George Osborne’s shock announcement on small claims sent the share prices of insurance companies soaring – but quoted claimant PI firm Slater and Gordon watched its value halve in just a few hours.

The chancellor used his spending review to propose a ban on general damages for ‘minor’ soft-tissue injuries and a rise to £5,000 of the small claims limit for all personal injury claims. The ban would be effective from April 2017, although the small claims limit change could be brought into force earlier as it would not require primary legislation.

Osborne (pictured) said he expected the resulting £1bn saving for the insurance industry to be passed on to consumers through reduced premiums.

The Law Society condemned the proposals, saying it was concerned that they would undermine citizens' rights. 

The news left many personal injury firms, which could be excluded from the majority of claims, fearing for their future. One north-west firm told the Gazette it would have to close if the proposals are implemented.

Overnight, one of the biggest personal injury firms in the UK, Slater and Gordon, saw its share price more than halve on the Australian stock exchange.

Slater and Gordon's share price dropped 51% to less than A$1 (48p), down from a peak of more than A$6 during the summer, and prompted the firm to release a statement reassuring investors.

The announcement to the stock exchange conceded that Osborne’s reforms would ‘impact’ on the rights of people injured in road traffic accidents, and confirmed the firm will take part in the consultation expected in the new year.

But Slater and Gordon said the proposals would not affect next year’s projected profits, adding: ‘The company believes that the scale and diversity of the Slater and Gordon solutions business in the UK positions it well to deal with the potential impact of any future legislative change.’

On the other side, shares in all the major insurers quoted in London closed higher last night. Direct Line saw an increase of almost 2% following the spending review announcement.

AXA, meanwhile, welcomed what it called ‘tangible reform of the whiplash compensation culture’.

Group chief executive Paul Evans added: ‘If implemented to its full potential, honest motorists will no longer bear the unacceptable cost of those who seek to profit from exaggerating minor accidents.’

But Tom Jones, head of policy at claimant firm Thompsons Solicitors, said Osborne’s announcement will mean a ‘boom time’ for insurers and their shareholders.

‘Most road traffic accident personal injury claims are worth less than £5,000, meaning that the rise in the small claims limit will leave the bulk of injured people out in the cold,’ he said.

‘The fact that it is proposed to be £5,000 shows this for what it is – the government once again dancing to a tune played by their friends in the insurance industry.’

Law Society president Jonathan Smithers said: 'The Law Society is gravely concerned that these proposals will completely undermine the right of ordinary citizens to receive full and proper compensation from those that have injured them through negligence.

These proposals will stop people obtaining legal advice for all personal injury claims below £5,000 and stop people claiming for often debilitating injuries arising from road traffic accidents if these injuries are considered minor.

'This is a fivefold increase in the present level of cases currently within the small claims procedure, benefiting those who have negligently harmed people and will result in more people trying to work their way through a complex court system without any legal advice. People recovering from their injuries will have to bring claims as litigants in person (without any legal advice) and this can be very unfair because those defending the claims can often afford to pay for legal advice.

'This therefore undermines ordinary people’s ability to access justice. Especially if defendants simply deny liability forcing people to fight through the courts without legal help.

'Personal injury claims, even lower value claims, can include serious injuries arising from the fault of an employer or other road traffic accidents where legal rights can be very complex and the injuries caused debilitating. A new limit of £5,000 will mean personal injuries including facial scarring would be considered as "small claims". This is totally unacceptable.

'These proposals are not, as stated, about stopping fraudulent claims. Fraudulent claims are clearly repellent but they should be dealt with by targeting the fraudsters and not the vast majority of honest claimants who have been injured and bring genuine claims.'

The Society will respond to the consultation 'robustly', Smithers said.