“No win, no fee” deals are to be reformed in a move which the government claims will make the justice system “simpler, quicker, cheaper and more effective”.

Announcing the plans to Parliament on Tuesday, Kenneth Clarke said: “With no major reform for 15 years, the civil justice system has got out of kilter. Businesses and other people who have been sued can find that spiralling legal costs, slow court processes, unnecessary litigation, and the ‘no win, no fee’ structures which mean greater payments to lawyers than to claimants, are setting them back millions of pounds each year.”

Mr Clarke said: “Most people dread going to court because of all the cost and anxiety it involves. We must change that by helping them to avoid court where possible and cutting costs where that is unavoidable.”

The plans follow from a review of the system by Lord Justice Jackson at the behest of the previous government.
The reforms also include raising the small claims limit from £5,000 to £15,000, using the High Court for complex claims only.

Under the new plans, lawyers’ fees will be capped at 25 per cent of damages awarded to the plaintiff.

Mr Clarke said that the plans would save the NHS about £50 million a year in legal costs.

In 2008-09 the health service paid out £312 million in damages but £456 million in legal costs, according to the Ministry of Justice.

The proposals were tentatively endorsed by the opposition, who warned that the “devil could be in the details”.

But those representing personal injury lawyers said that the plans thwarted access to justice for accident victims.

Sam Porteous, chief executive of the National Accident Helpline (NAH), said in a statement on the NAH’s website: “Accident victims are frequently the underdog and have often suffered a dreadful injury through no fault of their own. The damages secured by injury victims are needed to pay for basic living costs and rehabilitation.

“Surely it is wrong to say that an injury victim should lose some of their damages to pay for the legal support they need to secure money that is theirs by right.”

He argued that defendant behaviour contributed much more to increased costs and delays, but was not tackled in the reforms. “The government needs to take a balanced approach to any reforms in this area,” said Mr Porteous.

“It is wrong to force accident victims, who so often have complex injuries, to fight for their rights alone in the small claims court,” he added.

The reforms were welcomed by the Association of British Insurers (ABI), who have been arguing for some time that no win no fee arrangements were one of the major factors behind the rise of motor insurance.

Nick Starling, the ABI’s director of General Insurance and Health, said in a statement on ABI’s website: “These reforms are good news for genuine claimants, who too often struggle to get fair compensation under the current system.

“For too long ambulance-chasing lawyers and claims management firms have encouraged many people to believe that there is a compensation culture to exploit.”

He said that the result was to slow down the process and to cause costs to spiral, pushing up insurance premiums.
“Currently, for every £1 motor insurers pay out in compensation, an extra 87 pence is paid in legal costs,” he said.

“By implementing in full the recommendations of Lord Justice Jackson’s review of civil litigation, the government has addressed the injustices of our civil justice system. And motorists, who are paying an extra 10 per cent on their motor insurance as a result of high legal costs in settling personal injury claims, can look forward to cheaper insurance in the future,” said Mr Starling.

“The final part of the reform process must be the abolition of referral fees and we urge the government to ban them,” he added.

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