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The Foreign Office has issued a warning to holidaymakers visiting Spain about claims management companies encouraging them to make false compensation claims that they fell ill while abroad. It is the latest move in a growing backlash against what is seen as a “surge” in such claims.

The Legal Ombudsman’s budget is set to rise for the first time since its creation – by £1m – with claims management companies not paying the case fees they have been charged the key cause and more expected to follow as they continue to go out of business.

A Bar Standards Board-regulated entity has acquired more than 800 clients in less than 18 months, which it claims makes it the largest in the country, by capitalising on barristers’ relatively new right to conduct litigation. It also said that having the involvement of barristers from the start of a case speeds them up.

The increase in whiplash claims at a time of falling road traffic accidents and improving car safety means that “cases are obviously exaggerated to some extent, and perhaps fraudulent”, justice minister Sir Oliver Heald said yesterday as he defended the government’s “moderate” personal injury reform proposals during the second reading of the Prisons and Courts Bill.

The government’s personal injury reforms will boost insurers’ profits by up to £700m a year as its estimate of how much of the savings will be passed back to motorists in lower premiums is “implausibly high”, an economics consultancy has predicted ahead of today’s second reading of the Prisons and Courts Bill.