Can the government really do away with referral fees?

The government’s ban on referral fees is drawing closer but a get-out clause means that they may be paid in disguise for personal injury claims.

On the 20th December, peers will start dissecting the legal aid bill. Ken Clarke, the justice secretary, has introduced new clauses into the bill to reduce speculative suing by people looking purely to make a profit.

Despite pressure from Jack Straw, the coalition is not going to make it a criminal offence to make or accept a referral fee. Instead, the government expects regulators to enforce the ban. Some experts now question whether the government simply wants to be seen to be doing something about the personal injury compensation culture.

One of the clauses in the bill states that a payment is not a referral fee if it is made to a provider of services or “for another reason”.

Defendant insurers say this leaves a gaping hole as personal injury solicitors could pay a large ‘membership fee’ to join a legal panel and then receive free personal injury cases. Law firms could also disguise the money they pay to their referrers by putting it down as business consultancy, commercial expertise or risk management assistance.

Mark Boleat, the former chief of the Association of British insurers, said the ban will turn a reasonably transparent arrangement into something that is totally opaque. He went on to predict that if the ban comes into force, personal injury lawyers will acquire claims management companies or directly hire claims farmers. Furthermore, the larger claims management firms will start acquiring solicitors when ABSs are introduced.

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