One man’s compensation culture is another man’s access to justice, and which side of this  argument prevails may soon be determined in the highest echelons of government.

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In a move that could change the face of daytime television, it has been reported that Lord  Young of Graffham – commissioned by David Cameron to investigate health and safety laws and the compensation culture – is to recommend an end to advertising by “no win, no fee”  merchants.

Although some of these are law firms, most are claims management companies (CMCs), whose  primary business model is to gather claims, mainly through advertising, and then sell them  on to solicitors. It is an industry worth nearly £400m.

From one point of view, these are  unnecessary costs that inflate the value of lawyers’ fees and ultimately drive up insurance  premiums, as it is liability insurers who pay them. From another, they are marketing costs  that lawyers would incur anyway.

Young’s anti-CMC rhetoric has been strong and he could also attempt to reinstate the ban on  these so-called referral fees, which was lifted by the Law Society in 2004. In doing so, he  would echo Lord Justice Jackson’s recommendations earlier this year on reducing the cost of  litigation (a report Young has publicly supported). But announcing the way forward on Jackson last month, the justice minister Jonathan Djanogly specifically excluded a decision  on referral fees pending advice from the Legal Services Board (LSB), the super-regulator  which is currently examining the issue.

In papers released under the Freedom of Information Act, it has emerged that the LSB’s view  – subject to a consultation next month – is that the evidence does not provide a case to  ban. This comes after no fewer than four influential reports published since May have  argued that referral fees do not harm consumers, but actually enable CMCs to improve access  to justice by informing people of their rights. One of the reports, produced by a committee  headed by the economist Professor Stephen Nickell, a former member of the Bank of England’s  monetary policy committee, even looked at CMCs’ profitability and found nothing out of the  ordinary.

Undoubtedly there is a need to improve the transparency of the arrangements. The LSB says  there needs to be as much, if not more, emphasis on the fact of the referral and the right  to choose a lawyer as there is on the amount of the fee itself. Their view accords with  earlier research which suggests consumers are uncomfortable with the notion of referral  fees until they have the arrangement explained properly. This needs to be backed by  effective enforcement.

Statistics do not bear out the notion of a compensation culture: with the exception of road  traffic accidents, personal injury claims have stayed static over the last decade. But  Young says a combination of media reporting and aggressive advertising by CMCs has created  the perception that one exists, which in turn is driving risk averse behaviour, rather than  more sensible risk management.

This all puts the Ministry of Justice in a tricky position. For one thing, the ministry  regulates CMCs – the only industry directly regulated by a government department – mainly  because it cannot find anyone else to do the job. So, despite the praise the ministry has  received for reining in the excesses of the sector, criticism of how CMCs still operate can  be seen as criticism of the department itself. Meanwhile, if the body charged with  overseeing the legal sector (and which reports to the ministry) comes to an evidence-based  conclusion that there is not much wrong, how do Djanogly and the lord chancellor, Ken  Clarke, handle Lord Young saying the opposite with the backing of the prime minister?

Looking further ahead, however, the referral fee debate arguably becomes redundant. When  ownership restrictions on law firms fall away with the advent of alternative business  structures in October 2011, it seems inevitable that larger CMCs will buy law firms and  take a case all the way from initial enquiry to the final costs cheque themselves.  Suddenly, therefore, the ban on advertising becomes their greatest worry. CMCs are  estimated to spend around £40m a year on TV advertising, a sum the industry could scarcely  afford to lose right now. This is, of course, the prime minister’s old stamping ground.  Could he do that to his former colleagues?