Jack Straw has branded the referral fee system as a “parasite” on motor insurance industry.
Speaking in yesterday’s first House of Commons debate on the Legal Aid, Sentencing and Punishment of Offenders Bill, the ex-justice secretary said that since he called for a ban on the controversial practice earlier this week, he had been inundated with messages from members of the public.
He said: “One solicitor wrote to me saying that referral fees are no more than a “form of legalised bribery”. He is right. They are the parasites eating away at the integrity of the whole of the motor insurance industry and associated professions, including lawyers. Their effect is to drive up costs, and therefore premiums, and actively to encourage individuals.
“Everybody in this chain is on the take, and the total is running into billions. I have been overwhelmed by e-mails, which I am very happy to supply to the Lord Chancellor if he wishes, from members of the public and professionals with even more horrifying detail about the dodgy practices, frauds and near-frauds that are now endemic in this industry, including one from a lady who explained that she “had had an argument with her bicycle”. She was the only person present at the time, she went to hospital and ever since she has been pestered to make a claim.”
Straw said that he welcomed the government’s implementation of the Jackson Review in the bill, but expressed his regret that it was not taking forward its recommendation for referral fees to be banned.
Straw was backed by senior Liberal Democrat backbencher Sir Alan Beith, who urged the government to act swiftly on referral fees.
Describing referral fees as a “scandal”, he said: “It will not be enough merely to ban referral fees, because the government and the industry must deal with a system of fees that has a fundamental fault. If there is a system of fees in which a lawyer can still make a profit from a relatively small claim, having paid hundreds of pounds for the privilege of pursuing that claim, then we have to address the fixed costs as well as the referral fees.”
Justice secretary Ken Clarke said that the government had not acted on referral fees because it had been awaiting the conclusions of the Legal Services Board on the issue, which had now published its recommendation that they should not be banned.
