The government has admitted that small firms will struggle to compete when new rules are introduced for fixed costs in clinical negligence claims.

The Department of Health & Social Care announced last week that most claims worth up to £25,000 will be subject to fixed costs from April.

But the impact assessment accompanying the announcement painted a bleak picture for smaller firms hoping to continue working in the sector after the reforms come into force. The government explained that work will go to larger firms who have the resources to manage fixed costs claims, while small firms will not have the required volume of lower value claims and will struggle to pivot into higher value claims.

Small and micro businesses may also not be able to risk taking on clinical negligence claims, even those over £25,000, in case the value falls.

The government said last week that if the claim is overvalued at the outset and subsequently settles for less than £25,000, it will be subject to fixed costs, whether or not the new pre-action protocol has been followed.

The impact assessment said: ‘The proposals could make small legal firms less able to compete with larger firms that have greater economies of scale and can provide services ‘en-masse’ more cheaply.’

Officials did consider whether it would be possible to exempt small firms from the reforms but decided this would be practically impossible and would distort the market.

The impact assessment said the fixed costs reforms created no ‘direct discrimination’ against any group with protected characteristics.

But it added: ‘Disproportionate impacts may fall on older populations and those with pre-existing disabilities, who are over-represented in the inpatient population compared to the general public, and so are more likely to make a claim.

‘Those with lower earnings may also be disproportionately impacted, through their lower earnings making them more likely to fall into a lower compensation band, if loss of earnings is taken into account when agreeing the compensation amount.’

In addition, it was noted that protected parties or children – who are not exempt from the fixed costs rules – will require additional support as part of the legal process and so will incur increased costs. The government proposes a ‘bolt-on’ of £1,800 for these cases but the extra costs involved may still mean cases are unviable for solicitors to take on or may be under-investigated.

Sean Linley, senior costs draftsperson with costs consultant Carter Burnett, said the April reforms do not sit with the Ministry of Justice’s October reforms for fixed costs in most civil claims, which exempt protected parties completely.

He also pointed out the recent Court of Appeal decision in Santiago had stated the fundamental requirement to ensure access to justice, which may not be satisfied by the government’s own admission.

‘There will be real concerns over the impact on access to justice to claims involving children and protected parties,’ said Linley. ‘If this is not sufficiently altered then expect these provisions to be challenged.’

 

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