Government plans to wipe £700 from each fixed fee paid in low-value personal injury cases will put firms out of business, increase the risk of negligence and harm victims of accidents, solicitors have warned.

Firms told the Gazette this week that swingeing cuts to fixed costs in cases handled through the RTA Portal will have a damaging impact across the sector. Under the new fees proposed by the Ministry of Justice, for claims valued up to £10,000 the most a firm can recover will be £500. For claims up to £25,000 – an extension to be introduced from next April – the fee will be £800.

Employer and public liability claims, also coming under the portal from April, will be worth £900 (low value) and £1,600 (for cases up to £25,000). It has emerged that the Association of Personal Injury Lawyers (APIL) told the government during the summer that the time taken to resolve a low-value case varies from six to 14 hours. That means under the new fees system firms would receive as little as £36 per hour for such work.

Lancashire firm Scott Rees & Co Solicitors said the slowest 10% of low-value claims since April 2010 took an average of 598 days to settle. These tended to involve clients who needed ongoing treatment or a supplementary report. Even uncomplicated EL and PL claims can take more than 18 months to settle. Royston Smith, managing partner for Scott Rees & Co, said: ‘No business would enter a risk-laden regulated sector for such poor returns – not to mention a two-year wait for payment.

‘Inevitably, savings have to be made in a race to the bottom that the government is engineering. The burden on the state can only increase in terms of benefits to be paid and the income can only drop as taxation income from the profession drops.’ A spokesman for the Law Society said: ‘The government’s plans to slash fees for RTA work, which forms the vast majority of PI claims, will result in many solicitors not being able to afford to carry on doing this type of work.’

John Spencer, director of PI firm Spencers Solicitors, said the government had ignored the ‘time spent’ figures agreed in 2009 between insurers and claimants. ‘The grave concern is that to reduce these figures will encourage cost cutting and even unprofessional behaviours,’ he said.

‘There is an obvious temptation for firms to devote less time and skill when a fixed fee is set.’

Jeff Winn, managing director at Newcastle firm Winn Solicitors, said firms will have to change the way they operate to ensure more qualified legal professionals work only on higher-value cases. ‘Any solicitors doing work which is below them is just wasting money,’ he said. ‘The problem will come where you don’t have experienced people to lead the team or you’re passing cases too complex for someone to deal with. The level of cutback on the fee is such that 80-90% of firms can’t do it without cheating.’

The government claimed last week it had set the figures based on the assumption that firms will save significant amounts when the ban on referral fees comes into force next April. APIL has described this stance as ‘misconceived and illogical’, given Law Society research that only 44% of PI firms pay referral fees. A spokesman added: ‘Those firms currently paying referral fees will have to shift to other marketing models once the ban is introduced.

‘All marketing costs money. Our members report that the marketing spend is largely similar for those who carry out their own marketing rather than paying referral fees. There is only a transference of spend, rather than a saving.’ The Association of British Insurers this week welcomed a new costs system that will mean ‘reduced insurance premiums for honest motorists and hard-pressed businesses’.

Simon Drew, chief executive of injury claims mediator InterResolve, said the new costs will reduce settlement times and promote greater levels of customer satisfaction. ‘The use of a complex and lengthy legal process to settle small, undisputed claims is outdated and unnecessary,’ he added.

The new costs are subject to a consultation run by the Ministry of Justice which ends on 4 January.