Justice Secretary Kenneth Clarke has recently announced that the government will ban ‘no win, no fee’ legal cases.

While insurance firms are rejoicing as they believe that this will help address the problem of rising car insurance prices, there are also concerns that this could mark the end of legal cases against multinational firms on behalf of employees who have been wronged. We therefore take a look at the impending changes and validity of the comments which have been made on the matter.

No win, no fee legal changes

The changes

Lord Justice Jackson released a white paper in early 2010 which recommended that the government reform the legal system by banning ‘no win, no fee’ cases. The civil court judge showed that there had been huge increases in civil litigation costs in the UK in recent years and believed that addressing this issue would help the economy.

At that point, the losing defendant had to pay the winning lawyer a ‘success fee’ and heft insurance premiums which often made their expenses four times the cost of the actual action. Instead, the Judge proposed that lawyers be paid out by the winning side and that success fees should be caped to 25% of the total payout which he believed would force lawyers to compete with each other who would take the smallest share of their client’s payout, ultimately leading to a massive reduction in legal expenses.

Upon the coalition government coming to power, Kenneth Clarke took note of this white paper and on the 29^th March 2011 announced that he would make ‘no win, no fee’ cases illegal and stated that lawyers would no longer be entitled to a ‘success fee’ paid by defendants, but would instead claim a share of the damages. The total damages which could be awarded will also be capped to £15,000.

Mr Clarke also announced that everybody lodging a civil court claim for damages will be encouraged to consider mediation in order to avoid Britain becoming a society in which “fat cat” lawyers receive massive fees. This will force lawyers to agree how much of the damages they will receive if the claim is successful before the case begins.

All those in favour

The news was welcomed by insurers, with Direct Line claiming that 10% of car insurance premiums recovered by insurers now go toward paying legal professionals. The car insurance provider therefore believe that this will address the problem of rising car insurance costs: “Currently, 10% of every car insurance premium paid goes to the legal profession. The continuing rise of lawyers’ fees has been a major contributing factor to recent increases in car insurance prices across the industry.”

This was corroborated by Will Thomas from Confused.com who more specifically blamed an rise in personal injury claims for the car insurance premium increases, citing the “injury lawyer’s ads on the television” as a major contributor. Insurance company Zurich also supported this viewpoint: “The biggest rising cost for us is the sheer volume of personal injury claims. The public have been bombarded with no-win, no-fee adverts, so they’re claiming where previously they wouldn’t have.”

It should be noted that the increased number of fraudulent claims which have been, as reported by the Insurance Fraud Buerau (IFB), may well be linked to the fact that people have been able to make claims without fear of losing money in the event of their case being unsuccessful. The ABI believes that these fraudsters have been costing insurers £5 million per week.

Young Male drivers have been particularly badly hit by these price rises, with research by moneysupermarket.com showing that the average 18 year old male driver with a 1.25 litre Ford Fiesta now faces car insurance premiums of over £7,000. This is due to the higher statistically likelihood of young male motorists making a claim or having a claim made against them. The Association of British Insurers (ABI) has blamed the culture of ‘ambulance chasing’ lawyers for these price increases, claiming that prices have had to go this high due to the likely legal expenses insurers could face from people in this age/gender group.

All those against

The shadow Justice Secretary Sadique Khan has opposed these reforms, stating that it will make it harder for people with legal complaints worth very little financially to find a lawyer to represent them: “There’s a fear that these plans go so far in trying to keep down costs that some claimants with meritorious cases will find it difficult, if not impossible, to find a lawyer to take their case.”

Of far greater concern is the viewpoint of Solicitor Andrew Dismore who is the co-ordinator of the Access to Justice Action Group. Dismore believes that this ruling will make it almost impossible for “the poorest people” in the world to challenge the “richest multinationals”. This point is supported by Dan Watkins from Contact Law who said that the changes mean that an employer with shoddy working practices will likely go unpunished.

Who is right?

There is no doubt that car insurance costs are out of control, with young drivers now often paying more for their car insurance each year than they do for their first car. This is the root cause of these reforms, with insurance companies insistent that this will help address the problems they have faced in recent years which have been caused by “ambulance chasing” lawyers.

However, the fact that these changes will aid companies who will be less likely to face legal challenges from aggrieved employees is obviously a concern and feeds into the Tory stereotype of favouring businesses over people. Once again, this appears to be a case of a small proportion of the population exploiting loop holes for financial gain and ultimately ruining it for law abiding people with genuine reasons to claim.

Scrapping the scrappage scheme

Recent Auto Trader research shows confusion surrounding the New Year rise in VAT could hit drivers hard.

Most people are unaware that not only will VAT return to the usual rate of 17.5%, but that the government’s car scrappage scheme will be ending in February 2010 – a double hit for the one in twenty drivers intending to buy a car in the next three months.

Millions could be lost in car sales if drivers remain unaware of this information and 55% of those surveyed believed this was a way of getting more money from taxpayers.

Rise in VAT to hit consumers’ wallets in 2010
Research from Auto Trader shows that Britons are unaware and unprepared for the rise in VAT

• 12 million Britons unaware of the rise in VAT in 2010
• 30% say they will be forced to take a closer look at spending habits
• 55% believe the increase is an attempt to make money from taxpayers

London, 24 November 2009 – New research from Auto Trader reveals that the imminent rise in national VAT will have a significant effect on consumers in 2010, with 30% of people admitting they will be forced to reconsider their spending habits.

Confusion over the rise in VAT

National VAT, currently at 15%, is expected to return to the usual rate of 17.5% next year, yet the research found that 12 million Britons are unaware of this. The results also highlight a lack of consumer awareness over the impact the rise could have, especially on large purchases. Of those intending to buy expensive items such as televisions, holidays or cars, the majority (55%) did not plan on bringing these forward before VAT increases.

The research also exposed a lack of trust in the government’s intentions, finding that 55% of people believe the increase is an attempt to make money from taxpayers. In addition, one in 10 people expect the government to raise VAT to 20% instead of returning to 17.5%. Those questioned also felt the increase would backfire in the long term, with a quarter of people believing it will become harder for Britain to come out of the recession.

Millions could be lost on car sales

Those planning on purchasing cars are in for the biggest shock as the rise in VAT is not the only threat to consumers’ wallets. One in 10 people are unaware that the government’s car scrappage scheme, which offers £2,000 towards the cost of a brand-new vehicle when trading in a vehicle over 10 years old, comes to an end in February. With one in 20 people intending to buy a car at some point in the next three months, delaying that decision could mean UK drivers miss two opportunities to save money.

 
More than 35,000 new cars have been sold under the scrappage scheme since it went live on May 18.

Government figures show that one in five new cars are now sold to buyers taking advantage of the £2000 discount available to drivers with a 10-year-old car to trade in.

Industry sources suggest that small cars have taken the lion’s share of sales under the scheme.

Hyundai’s i10 city car and i20 supermini have both been popular with buyers. Tony Whitehorn, Hyundai UK’s managing director, said: ‘Our experience shows the scrappage scheme has really caught the imagination of the car-buying public.

‘For many, it is an opportunity to buy their first ever new car, and is enormously exciting.’

The Government has set aside enough money to fund 300,000 vehicles, so there’s still enough money left for almost 265,000 more buyers to take advantage of the scheme.

• 35,000 new cars ordered through scheme
• One in five new cars sold with scrappage discount
• Small cars sales in particular picking up