{"id":265738,"date":"2025-09-30T15:08:40","date_gmt":"2025-09-30T15:08:40","guid":{"rendered":"https:\/\/dominiclevent.com\/blog\/?p=265738"},"modified":"2025-09-30T15:54:23","modified_gmt":"2025-09-30T15:54:23","slug":"does-mass-litigation-really-harm-the-economy-opinion","status":"publish","type":"post","link":"https:\/\/dominiclevent.com\/blog\/does-mass-litigation-really-harm-the-economy-opinion\/","title":{"rendered":"Does mass litigation really harm the economy? | Opinion"},"content":{"rendered":"\n
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Some striking claims have been made about the cost to the economy of mass litigation. Pressure group Fair Civil Justice has claimed that, if left unchecked, collective litigation will lose the country \u00a318 billion ‘<\/em>even under conservative modelling’, wipe \u00a311bn off the market capitalisation of our most innovative businesses\u00a0and stall the country\u2019s longed-for economic expansion. Seema Kennedy of Fair Civil Justice has insisted: ‘This is no longer just a legal issue, it\u2019s a matter of economic resilience. If policymakers fail to act, the UK risks becoming a hostile environment for innovation, long-term investment, and fair access to justice. We urgently need to recalibrate our system.’<\/p>\n

In the UK, there are various types of \u2018mass\u2019 litigation and much of the commentary fails to differentiate between them. However, it is opt-out collective actions under competition law which these commentators seem to be urging the government to curtail. Competition litigation is the only area where opt-out collective actions are usually feasible in the UK, it is where much of the recent growth in mass litigation has occurred, and it is currently under review by the Department for Business and Trade.<\/p>\n

So where do these numbers come from, and do they support the case that the British economy is being harmed?<\/p>\n

The claim of an \u00a318bn loss to the economy originates with a report by the European Centre for International Political Economy (ECIPE), entitled ‘The Impact of Increased Mass Litigation in the UK’. In it, ECIPE uses numbers from a paper by the US Institute for Legal Reform (ILR) and applies various assumptions to extrapolate UK numbers.<\/p>\n

The ILR study claims to measure the cost of the American tort system, and its methodology has been described as ‘false, inflated drivel’ by US commentators. The problem is that its assessment of \u2018tort costs\u2019, which ECIPE uses as a proxy for \u2018cost to the economy\u2019, consists of settlement costs and insurance costs, neither of which can properly be characterised as such.<\/p>\n

A cost to the economy is something which reduces the overall economic output, efficiency or resources available in society. Thus, whilst obviously a cost to the person paying them, settlements are not a cost to the economy. They just transfer money from one party to another. Similarly, insurance is not a cost to the economy. This too, is mostly a transfer of money from the person paying the premium to the person receiving the pay out.<\/p>\n

Insurance costs might reduce efficiency in the economy if people or businesses are forced to insure unnecessarily high risks and pay excessively high premiums. Certainly, Frederik Erixon of ECIPE is very worried about the effect of collective actions on insurance spending, claiming in a recent article that ‘Using conservative assumptions of insurance costs in the UK representing just 10-30% of US levels, the annual cost to the UK economy already runs into the billions’.<\/p>\n

But even if one agrees that companies spend too much on insurance to protect themselves against lawsuits, this is irrelevant to the economic cost of competition litigation.<\/p>\n

First, even the US data which ECIPE relies upon does not appear to include insurance against antitrust liabilities (or at least it is not clear whether it does or not). The ILR does not list antitrust amongst the liabilities it has assessed. And whilst the study states, at one point, that liabilities are insurable, it also acknowledges that proven acts of collusion cannot be covered.<\/p>\n

In the UK at least, businesses cannot insure against potential future liabilities for competition law infringements. The way to avoid competition lawsuits is good legal advice and compliance. It is not known whether compliance spending has increased since the introduction of the collective actions regime. But if it has, this seems more likely to benefit the UK economy than harm it.<\/p>\n

The problem with the ILR study is not so much that the numbers are wrong, as that they are counting the wrong thing. American insurance and settlement data cannot provide any useful information about the impact of collective proceedings on the UK economy. At best the figures are worthless. At worst, they are alarmist and misleading.<\/p>\n

Even if one accepts that the \u00a318bn figure is unfounded, there would be reasonable cause for concern if unmeritorious collective actions irreparably harmed the value of blameless and innovative UK businesses. This could represent a cost to the economy, if it damaged those businesses\u2019 ability to invest.<\/span><\/p>\n

This \u2018lost market capitalisation\u2019 figure also originates in the ECIPE paper. Surprisingly, they did not analyse the share value of companies currently defending collective proceedings in the CAT, which is easily accessible public information. Rather, it refers to a paper by Kempf & Spalt from 2020, which they claim shows collective lawsuits to have a 2.8 per cent negative impact on highly innovative companies in the US. It uses this figure to extrapolate a UK number (0.84%), apply it to the market capitalisation of certain UK companies, and arrive at the sum of \u00a311bn.<\/p>\n

The problem is that Kempf & Spalt\u2019s work is, specifically, about the effect on market capitalisation of securities class action lawsuits in the US. But unlike securities lawsuits, competition proceedings do not imply that a company has been misleading its investors about its value. It is not remotely reasonable to assume that competition lawsuits would have the same effect on companies in the UK, particularly if unsuccessful. Like the \u00a318bn figure, the claim of \u00a311bn in lost market capitalisation is completely unevidenced.<\/p>\n

A serious assessment of whether collective actions represent a net cost or benefit to the UK economy would seek to quantify potential reductions in overall economic output or efficiency and set those against the benefits to the economy of deterring competition law breaches and providing just outcomes for those harmed. The ECIPE paper does neither of these things.<\/span><\/p>\n

It should be in everybody\u2019s interests that the competition law regime is as efficient and fair as possible, and that it represents a net benefit to the UK economy, in the interests of UK consumers. Hyperbole, bogus numbers and special pleading do not help to deliver this outcome.<\/p>\n

Beverley Robertson is legal and policy officer, Class Representatives Network<\/strong><\/em><\/p>\n<\/div>\n\n

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