Fixed recoverable costs for RTA Portal claims up to £10,000 will be cut to £500, justice secretary Chris Grayling has confirmed.

In a consultation response published today which will confirm the worst fears of the sector, the Ministry of Justice said fixed costs will be cut from the current figure of £1,200 from the end of April.

New protocols extending the scheme to £25,000 and to employer and public liability claims will be implemented from the end of July.

Fixed costs for RTA claims worth up to £25,000 will be £800, whilst employer and public liability costs will be £900 for lower-value cases and £1,600 for cases up to £25,000.

The cost figures are identical to the proposals set out by Grayling last November which preceded a six-week consultation.

Grayling said: ‘I want to see claims handled quickly and efficiently so accident victims with genuine cases can be compensated as soon as possible.

‘That is why following consultation and careful consideration I have confirmed that changes to the digital system used for settling uncontested road accident claims will take place this year.

‘From April the costs lawyers can charge for using the scheme will be reduced to reflect the work and costs involved and from July the system will be expanded to include higher-value claims and accidents at work or in public places.

‘These changes, along with our wider reforms, are intended to bring more balance to the system, make lawyers’ costs proportionate and in turn create an environment where insurers can pass on savings to their customers through lower premiums.’

James Dalton, head of motor and liability at the Association of British Insurers, said: ‘This is very good news for customers who will benefit through lower car insurance premiums as unnecessary legal costs are removed from the system. The government is to be congratulated for grasping the nettle on this issue and resisting the scare-mongering claims of ambulance-chasing lawyers.’

Desmond Hudson, chief executive of the Law Society, said: ‘It is disappointing to see that the views of those who disagree with the ABI and the government are declared partial and biased by the MoJ. These changes will make it more difficult for those injured through the negligence of others to receive compensation.

‘Will motor insurance premiums reduce or, more likely, will the profits of insurance companies increase?’

For RTA claims valued less than £10,000, the government said it had used the Jackson report and research by the Legal Services Board to find an average cost of £700 for each referral fee paid by a solicitor firm. The MoJ response said it was 'appropriate' that a review of fixed costs should take account of the forthcoming ban on referral fees and the savings firms will make as a result.

The consultation prompted 763 responses in total, with 729 from 280 claimant firms and bodies (around 96%) and just 22 from insurers and defendant firms (around 3%). A further 12 responses came from representative and expert organisations.

The announcement comes just two days before a judicial review hearing is set to take place in the High Court, led by claimant groups Association of Personal Injury Lawyers and Motor Accident Solicitors Society. The case, which will go ahead in spite of today's announcement, is based around the reasons for the government's costs figures and the influence of the insurance lobby.

In its response, the MoJ said: ‘The government decided in principle, in the autumn of 2011, that the abolition of referral fees should lead to a reduction in [fixed recoverable costs].

The Law Society said it would offer advice and support. Mark Stobbs, director of legal policy for the Society, said: ‘Senior partners and managers in each firm will need to consider how far their business models make it worthwhile to continue to do PI work, and whether they can be adapted.

‘It wouldn’t be surprising if many firms decide that they are unable to do so, and as a result many innocent victims of road accidents will lose out.’

‘On 14 February 2012, following an insurance summit held at No 10 Downing Street, a commitment in principle to reduce FRCs was announced. Further work was then undertaken to gather evidence on the appropriate level of FRCs.’