There should be no more 'last chance saloon' for claims management companies and the Lord Chancellor, Lord Falconer, should step in himself if the situation is not resolved shortly, a leading solicitor peer told the House of Lords' grand committee considering the Compensation Bill argued this week.

Responding to Lord Hunt of Wirral, minister Baroness Ashton acknowledged in the debate that it was a possibility that Lord Falconer could take over regulation if the preferred candidate for overseeing the sector, the Claims Standards Council (CSC), did not appear to be up to the job. A report on the CSC's suitability is likely to be released next week.


The Baroness said the government was intent on moving as quickly as possible to make sure everything was 'done and dusted' by the end of this year.


But Lord Hunt, who is also chairman of the financial services division at law firm Beachcroft Wansbroughs, said there needed to be an immediate remedy to the problem of lack of transparency over 'the relationship between claims management companies and the consumer', including what costs were involved.


He expressed doubt that the CSC was up to the job as it was 'a representative and not a regulatory body', and called for an organisation such as the Financial Services Authority (FSA) to step in as it is accountable to Parliament. He said self-regulation in other sectors had proved to be 'an abject failure'.


However Baroness Ashton said the FSA had indicated that it did not want to take on the role so the government was looking for a body like the CSC that did. 'We must be clear that the [regulatory] model we choose works not only for the present circumstances but also for the future,' she said.


She added in the debate that the government will also be formally consulting on changing the small- claims limit shortly, amid concerns from bodies such as the Association of British Insurers about the current level of £1,000 for personal injury.