Conservative MPs have voted down Jack Straw’s attempt to make referral fees in personal injury cases a criminal offence.

The former justice secretary tabled an amendment to the ban, included as part of the Legal Aid, Sentencing and Punishment of Offenders Bill, which was debated in the Commons on Tuesday.

Despite an impassioned plea for cross-party support from MPs, Straw’s amendment was rejected by 302 votes to 208 as the government ensured the ban will be policed by regulators.

Justice minister Jonathan Djanogly said: ‘Criminalisation would be too blunt an instrument. If we take the example of the straight payment of a fee for a referral, I can see how straight criminalisation would work, but we should appreciate that when that was last banned in 2004 it was a weak provision through which a coach and horses could be driven.

‘What if an insurance company provides insurance to a solicitor in payment for referrals, rather than a straight fee? What if a trade union gives its cheap work to a firm of solicitors in consideration for the solicitors getting its better work?

‘What if a claims management company provides a variety of services to a solicitor in payment for a referral?

‘The point I am making is that the circumstances could be very varied and complex and the straight criminal option would not be appropriate. It would be the principle that counts and it would have to be a regulator that looks to the principle.’

Straw told the Commons he ‘could not understand’ the government’s refusal to make the offence a criminal matter, as proposed by the Labour Party.

The Blackburn MP said there were many other examples of regulation where a breach of the rules can be dealt with by civil authorities and as a criminal offence.

Djanogly added he was convinced of the need for further regulatory powers, including widening the scope of a ban beyond personal injury, if the need arose. This power, he felt, should stop referral fees continuing to be paid under the guise of payments for services.