Class Actions Could Cost Britain £18bn and Stall Economic Growth, Warn Experts

Britain faces a mounting challenge from class action lawsuits that experts say could cost the economy up to £18 billion, hinder innovation, and siphon funds from consumers to lawyers and litigation funders, according to a new report by the Institute of Economic Affairs (IEA).

The UK introduced its current opt-out class action regime in 2015 with the aim of providing consumers an efficient way to collectively pursue justice for widespread harm. Yet, this legal mechanism has since sparked a surge in speculative lawsuits. Today, there are roughly ten class action claims pending for every person in the UK, with an eye-watering combined valuation estimated at £134 billion.

Data from mid-2024 confirms this volume: more than 655 million class members are involved in cases before the Competition Appeal Tribunal (CAT), the UK’s primary forum for competition-related collective actions.

These cases span a range of industries, with natural resources and energy (£41 billion), Big Tech (£32 billion), and financial products (£25 billion) among the most heavily targeted sectors. Interestingly, claims against Big Tech alone exceed £30 billion, underscoring the mounting legal exposure of major digital firms.

While some class actions target genuinely anti-competitive practices, the system is increasingly criticised for rewarding funders and lawyers at consumers’ expense. One high-profile example, the long-running Merricks v Mastercard case, saw litigation funders offer claimants mere pennies per settlement pound, while funders and lawyers collectively took home nearly £179 million from a £200 million pot.

Stephen Dnes, competition lawyer and author of the IEA’s report Class Act: The case for reforming Britain’s class action regime, highlights the vast misalignment of incentives entrenched in the current framework.

Perverse incentives between claimants, legal teams, and funders have caused weaker, speculative claims to multiply alongside more robust ones, prolonging litigation and inflating costs. The tension even led to an exodus of key lawyers from the Pogust Goodhead firm involved in the Fundao dam disaster class action amid conflicts with funders.

This growing litigation culture carries serious economic consequences. The IEA report cites analysis by the European Centre for International Political Economy, estimating that such class action activity could shave as much as £18 billion off the UK economy.

Of this, about £11 billion represents lost market capitalisation for innovative businesses that might otherwise reinvest in research, development, or competitive pricing. Instead, funds are diverted into legal battles and mounting costs, dampening the very innovation that drives economic progress.

Compounding these issues, the Competition Appeal Tribunal’s recent handling of cases like Merricks signals increased judicial scrutiny on litigation funding returns and settlement distributions to restore fairness to claimants.

While the settlement was approved, the tribunal recalibrated payments to ensure class members—not funders—enjoy priority, introducing new procedural safeguards as the regime matures. Meanwhile, some funders have reportedly tempered their enthusiasm for UK class actions, recalculating risks following these shifts and legislative uncertainties.

The Government is aware of these challenges and has opened a call for evidence on reforming the opt-out class action regime, aiming to recalibrate the system to better protect consumers without stifling entrepreneurship and growth.

The IEA proposes a pragmatic set of reforms. Key among these is requiring litigation funders to make early “seed payouts” to claimants before the case is even certified, ensuring that weak claims are filtered out. Introducing competitive dynamics between rival funders could encourage better outcomes for claimants.

Furthermore, applying tougher economic tests at the certification stage should ensure only cases showing real, measurable market harm move forward. Other reforms aim to consolidate losses to cut down on duplicative disputes and prevent funders from financially incentivising delays that enrich lawyers rather than victims.

Stephen Dnes emphasises the need to strike a new balance: “Class actions can play a vital role in deterring anti-competitive behaviour and protecting consumers, but the UK’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.”

The rise in class action claims, if left unchecked, threatens to put a serious drag on Britain’s economic prospects at a time when innovation and investment are critical to global competitiveness.

The coming reforms and consultations will be essential to forging a path that balances justice with growth, ensuring litigation protects, rather than penalises, the nation’s economic future.

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