Spending review: Osborne raises small claims limit to £5k and scraps whiplash compensation

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Chancellor George Osborne has pledged to raise the small claims limit for personal injury claims to £5,000 and scrap general damages for ‘minor’ soft tissue injuries.

In surprising moves that will be met with dismay by personal injury lawyers, Osborne said he would remove legal costs by transferring personal injury claims of up to £5,000 to the small claims court.

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He will also end the right to cash compensation for ‘minor’ whiplash claims.

In his speech to House of Commons, Osborne said: ‘We’re going to bring forward reforms to the compensation culture around minor motor-accident injuries.

‘This will remove over £1bn from the cost of providing motor insurance. We expect the industry to pass on this saving, so motorists see an average saving of £40-50 per year off their insurance bills.’

The full statement said the government is ‘determined’ to crack down on the fraud and claims culture in motor insurance. It added: ‘Whiplash claims cost the country £2bn a year, an average of £90 per motor insurance policy, which is out of all proportion to any genuine injury suffered.’

The government opted not to increase from £1,000 to £5,000 in 2013 after being warned against the move by a report of the transport select committee.

The spending review statement said the government intends to introduce measures to end the right to cash compensation for minor whiplash injuries, and will consult on the details in the new year.

Huw Evans, director general of the Association of British Insurers, said: ‘This is a significant breakthrough in tackling the compensation culture and is good news for motorists. Insurers have long called for meaningful reform in reducing costs in the compensation system, including increasing the small claims track limit.

‘Previous government reforms have already led to insurers passing on over £1bn in savings to motorists through lower premiums, and in a highly competitive motor insurance market, insurers will continue to pass on savings to customers.’

Jonathan Wheeler, president of the Association of Personal Injury Lawyers, said the insurance industry had failed in the past to live up to promises to pass on savings from reforms to customers.

He added that since the overhaul of overhaul of medical reporting and establishment of a portal for claims, whiplash claims have fallen by more than a third.

He added: ‘Only two years ago the government ruled out increasing the small claims court limit because there were no adequate safeguards to protect genuine claimants. There are still no adequate safeguards.

‘If the small claims court limit is raised to £5,000 all that will happen is that genuine victims of injury will not be able to afford the legal help they need to bring genuine claims and there will be an epidemic of cold calling from claims management companies as they rush to take advantage of vulnerable people who won’t be able to afford legal representation.’

Wheeler said the removal of damages would show a ‘callous indifference’ to the suffering of victims.

Sue Brown, chair of the Motor Accident Solicitors Society, said the NHS and benefits system will be left to pick up the bills currently met by insurers.

‘A substantial increase in the small claims limit and the removal of the right to claim general damages for low value whiplash will have a hugely detrimental impact on the ability of accident victims to seek redress and justice,’ she said.

‘It cannot be right to deal with the purported compensation culture by removing the right to claim compensation from those who suffer injury as a result of negligent driving, in order that the insurers for the negligent driver can save money.’

Readers' comments (112)

  • I advise around 70 PI law firms and this is the move they feared most. The financial implications for partners and employees are huge.

    This is bad news for PI firms, small firms doing PI but will affect defendant insurance lawyers as well.

    Firms need to be looking at the impact of these changes now to survive.

    It's so frustrating to see insurers persuade Government to make policy which fails everyone but themselves.

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  • How is it ever going to be possible to introduce a law which says that there are actionable and non actionable physical injuries. This smacks of Tory dog-whistle politics. I'd be surprised if anything came of it.

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  • So, at the moment, I pay £1.00 per week more on my insurance than I potentially should (I only have the insurers word that this is the reason my premium is inflated by this sum and have seen no evidence to support their contention (and nor have I seen my premium fall by a similar amount despite all of the reductions to solicitors costs since 2010)) but if the small claims limit rises, hundreds of firms will go bust or slash their work force, creating mass unemployment. These bodies will not be absorbed into other firms as there will not be enough work to go around.

    I'm a bit out of touch with the current benefits system, but I anticipate that Job Seekers Allowance for one person for one week is more than £1.00 (and is probably closer to £45.00?). I'm no mathematician but £45.00 is greater than £1.00 and when that is multiplied up by all of the people who are now claiming benefits, the amount I will have to pay in tax to support these people will be more than £1.00 a week won't it? I am not including in this figure the ancillary suppliers (such as the office supplies company, the printing firm, the IT contractors, the photocopier sales company) who will also either have to downsize (and lay off people) or shut up shop and nor am I taking into account the effect on the disposable income of the owners of such businesses and how the reduction in their disposable income will affect other businesses that they used to spend money with and so on and so forth.

    So, by pandering to the insurers whim, Osborne will create mass unemployment and drive the economy backwards, all so I can say a quid a week on my insurance? Thanks but no thanks.

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  • What a sensible move!

    Clearing out the (I hate to put it out because it nearly is) ok .... profession ...

    Brilliant.

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  • Spit it out rather !!!

    Next we will have abolition of claims handling firms and back to the High Street (still underpaid though, but professional, Solicitor) ....

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  • @Paul Bennett25 November 2015 02:34 pm:

    "...I advise around 70 PI law firms and this is the move they feared most. The financial implications for partners and employees are huge. .."

    Or they wil have to do proper litigation again .....

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  • If George Osborne is genuinely so concerned about the cost of insurance for motorists, why did he increase insurance premium tax by over 50% from 6% to 9.5% in his last budget, thus wiping out any saving made by LASPO. It's almost as if this is all spin, and he really just wants to help his insurance buddies make more profit.

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  • I don't see why people with whiplash can't claim compensation - it really can be painful. By moving claims into the small claims track there will just be claims management companies moving onto the scene or litigants will just bring claims themselves, clogging up the system. Also, think of the loss of revenue for the Court system. Bonkers!

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  • What has this got to do with Government spending? Members of the ABI must have promised massive additional donations to the Tories for Osborne to announce such changes before the Insurance Fraud Taskforce review is published. Does anyone seriously believe the ABI line that such draconian measures will result in a reduction in Insurance premiums ? We were promised cuts in premiums when Portal costs were slashed by 60 % yet there have been no reductions, only increases. Where has that money gone? Sad times indeed.

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  • Time for the LAW Society/MASS/APIL to justify their existence!

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