Budget 2011: No-win, no-fee compensation firms to be restricted

One of the commitments to businesses made by the Chancellor was to implement the recommendations of Lord Young, the government's adviser on health and safety law.

In his report, ‘Common Sense, Common Safety', published last October, Lord Young called for restrictions on advertising for "no win, no fee" compensation claims and a revolution in the way personal injury claims are handled.

The Prime Minster said that in the UK "a damaging compensation culture has arisen, as if people can absolve themselves from any personal responsibility for their own actions, with the spectre of lawyers only too willing to pounce with a claim for damages on the slightest pretext."

"We simply cannot go on like this," he added.

Changes in the law could, in future, block compensation claim companies from securing their fee from the defendants. It is thought that claimants – and companies – will think twice before pressing ahead with litigation if they have to pay to bring the case, although legal fees for winning litigants may be limited to 25% of damages.

It is also hoped that this will offset a complex range of risks, including the possibility of a losing claimant paying out for conditional fee agreements, damages to the winner, a 'success fee' to the winner's lawyers which can be as high as the damages and 'after the event' insurance taken out by successful claimants to cover the possible cost of losing.

The public sector, especially councils, schools and the NHS, has been particularly vulnerable to this problem and often opt to settle a case rather than risk the expense of losing.

Nick Starling, director of General Insurance and Health at the Association of British Insurers (ABI), says the chancellor's promise to implement in full Lord Young's recommendations was welcome.

"Lord Young rightly identified how badly interpreted or misunderstood regulation, bureaucracy and disreputable claims management firms have contribute to a compensation culture. Implementing these recommendations will create a culture of responsible risk taking by individuals and businesses, backed by proportionate health and safety regulation, and underpinned by insurance.

"Lord Young's recommendations coupled with full implementation of the recommendations of Lord Justice Jackson's review into civil litigation, will lead to claimants getting fair compensation as quickly as possible and help to insurers keep costs affordable for customers."

More about