Small Claims and Unintended Consequences

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Good article in the PI Focus today (volume 22 Issue 7) relating to the domino effects of raising the personal injury small claims limit from £1,000 to £5,000.The Government is currently consulting on the potential for changing the limits, but why would this be significant?  Well for one thing, 95% of personal injury cases fall between the £1,000 and £5,000 range of damages and as they come within the “fast track” system legal costs are recoverable from the loser.  In other words, bring a case against somebody and win and you get your compensation as well as your legal costs paid, which in turn means your Solicitor does not need to charge you to run the case in the first place.  This is the principle which forms the backbone to the “No Win No Fee” system.  Legal costs are not recoverable if you win in the small claims system, so if the personal injury aspect of your claim is worth less than £1,000 you will not recover your legal costs.  That means your Solicitor has to charge you if you want representation and you will never get that money back, even if you win.  For that reason most Solicitors do not engage in small claims work because there is little point in charging a client several thousands of pounds to run a case when he or she can only expect to recover less than £1,000 in damages.

Royston Smith, Managing Partner at Scott Rees & Co in Skelmersdale, argues that should these changes be introduced the number of litigants in person will rise, the total number of claims will drop, and the Government will lose millions in taxation revenue.  He argues that personal injury claims generate around £450 million in VAT and £360 million in income tax payments to the Government on an annual basis, and that losing around 95% of that income could be catastrophic for the Government in a time of recession and funding cuts.

I totally agree with Mr Smith, although I cannot help thinking that this Government is cleverer than we give them credit for and something much more sinister than buffoonery is afoot.  Their history of rushed reforms suggests ill-conceived ideas blind to the glaring pitfalls of their decisions, but is it not more likely that they fully understand the consequences but have decided that it is in their interest to continue regardless?

After all, inheriting massive debt and having to make difficult cuts sent this Government on a road towards certain unpopularity, and in such circumstances is it possible that the Government is more than a little influenced by the need to recapture votes?  Newspapers are filled with totally inaccurate stories about litigation culture and high car insurance premiums, and most incomprehensibly blame No Win No Fee Agreements.  If your case was worth £2,000 but you would have to pay a Solicitor £5,000 to run the case without ever being able to reclaim those costs, win or lose, would you bother pursuing it?  The answer is undoubtedly “no”, and this may well be the rationale behind the suggestion of changing the limits.  If a large proportion of the 95% would disappear completely, who could blame the Government for being the masterminds behind crowd-pleasing headlines such as “whiplash abolished”? Maybe that would, in the long run, serve the Government better than the tax income ever could?

Alternatively, maybe they are hoping that that the extra income derived from taxing the extra profits made by insurers will help plug some of the gap; after all, if insurers already make millions in profit, surely removing the need for them to pay out in 95% of cases will see their profits soar?  Will those savings be passed on to the customer in reduced insurance premiums?  Sadly not I am afraid; there will always be somebody else to blame the “crisis” on.

Increasing the small claims limit will devastate the industry and deny millions of genuinely injured people access to the compensation that they deserve.  It is a shame that the Government is considering axing compensation at the roots, rather than aggressively pruning the deadwood holding it back.  After all, small changes in the way that medical evidence is gathered could save the insurance industry £millions, all but remove cases of fraud by exaggerated injury, reduce car insurance premiums and still retain the benefit to the Governmental of taxation. If only they would bother to actually ask us to show them how!

 

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One Response to Small Claims and Unintended Consequences

  1. Lyle Wardson says:

    There are many things should be taken into consideration, but you’ve made a good point here. Thanks a lot for that. I will follow your way soon.

    National Family Solutions

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