The growing prevalence of class action lawsuits in the UK is eroding confidence in the country’s legal and business environments, a recent report from the Adam Smith Institute (ASI) warns. The expansion of class actions, coupled with the rise of third-party litigation funding (TPLF), has not only increased the financial burden on businesses but has also shifted the benefits away from individual claimants toward claimant-focused law firms and litigation funders. The report suggests this shift could harm the UK’s reputation as an attractive destination for investment.
The sheer scale of class actions is considerable, according to the ASI. By 2023, class actions in the UK had led to claims totalling 123 billion pounds—more than double the nation’s defense budget for the same year. Furthermore, the number of individuals involved in these cases surged to a record 540 million since 2015, a dramatic rise from 200 million in 2022.
At the heart of this growth is TPLF, a practice in which third-party investors finance litigation in exchange for a share of the proceeds. While TPLF is often portrayed as a means to increase access to justice, the ASI argues that it predominantly benefits litigation funders rather than claimants. These funders tend to invest in a small fraction of potential cases—typically just two to four percent—focusing on those that promise the highest returns rather than those that have the strongest merit.
The financial consequences for claimants are striking, with litigation funders often taking the lion’s share of any award. In the notable Mr Bates v The Post Office case, for instance, litigation funders claimed 80 percent of the damages awarded to claimants, the ASI report states. This growing reliance on litigation funders is raising concerns about the integrity of the legal system, with critics arguing that the system is increasingly being driven by profit motives rather than the interests of the claimants themselves.
To restore trust and protect businesses, the ASI recommends a series of reforms aimed at regulating TPLF more effectively and increasing transparency in the class action system.
Sam Bidwell, director of the Adam Smith Institute’s Next Generation Centre and author of the report, warned of the reputational damage the UK faces from the expanding class action system. He stated: “The UK stands to suffer immense reputational and financial harm from the rapid growth of class actions. Over the past decade, this expansion has done little to improve access to justice for ordinary people, while damaging our ability to attract investment from international companies. We need a system that supports meritorious claims without stifling growth.”
Bidwell stressed that in an environment where the UK’s appeal as an investment hub is increasingly under scrutiny, urgent reforms are needed to make the legal system more predictable and business friendly. He argued that TPLF must be regulated like other investments, and greater transparency is necessary across the system.
The ASI’s report paints a grim picture of a legal landscape that has become increasingly influenced by financial interests, with businesses bearing the brunt of escalating costs. While class action lawsuits can provide access to justice for individuals who have been wronged, the growing influence of litigation funders risks undermining the system’s credibility and fairness. The reforms proposed by the ASI aim to strike a balance, ensuring that the legal system remains both accessible and equitable while maintaining the competitiveness of the UK’s business environment.
Neil Purslow, chairman of the International Legal Finance Association, said in a statement: “As this report recognizes, funders take on just a fraction of cases after careful consideration of the risk and significant due diligence. So, it’s contradictory and disingenuous in the extreme to simultaneously argue funders take on too few cases while also causing a proliferation in litigation.”
