‘No Win, No Fee’, Cost-shifting and the Costs of Civil Litigation : A Natural Experiment

Expenditure on legal services has been rising and has attracted considerable policy attention in the UK. We argue that an important reason for this increase stems from the introduction of ‘no win no fee’ schemes in 1995 and a subsequent amendment's in 2000 which allowed claimants to shift additional costs onto losing defendants. We describe how this may have increased expenditure on legal claims and we test for the 2000 amendment effect using a regression discontinuity design on a dataset of employers’ liability claims. We find that costs increased by approximately 25% post 2000, consistent with our theoretical predictions.