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Are small companies “priced out” of the UK’s legal system?

Posted by: Laurence Simons 27/07/15

Michael Gove, the UK’s Justice Secretary, recently warned that Britain’s justice system was becoming a “two-tier” affair, with experiences greatly varying between the richest and the poorest. But Nikki Turner, who runs SME Alliance, an organisation which campaigns for fair treatment of SMEs, sees a parallel with this warning and what is already happening in the business law sector.

Recently, there has been a huge increase in the value of legal fees – in some cases, as much as 600% – which is leaving smaller businesses excluded from seeking legal help. Prospective litigants are experiencing disproportionate costs when chasing money; claims of between £150,000 and £250,000 could cost as much as £10,000 – up from roughly £2,000 a few years ago. Trunki, a children’s ride-on suitcase business, recently reported that a claim against a rival for infringing copyright has cost the company – which has an annual turnover of £8.5million – hundreds of thousands in legal fees. Some SME owners even report that powerful opponents have been “playing the system” to drive costs up to create barriers for those looking to claim. On top of this, the last decade also saw the loss of access to legal aid for businesses.

So could this damage the UK’s international standing?

It could be likely that smaller businesses will look elsewhere to invest if they do not feel properly supported – a consequence which could hurt the economy in the long run. One proposal the SME Alliance is suggesting is to bolster the Financial Ombudsman Service which oversees disputes between financial services businesses and their clients. But this is only a minor reform, perhaps more must be done to safeguard SMEs if the UK wants to compete on the international stage.

What do you think would be the best way to tackle this problem?