The Ministry of Justice has acknowledged that its proposals for fixed costs could hit smaller firms and increase the risk of professional negligence claims.

Justice secretary David Gauke yesterday confirmed proposals for fixed recoverable costs in civil cases valued up to £100,000, apart from clinical negligence and claims in the business and property courts.

Proposed costs are along the same lines as recommended by Lord Justice Jackson almost two years ago, putting cases in four bands of complexity and limiting costs based on what stage the claim has reached.

The government’s impact assessment states that an extra 13,000 cases every year in the county court could be made subject to fixed recoverable costs. Fixed costs are, on average, likely to be lower in comparison to those lawyers currently recover, but the impact assessment states that such losses will be offset by cases being settled more quickly.

The MoJ conceded its proposals could make small firms less able to compete with larger firms with greater economies of scale.

Another admitted consequence is a risk of more professional negligence claims if claimant lawyers reduce the amount of work on each case, as a result of fixed costs, and claimants are unhappy with the outcome.

‘There is a potential risk that claimant settlements might be lower in future,’ adds the impact assessment. ‘This risk might materialise if claimant lawyers reduce the time and resource they spend on cases in response to FRC, and if as a result. settlement negotiations lead to worse outcomes for claimants. Whether this risk materialises would depend upon the behaviour of defendants in such settlement negotiations.’

Gauke said the proposals provide certainty and transparency: ‘In order to ensure that ordinary people can engage in civil litigation without fear of incurring ruinous costs, where possible we must control legal costs in advance.’

The government argues that while reduced costs could hit law firms’ income, cases would take less time to settle and lawyers can offset smaller margins by taking on more work.

The impact assessment suggests that leaving the status quo would increase the incentives for both parties in litigation to increase their own legal costs and undertake more billable work, knowing they can recover this if the case is successful. 'This could result, as currently is the case, in legal costs that are disproportionate to the value of the claim in dispute,' said the assessment.

The MoJ states that costs lawyers will face a reduction in case requiring their services. The Association of Costs Lawyers has attacked the consultation for taking just one firm’s sample of cases and using figures which are nearly two years out of date. An ACL spokesperson added: ‘The government needs a much more rigorous statistical base if it is to widen the use of fixed costs, and also needs to commit to regularly reviewing and updating them.’

In its response, the Law Society sait that civil litigation costs should be fixed at a 'reasonable rate' for the legal work done. It will scrutinise the details of the government's proposals.

'We know that there are fewer claims since the last round of reforms were introduced in 2013,' said Society president Christina Blacklaws. 'So we will be working with the Ministry of Justice to ensure rates and thresholds are underpinned by strong empirical evidence and research to protect people’s ability to uphold their rights, whatever their status or wealth.

'Fixed recoverable costs should usually only apply to "low value" and non-complex claims - exemptions should be available for complex or unusual cases,' Blacklaws said. 'Rates and thresholds should be regularly reviewed and adjusted by reference to appropriate indices and to take account of changing processes and developments in technology.'