Claimant lawyers could experience a combined annual £80m loss in fee income after personal injury reforms come into force, the government estimates.
The Ministry of Justice yesterday published an impact assessment (IA) for the Civil Liability Bill in which it is forecast that £32m will be lost from claims that will no longer proceed.
A further £49m is likely to be stripped from firms’ revenues where claims proceed but without the claimant having legal representation.
The legislation, due to be read in the House of Lords on 24 April, introduces tariffs for RTA claims and will be implemented alongside a new £5,000 small claims limit. Both measures would effectively take lawyers out of the system. Costs will no longer be recoverable and damages payments will be significantly reduced.
The IA says: 'It has been assumed that the loss in revenue will be offset by a reduction in the work conducted. Therefore it has been assumed that claimant lawyers would be able to redirect their resources for productive uses elsewhere in the economy.’
The government estimates that HM Revenue & Customs will lose around £140m if there is a reduction in claims and an increase in claimants without legal representation, while the NHS will lose around £6m a year because it can no longer recover costs from the at-fault insurer in some cases.
While defendant insurers may incur around £19m in extra costs for more medical reports, the IA says they can expect overall total benefits of around £1.3bn a year through reduced claims numbers and smaller damages payments. Around 85% of these benefits will be passed on to the consumer, giving insurers a net windfall of £190m a year.
Meanwhile, estimates from the judiciary suggest the percentage of claimants without legal representation would increase from 5% currently to 30% post-reform. But the impact assessment says a new system will be in place to make it easier for claimants to proceed without lawyers, to avoid the small claims courts becoming overburdened.
The government said market failures have led to an increase in claims made and settled, suggesting it is unlikely that the market could reduce costs and claim numbers without intervention.
‘These failures have contributed to a wider environment where it has become culturally acceptable in some quarters to make minor, exaggerated or fraudulent soft tissue injury claims,’ says the IA. ‘A substantial industry has developed to encourage such claims whose existence largely rests upon the maintenance of the current regulatory arrangements.’
Most whiplash-related claims, it is noted, are ‘straightforward in nature’, particularly when liability is admitted and the value of the claim known, so are suitable for the £5,000 small claims limit.
Volumes of settled RTA claims have come down from 615,000 in 2012/13 to 540,000 in 2016/17. The reforms are expected to affect 96% of whiplash claims.