The spike in cases could inflict costs of up to £18bn on the º£½ÇÊÓƵ economy, redirecting resources from innovation and hampering growth, a fresh Institute of Economic Affairs (IEA) study suggests.
A study, penned by barrister Stephen Dnes, cautions that Britain's competition class action framework has witnessed an eruption of opportunistic litigation, with approximately one fresh class action lodged weekly, escalating legal expenses and leaving enterprises vulnerable to substantial financial exposure, as reported by .
The study responds to the Department for Business and Trade's request for evidence last month regarding the opt-out collective actions framework.
At the time, the government observed, "Since 2015, the opt-out caseload has grown significantly, with tens of billions of pounds in damages claimed and hundreds of millions of pounds spent on legal fees.
"This is far higher than estimated in the original impact assessment, which estimated the total cost to businesses to be £30.8m per annum," they continued.
A study published last month also emphasised that the appeal of this form of legal action continues to climb, with the º£½ÇÊÓƵ maintaining its position as one of Europe's most dynamic jurisdictions.
The aggregate value of these categories of legal proceedings in the º£½ÇÊÓƵ exceeded €155bn (£135bn) in 2024.
Responding to the government's request for evidence, the fresh IEA study presented a suite of "tangible proposals" to concentrate the framework on robust, economically warranted cases. This encompassed mandating funders provide immediate payments, establishing a claims marketplace, and strengthening certification procedures to filter out weak cases and frivolous disputes.
The report asserts these measures will restrict speculative litigation, guarantee class actions discourage anti-competitive conduct and avoid unnecessary economic burdens.
Impact on growth drive
In his report, Dnes emphasised that the present system is generating a "substantial economic cost" through hampering innovation, which inflates business expenses and weakens growth.
He referenced recent research by the European Centre for International Political Economy, which indicated that such litigation might burden the economy with up to £18bn, encompassing £11bn in diminished market capitalisation for innovative enterprises.
The author proposed that funds, which would typically be directed towards innovation and investment, are alternatively reserved for legal expenses to defend against these substantial, costly claims.
Reflecting on his conclusions, Dnes declared: "Class actions can play a vital role in deterring anti-competitive behaviour and protecting consumers, but the º£½ÇÊÓƵ's regime has gone off course.
"There is a real risk of friendly fire especially when innovative companies are sued. It is time for a course correction. The system can be fixed, by fixing the misaligned incentives built into the system, to restore focus on genuine harm, speed up justice, and support growth," he added. The Adam Smith Institute (ASI) released a report last October, suggesting that the current system is eroding trust in businesses and the legal environment.
Scott Campbell, Partner at law firm Hausfeld, commented on ASI's recommendations: "We welcome discussion about how the system can be improved.
"To be clear, though, anti competitive behaviour stifles competition and economic growth whilst taking billions out of the pockets of consumers and SMEs that would otherwise be spent increasing economic activity," he further added.
Scott also noted: "The current system has strict safeguards and was designed by the º£½ÇÊÓƵ parliament, who in turn delegated oversight to the courts."
