The organisation which represents and regulates all solicitors in England and Wales has warned the Government that proposals to ban referral fees in personal injury cases may be ineffective.
The proposals were announced last year in a bid to stem the tide of what David Cameron called the "damaging compensation culture" whereby road users bring false claims for whiplash injuries after being involved in minor road accidents.
The new laws which are included in the Legal Aid Sentencing and Punishment of Offenders Act will ban referral fees paid by solicitors handling personal injury cases to claims management firms and insurance companies. The law is set to come into force in April 2013.
The fees were legalised in 2004 by the Labour Government and facilitated a boom in the personal injury market as new players were incentivised to enter the industry and drive up the cost of each claim by adding in additional middlemen and ancillary costs.
Last year it was revealed that the cost of such claims to insurance companies had almost doubled to £14 billion in the ten years since 2001. These costs are then passed on to motorists in their insurance premiums, which have risen rapidly in the same period.
The Solicitors Regulatory Authority (SRA) believes that the ban will most likely be difficult to enforce and therefore could end up largely ineffective.
Under the terms of the Legal Services Act 2007 solicitors firms are now permitted to be owned and managed by non-law businesses as 'Alternative Business Structures'. The SRA believes that the businesses which currently benefit from referral fees such as claims managers, insurers and others will simply merge, bringing the payment of fees in-house and under the single cost of the solicitor.
Richard Collins is the executive director of the SRA.
"We will do everything we can to make the ban effective in terms of stopping the payment of referral fees," he told the Telegraph.
"I think the bigger question will be whether actually enforcing that ban properly, as we will aim to do, will actually have the wider social impact the Government may be looking for," he added.