There’s a Hole in George’s Pocket (but he hasn’t noticed yet)

By James Spargo

In my previous post, I wrote that George Osbourne does not like whiplash. Having reflected on this matter somewhat, read a few forum posts and talked to a couple of people, I am now led to the conclusion that George Osbourne, despite being Chancellor of the Exchequer, does not like money either.

To briefly recap, George's master plan is that very soon, the small claims limit for general damages in personal injury cases will rise to £5,000. Sometime after that, most likely, Claimants will no longer be able to recover general damages for 'minor' soft-tissue injuries.

The rationale is that this will stop fraudulent motor claims and exorbitant costs claims by solicitors and save everyone about £50/year on their motor insurance. Of course, there are those people who believe that the motor insurance industry may be slow to pass on any savings they make to the consumer, but that is a different argument for a different day.

Consider for the moment, just how much money this is going to cost the government. The insurance industry has forecast that this will amount to £1 billion pounds saved on insurance premiums. However, insurance companies would have had to pay insurance premium tax on that £1 billion they are no longer getting. IPT has just gone up to 9.5%, so that means that the government has just lost £95 million in revenue.

According to the claims portal management information, in the year ending April 2015, 865,474 RTA claims were submitted through the Portal, 230,357 exited at stage 1, 13,284 exited at stage 2, 219,701 were settled at stage 2, 38,505 Court Packs were created and the average general damages settlement was around £2,500.

The portal does not apply to small claims. From those figures we can take that the vast majority of those 865,474 claims will now be small claims. Around 25% are disputed, hence they dropped out of the portal. Around 4.5% had to go to Court because there was no agreement on quantum. Even if settlement practices continue as they did before, that's an extra 260,000 claims that will now require the Court's attention. Even if only 50% of those claims are issued because of lack of representation and fear of being a litigant in person, that's an extra 130,000 claims

It's unlikely that many solicitors will take on these claims so most of the Claimants will be litigants in person. Just recently, the Court of Appeal bemoaned the fact that District Judges are finding their lists are overwhelmed by the increase in Court time taken by Litigants in person.

Court fees are lower in the small claims track, even assuming that no-one applies for fee remission. Litigants in person take up more court time and resources, likely to result in a net loss to the Court and therefore the state.

As I said in my last post, a soft tissue-injury worth around £5000, could last around 2 years. Suppose that the individual cannot work in that time and loses their job. They then claim benefits. Normally, if they pursue a PI claim, the Compensation Recovery Unit recovers those benefits. If there is no claim, then there can be no recovery. So, in the additional 130,000 claims that don't go ahead, the state takes a hit on any benefits paid.

The small claims track is informal. We don't need medical reports do we? Do most litigants in person even have any idea how to get them? So that's the VAT paid by medical agencies and experts gone as well then.

So where does that leave us? With a big hole in government revenue. That's going to have to be made up somewhere. But let's look on the bright side, if you are a motorist you may (or may not) have an extra £50 per year in your pocket.