percentile. Dr Wass said that they had started very close to the 30^th percentile. She said that movement from one percentile range to another could obviously occur. However, the difference in earnings between the percentiles was small. Over a period longer than seven years, the effect might well be smoothed out. She said that, during 2005/6, the growth in the earnings of carers had reduced. That might cause them to move back to the range of the 25^th-30^th percentile. However, for there to be a movement over two percentiles, there would have to be a very major event. Mr Storry observed that the ASHE data extended back only seven years. He said that it was necessary to look at data extending over a period of at least 20 years before drawing any conclusions about stability of distribution. Dr Wass said that it was highly unlikely that the Claimant's care package would remain immune from changes taking place in the care market. Instead, it is likely to move with the market and keep its relative place within the distribution.
130. Dr Wass's Table shows that, over a seven year period, the distribution of earnings levels for specific occupations remained largely constant although there was some movement between adjacent percentiles of the ASHE aggregate earnings levels in a couple of instances. I accept that, as she suggested, there may well be some smoothing of this effect over a longer period. I accept that, in general, occupations tend to maintain their place in the earnings distribution over time. It seems to me likely that the example of the bus/coach drivers relied on by Mr Storry was dependent, as Dr Wass suggested, on its own special facts and did not undermine the general pattern.
131. I accept also Dr Wass's evidence that the Claimant's care costs are likely to be affected by changes in the care market generally. His care package will not exist in a bubble. The Claimant may find himself having to compete with employers (such as local authorities) offering higher wages to carers who are prepared to gain qualifications. In that event, he may find that there is pressure on him to pay higher wages in order to recruit and retain good quality care staff. If the market becomes saturated with employees prepared to work for lower wages, he may be able to obtain satisfactory care at a lower rate. The likelihood is that the earnings levels of the carers employed by him will move with the earnings distribution of the occupational group. An important strength of ASHE 6115 is, it seems to me, the fact that it is sufficiently sensitive to track changes specific to the care market which are likely to have an effect on the Claimant's care costs.
132. As I have already explained, there is a 10 yearly revision of the SOG classification on which ASHE 6115 is based. Thus, there are likely to be at least five revisions over the lifetime of the periodical payments order. The Defendant argues that, if there is a change of classification affecting home carers, this will create major problems since it will then be necessary to reposition the weighted average hourly rate (as uplifted) within the reclassified group. It is agreed by the experts that home carers are unlikely to fall out of the occupational classification altogether. Indeed, if – as seems likely - the number of home carers increases, there is a possibility that they will be reclassified so as to form a new category of their own. This could have the effect of making the new category an even more precise measure of the earnings of home carers such as those employed by the Claimant. A reclassification may be undertaken in 2010, thereby bringing the relevant SOG into line with the international SOG (ISCO) applicable in Europe. ISCO has a separate classification for home-based personal care workers. However, I was told that the ISCO classifications are themselves at present under review and that the ONS is only just beginning to consider the issue of reclassification in 2010. The future arrangements are, therefore, uncertain. Based on the changes that have occurred in the past, however, it seems unlikely that the relevant classification will remain unaltered throughout the next 55 years.
133. Dr Wass and Mr Cropper have considered the issue of reclassification. They say that this could be dealt with, if and when it occurs, by repositioning the uplifted weighted average hourly rate as at the time of the reclassification on the appropriate percentile of the new category. Future uplifts would then be calculated by reference to that percentile. Mr Cropper has drafted a Schedule (based on the Schedule to the Model Form of Order in YM) that provides for the steps to be taken in the event of a reclassification occurring.
134. I have already referred to the fact that there is an 18 month delay between the collection of ASHE data and publication of the final figures reliant on that data. The Defendant contends that this time lag makes it impracticable to base indexation on the ASHE data. The Claimant's experts disagree. Mr Cropper's draft Schedule provides for the annual uplift to be based on a combination of the most recently published provisional and final figures. The effect of this is to reduce the period between data collection and use of that data. Mr Cropper pointed out that there is always a time lag associated with index-linked periodical payments. Indexation by reference to RPI involves a time lag of about three months. Here the lag would be significantly longer. Nevertheless, that would, Mr Cropper said, be greatly preferable from the Claimant's point of view to indexation by reference to a measure which did not properly reflect increases in care costs. If the provisional figures on which an uplift had been based were the subject of later revision, that would be reflected in the calculation of the following year's uplift.
135. Sometimes, even the final ASHE figures are subject to later revision. This occurred in the recent (October 2006) figures published by the ONS. Final figures which had been published in October 2005 were changed slightly (by 1-2 pence per hour) to correct errors that had occurred in the answers to a new survey. Mr Cropper's draft Schedule provides for adjustments in the calculation of the annual uplift so as to take account of revisions to the previous year's figures. He said – and I accept – that this could readily be done. The Schedule provides for interest to be paid on any under or over-payment; the rate of interest would have to be determined by the Court if not agreed.

Conclusions

136. The Claimant in this case seeks payment of his (very substantial) award of damages for the future costs of care by way of periodical payments. His legal and financial advisers are anxious that he should enjoy the benefits of a periodical payments order, in particular the protection afforded by the fact that the payments will continue for his lifetime. The Defendant has no objection in principle to the making of a periodical payments order. Indeed, it is clear from the evidence of Mr Walker in YM (see paragraph 71) and from the defendant's submissions in A v B Hospitals Trust that there is a benefit to the NHS in the making of a periodical payments – rather than a lump sum – order. What the Defendant does object to is the proposal that the periodical payments should be indexed to any measure other than the RPI.
137. The RPI is reliable and authoritative. It is precise in terms of what it measures. It is simple to use. Annual uplifts in payments can readily be calculated by using the relevant growth rate. However, it is not designed as a tool for measuring growth in earnings. None of the Defendant's expert witnesses sought to persuade me that the RPI had in the past been – or was likely in the future to be – a reliable or accurate indicator of growth in earnings. The historical data shows that it has not been in the past. Indexation to the RPI assumes that there is no real earnings growth, an assumption which is not supported by past data. The past data shows that the RPI has not kept pace with growth in average carers' earnings. I find that, based on what has happened in the past, the strong probability is that earnings levels (including the earnings levels of the types of carers who will be employed by the Claimant) will grow at a significantly faster rate than the RPI.
138. If the same pattern were to continue in the future, indexation of the Claimant's future care costs by reference to the RPI would inevitably lead to under-compensation. The purpose of indexation – namely to ensure, as far as is possible, that the real value of the annual payments is retained over the whole period for which the payments will be payable – would not be met. The Claimant would be left unable to meet the cost of his annual care needs, an outcome which was recognised in Wells as being "particularly serious": see paragraph 27 above. Looked at in isolation, therefore, it is clear that indexation of the Claimant's care costs to the RPI is unlikely to meet his needs and cannot be described as fair, reasonable or appropriate.
139. The question then arises whether there is an alternative measure that can satisfy the purpose of indexation and, if so, whether it would be fair, reasonable and appropriate to use that measure in place of the RPI. I do not accept the Defendant's contention that the absence of a measure specific to the local labour market with which this case is concerned must necessarily be fatal to the Claimant's case on indexation. Provided that I can be satisfied that there is an alternative measure which would provide a reliable indicator of growth in the earnings of carers such as those whom the Claimant will employ, it seems to me that that will suffice.
140. The most serious disadvantage of the AEI as a measure is the systematic over-compensation that is likely to result from its use. I accept that the potential over-compensation is likely to be considerably less than the under-compensation that would result from use of the RPI. Nevertheless, I find that, over a period of years, the extent of the over-compensation is likely to be significant.
141. The AEI has other disadvantages. It is an aggregate measure covering all occupational groups, including those with high earnings. Its earnings data include additional payments which would not be received by home carers of the type employed by the Claimant. It is not a measure which would be sensitive to changes specific to the care market. All these features cause me to conclude that, despite the attraction of its simplicity of use, the AEI will not necessarily be a reliable and accurate indicator of the growth in carers' earnings and that it would not, therefore, be a suitable alternative to the RPI.
142. The ASHE median shares some of the disadvantages of the AEI. Since the ASHE median earnings level is higher than the weighted average hourly rate in this case, there is again the potential for over-compensation, albeit to a lesser degree than with the AEI. Dr Wass's reason for choosing the ASHE median – namely that it accorded closely with her experience of carers' earnings levels in comparable cases – does not seem to me to provide a reason for selecting it in this case, where the median earnings level is higher than the weighted average hourly rate. Like the AEI, the ASHE median is an aggregate measure which is insufficiently sensitive to reflect trends affecting carers' earnings. For these reasons, I conclude that, despite the fact that it would provide a broad brush and relatively simple means of indexation, it would not necessarily be a reliable and accurate indicator of the growth in carers' earnings and would not, therefore, be an appropriate alternative to the RPI.
143. I come now to ASHE 6115. As I have previously observed, the past data demonstrate that ASHE 6115 has the merit of being sufficiently sensitive to reflect changes (e.g. the effect of the introduction of the NMW and other regulatory developments) affecting the earnings of carers. I find that it is probable that it will continue to do so in the future. I find also that, insofar as there may in the future be significant further changes (such as those anticipated by Mr Storry) which affect the earnings of carers generally, they are likely to exert an effect on the Claimant's care package also. Thus, ASHE 6115 is likely to reflect changes which will affect the earnings levels that the Claimant will be required to pay. I am satisfied in all the circumstances that indexation by reference to ASHE 6115 would provide a reasonable and accurate indicator of the growth of the earnings of carers of the type to be employed by the Claimant and that it is therefore probable that it would fulfil the purpose of indexation as previously identified.
144. Dr Wass advocated the use of a calculation whereby she created intervals around the published percentiles of ASHE 6115. She proposed that the weighted average hourly rate should then be fitted into the appropriate range of earnings levels. The Defendant suggests that it would be simpler and more precise to match the weighted average hourly rate to the nearest published percentile point. In the present case, the weighted average hourly rate of £8.50 lies very close to the earnings level at the 75^th percentile (£8.47 per hour).
145. It is particularly important that the process of matching the weighted average hourly rate to the appropriate percentile should not be unduly complex, since it is an exercise that would have to be repeated each time a reclassification of the occupational group including home carers took place. If Dr Wass's suggestion were to be adopted, it would be necessary each time to employ someone with the necessary skills to carry out the calculation or, if the Defendant undertook the task, to check on the Claimant's behalf that the calculation was correct. If ASHE 6115 were to be adopted generally as a means of indexation, it may be that the relevant calculation would be carried out by some individual or organisation and published annually, so that it would be readily available to advisers dealing with periodical payments orders. For the purposes of this case, however, I cannot assume that this will be so.
146. I share the Defendant's view that it would be simpler and more appropriate in this case to use as a measure for indexation purposes the 75^th percentile of ASHE 6115. That would also facilitate the calculation of the annual uplift following reclassification, should that occur.
147. I must now consider some general objections raised by the Defendant. First, I must address its objections to use of the weighted average hourly rate. I am satisfied that the weighted average hourly rate, as calculated by Dr Wass, provides a fair and reasonable estimate of the average wage to be paid to the Claimant's carers. It is based on the pay rates agreed by the care experts. Any imprecision is likely to be negligible. I find that it is appropriate to use it in order to match the carers' earnings level to the appropriate ASHE 6115 percentile.
148. Second, I shall consider the Defendant's contention that the application of an alternative means of indexation to 'non-care costs' contained within the annual multiplicands will lead to significant over-compensation. I have already found that the non-earnings related elements of the annual multiplicands amount to no more than about 4-5% of the total care costs to age 19 and 2-3% thereafter. Any over-compensation as a result of indexation by reference to ASHE 6115 (rather than the RPI) of the non-earnings related element will be confined to the percentage representing the annual above-RPI growth of the appropriate percentile of ASHE 6115, as applied to the relevant proportion of the multiplicand. The amount of any over-compensation would therefore be very small indeed. If (reflecting what I was told is the general pattern) the higher level of earnings of the case manager were to rise at a rate faster than earnings at the relevant percentile of ASHE 6115, the over-compensation would be cancelled out or exceeded by the under-compensation resulting from the indexation of the case manager's earnings by reference to ASHE 6115. In all the circumstances, I find that no – or no significant – over-compensation is likely to occur.
149. I am satisfied that indexation by reference to ASHE 6115 can be achieved without undue complexity. The Defendant makes the point that the process, and the Order and Schedule resulting from the proceedings, should be comprehensible to the Claimant's family and to his advisers. It does not seem to me that the proposed indexation process is more difficult to understand than, say, the operation of the conventional type of structured settlement. Furthermore, the draft Schedule to the Order drafted by Mr Cropper is no more complex than comparable Schedules in cases involving structured settlements.
150. I am satisfied therefore that, were a periodical payments order to be made, it would be appropriate, fair and reasonable, under the provisions of section 2(9) of the 1996 Act, to modify the effect of section 2(8) by providing for the amount of payments to vary by reference to the 75^th percentile of ASHE occupational group 6115, published by the ONS, or to any equivalent or comparable occupational group which from time to time may replace the ASHE occupational group 6115 as the appropriate occupational group for home carers. I find that a periodical payments order with such modification will best meet the Claimant's needs and I shall therefore make such an order in respect of his future care costs. The precise form of order and the contents of the necessary Schedule should, I hope, be capable of agreement between the parties.
151. At the outset of the hearing, the parties indicated that they expected to be able to agree a lump sum to be paid for the costs of past gratuitous care, case management costs and private care costs from 26 June 2006 to the present. I hope that this will be possible. If it is not, I shall have to adjudicate upon the area(s) of dispute. In the light of my decision, it will of course be unnecessary for me to make any decision on the appropriate multiplier to be used in the event of the damages for future care being paid by way of lump sum.

Note 1   Lush, Denzil. ‘Damages for Personal Injury: Why Some Claimants Prefer a Conventional Lump Sum to Periodical Payments’. 2005. London Law Review: Vol 1:187.    [Back]