New interim guideline hourly rates (GHR) were released in December - but could be slashed in future for personal injury and clinical negligence work if the committee that recommends levels decides that referral fees should not be built into them.

The advisory committee on civil costs recommended to Sir Anthony Clarke, Master of the Rolls, that London rates should increase marginally on 2008 levels, with greater rises outside the capital. The rates take effect from 1 January.

But the committee’s chairman, Professor Stephen Nickell, told Sir Anthony that the new rates are interim. ‘Unresolved issues’ include the amount of work done by solicitors outside their own region and the extent to which referral fees account for the 20-35% gap between hourly rates charged by claimant and defendant solicitors.

A background paper reveals the Association of British Insurers’ argument that referral fees inflate the GHR. ‘It was put to us that the claims management industry serves no socially useful purpose, the claimants only need the Yellow Pages to find solicitors and that reducing GHR to the level of fees charged by defendants’ solicitors would eliminate a significant degree of anti-competitive behaviour.

‘It was argued that solicitors were analogous to plumbers who do not need to advertise on television to compete in the market,’ the paper said.The committee said that it would pursue these issues by investigating the role of claims management companies and other introducers, as well as their profitability and the extent to which they influence legal charges. Moving GHR in the direction of defendants’ solicitors’ rates ‘could ultimately have serious implications for access to justice.’

John Spencer, chairman of the Motor Accident Solicitors Society, said he generally views referral fees ‘as a necessary evil rather than a beneficial practice, but the fact is that whether acquired through direct marketing or through referral fees, the marketing and advertising for work by solicitors does and will continue to cost money’.

The board of the Solicitors Regulation Authority will this week review its policy on referral arrangements, and will be told that while there is still widespread non-compliance with the rules, in the majority of cases clients’ interests are not being harmed.