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The impending ban on referral fees in personal injury could result in a “steep increase” in the number of financial failures amongst small law firms – but may not actually discourage spurious claims – the Solicitors Regulation Authority has warned.

The British Bankers Association, consumer group Which? and Martin Lewis of MoneySavingExpert.com have called on the government to take urgent action to clamp down on the activities of claims management companies bringing payment protection insurance mis-selling cases.

The prospect of paying referral fees in personal injury becoming a criminal offence seemingly disappeared last night, while the government defeated a bid to exempt not-for-profits from the ban and outlined its plans to crack down on unsolicited PI marketing.

The government is planning to slash unnecessary red tape around the regulation of legal services, it has emerged. The Red Tape Challenge – a government-wide initiative to cut the 21,000 regulations currently in force in the UK – will spotlight legal services in June.

There is a “growing lobby” to stop claims management companies, solicitors and insurers from using alternative business structures to get around the ban on referral fees, it was claimed yesterday. Insurers were also asked to be honest about whether motor premiums will go down after the ban.