Setting the small claim limit for road traffic accident cases at a lower level than £5,000 would “fuel claims displacement”, the Lord Chancellor has predicted.
David Gauke suggested that lawyers would effectively play the system to increase the value of a claim above the small claims limit.
He made the comments in a letter  to Bob Neill MP, chairman of the justice select committee, last month, but which was only published yesterday.
It was in response to Mr Neill’s letter in July  questioning the Ministry of Justice’s response  to the committee’s report  on increasing the small claims limit, which recommended an increase to just £1,500 and asked for an explanation as to why £5,000 was considered “proportionate”.
Mr Gauke wrote: “If the government were to set the small claims limit at a lower level than £5,000, we believe that this will fuel claims displacement, in which the claims market puts greater attention on seeking higher compensation for other minor injuries, such as modest ankle strains, which are not covered by the fixed whiplash injury tariff (the maximum amount of which is £3,910 for an injury up to 24-months duration).
“If the market pursued these claims, their potential value would soon take them above a lower small claims track limit than £5,000 and into the fast-track, where fixed recoverable costs would remain.”
The letter mainly covered familiar ground but Mr Gauke did address Mr Neill’s question about why the government was “satisfied” that an inflation-based increase to the small claims limit should be calculated from 1991, rather than from 1999 when the limit was adjusted to exclude special damages.
Mr Gauke said: “You also asked for further clarity on the government’s basis for increasing the small claims limit for non-RTA claims to £2,000 from the £1,000 set in 1991.
“The government accepts that a technical change in 1999, to focus on damages for pain, suffering and loss of amenity and exclude special damages for financial losses, could be viewed as an adjustment to the limit.
“However, it has been 19 years since that technical change and 27 years since the initial limit for personal injury was set.
“The government’s view is that the current £1,000 limit should be uplifted to reflect the change in the claims market, and that this uplifting should be based on the retail prices index (RPI), consistent with the measure used by in Judicial College Guidelines uplift.”
The committee and others have urged the government to use the consumer prices index instead.
Mr Gauke continued: “It is worth noting that applying RPI as a measure of inflation, £1,000 in 1999 would give a new upper limit of £1,810 at the date of implementation in 2020.
“When an element of future proofing is reasonably added to this figure, we are of the view that our proposed new limit £2,000 is both reasonable and appropriate.”
Meanwhile, Labour has put down more amendments to the Civil Liability Bill, further to those we reported yesterday .
Notably, it seeks to tighten up the government’s proposal that a report on whether insurers have passed on the savings from the bill would only need to be published between 1 April 2024 and 31 March 2025, covering the first three years of the reforms.
Labour wants a report after the first year of the reforms – which are due to come into force in April 2020 – and published within six months, so by 30 September 2021.
Other Labour amendments seek to: require that the definition of ‘whiplash’ be set by the Chief Medical Officer rather than the Lord Chancellor; exempt people suffering a whiplash injury during the course of their employment from the scope of the bill; limit the bill to injuries lasting one year, rather than two; and give judges discretion as to how much to increase the compensation tariff figure where deemed appropriate, as opposed to a 20% cap proposed by the government.
Labour also wants the expert panel being set up to advise the Lord Chancellor on the discount rate to have a role in the initial review that is to happen with 90 days of the bill becoming law. As it currently stands, the panel would only advise on subsequent five-yearly reviews.