3Setting the small claims limit
43.In this Chapter, we look at whether the small claims limit should be increased to take into account the effect of inflation. We also consider the justification that Government has offered for introducing a significantly higher limit for RTA PI claims, and the potential relevance of the Judicial College Guidelines.
The effect of inflation on the PI small claims limit
44.As explained in the Annex to this report, the small claims limit was set in 1991 at £1,000 for all types of claim. When it was raised to £3,000 in 1996, the £1,000 limit was retained for PI and housing disrepair claims. An adjustment to the PI small claims limit was made in 1999, when the £1,000 cap was restricted to damages for PSLA; additional compensation for so-called “special damages” covering loss of earnings, medical expenses, damage to property and other out-of-pocket expenses could be claimed up to a maximum of £10,000 for the whole claim. As summarised in our Annex, successive governments have consulted on proposals to increase the small claims limit for PI but—so far—have opted not to do so. In addition, Lord Justice Jackson’s review of civil litigation costs recommended in 2009 that the limit for PI stay at £1,000 until the time when inflation justified an increase to £1,500, concluding that a series of smaller increases could be confusing.63
45.Many submissions to our inquiry recognised that the small claims limit for PI had not been raised for many years, and considered that an increase would be justifiable. Several witnesses, including the Association of Personal Injury Lawyers, thought that any increase should be linked to the rate of inflation.64 According to Access to Justice65 and Horwich Cohen Coghlan Solicitors,66 inflation should be calculated from 1991 when this limit was first established—a view shared by the Minister, Lord Keen of Elie QC:
The level for personal injury has not changed since 1991. There are various views about the inflation-linked result. We say that it is about £2,000. Others have said that it is about £1,700. We do not feel that there is a material difference between setting it at £1,700 today and seeing it drop behind inflation next year, and setting it at £2,000 without the need to review it again for a number of years.67
On the other hand, Usdaw thought this approach was “disingenuous”.68 Steve Mitchell from Usdaw told us:
In 1999, there was the removal of special damages from the small claims limit. Most commentators accept that in real terms that represented a 25% increase in the small claims limit at that time. That is the date Lord Justice Jackson used when he was discussing the civil reforms. He went from 1999 instead of 1991.69
46.In its supplementary written evidence, Usdaw calculated that, using the Consumer Prices Index (CPI), the £1,000 limit set in 1999 is now worth £1,440, or £1,620 if the Retail Prices Index (RPI)70 is used as a measure of inflation.71 Similar calculations were presented by Thompsons Solicitors72 who argued that, taking account of Lord Justice Jackson’s recommendation on avoiding small and potentially confusing increases to the small claims limit,73 applying RPI to the current limit would justify an increase to £1,500, whereas applying CPI would not justify an increase at this stage. While accepting that the Government now commonly uses CPI as a standard measure of inflation, the Forum of Insurance Lawyers (FOIL) considered that it was more appropriate to use RPI in relation to compensation for PI as this measure is used to update the Judicial College Guidelines on the assessment of general damages in personal injury claims. Notwithstanding Lord Keen’s remarks quoted above, our own calculations indicate that £1,000 would be worth £1,454 in March 2018, using a starting point of April 1999 and CPI as a measure of inflation. Assuming CPI remains at 2.5%, it would take a further 13 years for this to be worth £2,000—or eight years if inflation is assumed to be 4%. Using RPI as a measure of inflation, £1,000 in April 1999 would be worth £1,712 in March 2018.
47.We agree that the small claims limit for PI should be increased to reflect inflation. We recommend that April 1999 be used as the starting point for calculations, this being the date of the most recent adjustment to the limit, and that CPI—now the Government’s preferred measure—should be used to calculate inflation; our calculations suggest that an inflationary increase to March 2018 would be in the region of £1,454, indicating that £1,500 might be appropriate in April 2019.
Justification for raising the small claims limit for RTA PI claims
48.As noted above, the MoJ has sought to justify the £2,000 small claims limit for non-RTA claims by suggesting that the increase would be “in line with inflation”. The policy justification for the increase to £5,000 for RTA-related PI claims is somewhat different. The MoJ has cited continuing concerns about the “compensation culture” believed to have developed around whiplash claims in recent years, fuelled by cold calling and targeted advertising, and it maintains that this has led to motorists in general paying disproportionately high premiums to meet the insurance industry’s costs in relation to such claims. The Ministry’s stated intention is to reduce the number of claims, not only those that are fraudulent or exaggerated but also those that are “minor”.74 It argues that raising the small claims limit would encourage defendants to give better consideration to the merits of their claims:
…in lower value cases, shifting cases to the small claims track where legal fees are not recoverable—as is the government’s intention—would mean that claimants would now have a direct financial interest in decisions about pursuing their claim in that they would be responsible for their own costs.75
49.The Government has yet to confirm what definition of “road traffic accident” would be used to determine which PI claims would be subject to the proposed £5,000 small claims limit. It can perhaps be assumed that the definition that would be used would be similar to the one in the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents, which defines a ‘road traffic accident’ as an accident arising out of the use of any motor vehicle in a public place. The definition is a broad one, which includes accidents involving motorbikes, cyclists and pedestrians:
…an accident resulting in bodily injury to any person caused by, or arising out of, the use of a motor vehicle on a road or other public place in England and Wales unless the injury was caused wholly or in part by a breach by the defendant of one or more of the relevant statutory provisions as defined by section 53 of the Health and Safety at Work etc Act 1974.76
The Judicial College Guidelines
50.In considering a potential increase to the small claims limit for RTA PI, several submissions to our inquiry, and to that of our predecessor Committee, suggested it was relevant to consider the benchmarks for compensation for different types of injury set by Judicial College Guidelines for the Assessment of General Damages in Personal Injury Cases. In its supplementary written evidence, the Forum of Insurance Lawyers (FOIL) pointed out that the Guidelines take into account not only the effects of inflation but also recent court decisions on quantum (that is, the level of damages), which have led to recommended awards that are “significantly in excess of inflation”. FOIL thought it was difficult to give an overall view of the increase in damages since 1999, because the changing classification of injuries over time makes it hard to draw direct comparisons across different editions of the Guidelines. In addition, a 10% increase in damages had been introduced as part of the Jackson reforms in 2013 and “it could be argued that that part of the increases [the 10% increase] should be disregarded”.
51.Usdaw’s supplementary written evidence drew our attention to compensation levels for minor neck injuries with a recovery period of up to two years, tracked through each edition of the Judicial College Guidelines published from 1998 onwards (disregarding the 10% increase in damages that followed the Jackson reforms). In 1998, the recommended upper limit for compensation was £3,500, slowly increasing over the following two decades to “£3,470 to £6,290” under the 14th Edition of the Guidelines (2017). This appears to correlate roughly with the rate of inflation using RPI.77
52.The 14th Edition of the Judicial College Guidelines also indicate which types of injury—other than soft tissue injuries—would fall under the proposed £5,000 small claims limit for RTA PI claims. For example, compensation for minor brain or head injury is valued as being upwards from £1,760; loss of part of a finger, fractured nose with surgery and significant hip/pelvis injury up to two years are all valued as upwards from £3,150; and slight hearing loss or tinnitus as up to £5,550.
63 Review of Civil Litigation Costs: Final Report, December 2009. Paragraph 3.3
69 Q3. In his report, Lord Justice Jackson simply stated: “There has been no increase to the small claims limit since 1999.” (Chapter 18, paragraph 1.)
70 CPI and RPI are both measures of inflation, which is the rate of increase in prices for goods and services. They both measure the changes in the cost of purchasing a basket of different goods and services. The CPI is produced in line with international standards and is the measure used for the Bank of England’s inflation target. The Retail Prices Index (RPI) is no longer classified by the ONS as a National Statistic as the way it is calculated does not meet international standards. However, it is well-known and is the longest running measure of inflation. Because of the way it calculates averages, the RPI will generally be higher than the CPI.
73 See Annex, paragraph 13
74 Reforming the Soft Tissue Injury (‘whiplash’) Claims Process: A consultation on arrangements concerning personal injury claims in England and Wales. Ministry of Justice, November 2016, including paragraph 5 of the Executive Summary
75 Ibid, paragraph 17
76 Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents, July 2013, Section 1.1 (16)
Published: 17 May 2018