National Audit Office Costs of Clinical Negligence Report Published
The National Audit Office has today (17 October 2025) published its report into the Costs of Clinical Negligence. What is perplexing is the on-going focus on recommendations pertaining to legal costs. Whilst it is acknowledged that the annual cost of Clinical Negligence claims have tripled in two decades, from £1.1billion to £3.6billion, it is noted that the majority of the increase pertains to damages (some £2.6bn) versus a £0.4bn increase in legal costs. Legal costs undoubtedly play a part but it is not the key driver in the increase in the costs of Clinical Negligence claims.
The report carries a clear message, the costs of clinical negligence are too high. Whilst it is understandable that legal costs are addressed within the report, considerations around tackling legal costs will not address the root cause of clinical negligence nor the associated cost. Prevention must be the focus, leading to better outcomes for patients which in turn would give rise to drastic reductions to cost. The driver of clinical negligence costs is and remains clinical negligence.
It should also be made clear that the data shows that the annual cost of settled claims remains below the peak of £4.6bn in the year 2018-19 with 24-25 data showing the annual cost of settled claims to be £3.6bn. The costs of clinical negligence claims has actually reduced, though it is accepted it is rising.
There are three other statistics worth highlighting:
1. Increases in claim volumes are the main factor behind costs increases over the last two decades i.e. incidences increasing or more awareness of negligence. The increase in claim volumes is directly attributed to over half of the increase in the cost of clinical negligence.
2. 93% of the total increase in Clinical Negligence claim costs over the last two decades pertains to the increase in the number of claims (accounting for 55%) and increases to damages (38%). Between 2006-07 and 2016-17, costs increased by just under £1.7bn with 88% of this increase due to greater number of claims. Since 2016-17 annual costs have increased by £866m, the NAO stating this is almost entirely due to increasing compensation for damages. So the biggest drivers in costs increases are the volume of claims and damages payments.
3. Only 7% of the increase to costs over the previous two decades relates to Claimant legal spend (£186m), Defendant legal spend fell by 1%. Notably, Claimant legal costs as a share of all clinical negligence costs over the past two decades has only increased by 1% (Defendant legal spend fell 3% over the same period), accounting for 15% of all clinical negligence costs versus 4% for Defendant. It should be noted though that the report acknowledges that the NHS has fixed fee arrangements with panel firms alongside agreements to rates which are significantly lower than 'commercial benchmarks'.
What's clear is that main drivers of costs are incidences and damages with legal costs a comparative small proportion.
Indeed, on looking at future forecasts the NAO notes a driver to be improvement in treatments and associated technology and life expectancy, alongside judicial decision (inc. prospective decisions around loss of earnings for minors). The cost of clinical negligence is expected to once again exceed £4bn by 2029-30.
The National Audit Office reflects that it has reported on the costs of clinical negligence several times but that no government has succeeded in actually addressing it. As the report rightly concludes:
"by far the most important issue is reducing the incidence of clinical negligence and the harm caused to patients"
The message is simple. Reduce incidences, reduce claims, reduce costs.
Key Recommendations
The report goes through a series of recommendations:
1. There should be greater transparency around deductions by lawyers from Claimant damages. The NAO believe the NHSR should work with Claimant lawyers for voluntary transparency. If this is not forthcoming, the NAO says the NHSR should work with the government to seek alternative mechanisms to understand the proportion of damages recouped as legal fees. The NAO believes this information should be used to inform future policy development, though does not express what this might be. The report does, however, provide that "these arrangements have the potential to inflate damages sought by claimants and their lawyers". This is quite a charge to levy.
2. That the government should continue to consider the expansion of Fixed Recoverable Costs to low value damages cases (between £1,501 and £25,000). The report does, however, acknowledge concerns associated with access to justice and the economical viability of bringing complex, lower-value claims.
3. Further, that there should be consideration as to whether the existing approach to legal costs for all claims remains proportionate given that legal costs exceeded total damages for all claims up to a damages value of £250,000. This should include considering alternative methods to compensate negligent treatment.
4. There should be consideration given to other policy changes, such as capping compensation as well as legal costs. There are concerns on compensation that government may be paying twice by firstly settling a claim and secondly in providing health and social care through public services. The NAO make clear that the DHSC should assess whether the requirement to calculate damages based on privately funded care packages remains aligned with the vision of a modern NHS. In addition, the DHSC, if feasible, should review patient records to understand the extent Claimants have used NHS and social care services for treatments covered under compensation packages and whether these cost merit further mitigation.
5. There should be a review of the complaints process with a view to improving the same for patients. The initial response to harm is said to be confusing and possibly lacking responsiveness. The NHSR's own research suggests that improving the NHS' response to harm could decrease the number of claims brought.
6. NHSR should make greater use of AI to analyse damages awarded across similar claims.
7. NHSR should identify how much inflationary pressure is uncontrollable with the existing system to help inform policy decisions.
8. It should be ensured that NHS staff have both the skills and capacity to deliver the duty of candour in practice.
Key Statistics and Data - An Analysis
The report sets out that in the year 24-25 the estimated costs of settled Clinical Negligence claims will £3.6bn across 13,329 cases.
The report also notes a ratio of 3:7:1 for claims which settle less than £25,000. On the basis of an overall spend of £183m the report states that £98m (54%) relates to Claimant costs, £45m (25%) relates to NHS defence costs and £39m (£21%) was for damages.
It notes that the liability for Clinical Negligence has quadrupled to £60bn but the report makes clear that most of this increase is attributable to damages as opposed to legal costs:
"The financial cost to settle all claims in England has increased from £1.1 billion in 2006-07 (in real terms) to £3.6 billion in 2024-25. Most of the increase (£2.1 billion) relates to costs for damages. Claimant legal costs accounted for £0.4 billion of the increase, while NHS defence costs accounted for just £83 million"
The report further adds that the increase in costs was largely owing to high value claims (£1m damages and above). Obstetrics and paediatrics have seen the most significant rises.
Going the other way is Orthopaedic and General Surgery claims, the costs of which have drastically reduced. The largest increases were to Mental Health and Radiology.
On Legal Costs the NAO Report sets out that:
"11 Claimant legal costs on successful claims have increased much more than NHS defence legal costs. Claimant legal costs increased from £148 million in 2006-07 (in real terms) to £538 million in 2024-25, representing 15% of the total cost of settled claims. NHS defence costs have also increased, from £76 million in 2006-07 (in real terms) to £159 million in 2024-25, but reduced from 7% to 4% of settled claim costs over the same period. The full cost of claimants’ legal expenses is unknown because the figures do not include claimants’ legal costs for unsuccessful claims and legal firms may charge additional amounts from compensation awards where claims are successful. Such arrangements have the potential to further inflate the damages claimants seek (paragraphs 2.12, 2.13 and 2.18).
12 Legal costs for low-value claims vastly exceed the damages payable to claimants. Around three-quarters of clinical negligence claims settle for £25,000 or less. The legal costs of these are almost four times the total damages awarded. In 2024-25, £143 million of the £183 million cost to settle low-value claims was for legal costs. Of this, £98 million was claimant legal costs and £45 million was NHS defence costs. Only £39 million (21%) was for damages, meaning the ratio of legal costs to damages was 3.7:1. Legal costs are also growing for medium-value claims (settlements between £25,001 and £250,000), and now account for more than half of the total cost to settle these claims in 2024-25 (paragraphs 2.16, 2.17 and Figure 11).
13 The government may be paying twice in some instances of clinical negligence: once through compensation and then again through providing treatment to the claimants. The law currently states that damages must be calculated on the presumption that care will be provided by the private sector and not the NHS. There is no estimate of the extent to which clinical negligence claimants go on to use publicly funded health or social care services for their conditions, and little is known about how damages are used by claimants. In 2022, the Health & Social Care Committee called the presumption of private treatment an “outdated assumption”. The cost to health services of treating cases involving clinical negligence specifically or cases of avoidable harm to patients is also unknown. Although there is no official estimate, the Organisation for Economic Co-operation and Development estimates that treating cases where harm could have been prevented (but was not necessarily negligent) costs developed countries 8.7% of their health expenditure each year"
The report continues by acknowledging that the costs of clinical negligence will continue to grow substantially.
It highlights that damages in very high value claims (£1m+) have tripled to £2.4bn (68% of total costs), despite such claims accounting for only 2% of all claims by volume. It's also noted that Obstetric claims involving brain damage and cerebral palsy have the largest settled claim costs by specialty.
Legal Costs
The NAO report makes clear that legal costs of both Claimants and Defendants have increased over the past two decades (despite Defendant costs having decreased 1% over the previous year).
The report acknowledges that since 2006-07 the share of total settled claim costs relating to Claimant legal costs has increased by only 1% (from 14% to 15%) whilst the NHS' legal costs as a share of total settled costs have decreased by 3% (from 7% to 4%).
The NAO considers that the increases could relate to justice reforms. There is a suggestion that the cap on recoverable costs (fixed costs) in other areas of PI may have increased the commercial appeal of Clinical Negligence claims. It is also suggested that some increases pertain to significant increase in expert fees.
The NHSR meanwhile, confirms that their panel firms follow a capped hourly rate structure with prices fixed according to claim stage. It is well known (and recorded in the report) that the rates charged by panel firms to the NHSR fall significantly below the 'commercial benchmarks' and indeed often fall below the Guideline Hourly Rates. The NAO also note that the NHSR are continuing to look at expanding its own capacity to manage cases at pre-litigation stages in order to further reduce expenditure.
On Low Value Claims the report notes that "legal costs for low-value settled clinical negligence claims now vastly exceed the damages payable to claimants". The report highlights that in 2024-25, 54% of the total costs of these claims (damages and legal spend) were for Claimant legal costs and a further 25% for Defence costs. In short 79% of the total cost of these claims in 2024-25 related to legal costs versus 21% relating to damages.
It's noted that most Clinical Negligence claims fall outside the scope of fixed costs, as the same only applies to claims where the NHS admits liability in full and makes such an admission in the Letter of Response, otherwise the claim is deemed too complex for FRC to apply.
For middle value claims (£25,001 to £250,000) increases on legal costs were also noted with 42% of the total annual cost in 2024-25 relating to Claimant legal spend, NHS legal costs equating to 9% comparatively.
Both of these statistics do not address the fact that much of the Claimant legal spend is front loaded. It should also be expected that Defence legal spend would be lower, even leaving the commercial realities aside.
The NAO launch an attack on deductions from damages, the passage at 2.18 is replicated below and makes strident claims:
"Reported figures for claimants’ legal fees only reflect costs directly recovered from the health service and do not include any potential legal fees paid out of a claimant’s compensation award. These arrangements have the potential to inflate damages sought by claimants and their lawyers. NHSR does not have sight of these arrangements. Costs are frequently claimed in excess of the guideline hourly rates used to calculate claimants’ legal expenses. These rates are set by the head of the civil justice system in England and periodically reviewed by the Civil Justice Council costs committee; NHSR told us they are largely outside of its control."
There is a deeply flawed misunderstanding here. The National Audit Office show no understanding of the government policy and reform around LASPO (the abolition of the recoverability of success fees and ATE premiums in most claims) which was a deliberate choice by government to shift the burden of these costs on to the lay client. Whilst some firms may well incorporate and enforce shortfall provisions that is a solicitor-own-client arrangement and is both a more complex and nuanced issue than the report details. The suggestion that inflated damages claims are pursued is a significant charge to make. Ultimately levels of damages are either agreed or determined by the court.
Concerning the issue of hourly rates, it is well understand that Guideline Hourly Rates are precisely that, a guideline. They are not mandatory and will not be relevant to all claims. Further, there has to be a distinction between costs claimed and those allowed or agreed. As the NAO say here costs are frequently claimed (emphasis on claimed) in excess of GHRs. What has more pertinence here is considering what has been agreed or allowed, what are the level of costs paid versus those claimed. The NHSR is welcome to challenge costs claims before the court where it does not agree them. If rates above GHRs are assessed as appropriate or agreed then one must question the relevance of this statement. If reductions are routinely achieved then this perhaps demonstrates the function of costs assessment.
The report at a later section actually addresses savings on Claimant legal spend. In 2024 it's noted that savings against Claimant costs as claimed equated to £138.7m.
The other important point of note is the recognition of the role of ADR. 99.8% of settled Clinical Negligence claims in 2024-25 did not proceed to trial and the proportion of the claims settling pre-litigation rose to a record high of 83%. Signs perhaps of a more collaborative approach in practice. The data shows that in 2024-25 of the 138 claims which were mediated, 73% settled within 28-days of the mediation whilst 39 of the 40 claims proceeding to stocktake meetings all resolved without formal proceedings.
On the approach to challenging legal costs the NHSR set out that it monitors and responds to trends including contesting points of law that may set a precedent. This is historically apparent in the high profile case of West which dealt with both proportionality and ATE premiums. More recently there is a trend of challenge to Medical Agency fees.
What Next?
The report is a set of recommendations only and many are broad and sweeping and lack any specificity. What can be gleamed is that the report will redraw the focus on the costs of clinical negligence claims before government.
Practically speaking what this means in the short, medium and long terms is not clear. It will be for government to consider and decide what elements of the NAO report to take forward.
The introduction of fixed costs to claims with a damages value of £25,000 or less remains paused. There is no suggestion that this will alter imminently, even if the NAO report does refocus minds on it.
The feasibility of voluntary transparency around deductions from damages seems optimistic and it's not clear how workable that would be.
The National Audit Office openly acknowledge that in the last two decades they have reported on these issues several times and that no government has succeeded in controlling clinical negligence costs. Should we even believe that a further report will alter this trajectory?
What remains the most important point is what is repeated throughout this blog and that is patient safety. As a society we are all better off when the NHS functions well. Accountability is needed where things go wrong and litigation should be viewed as a tool to put a Claimant back into a position (insofar as possible) they would have been in but for the negligence. It should also be used as a tool to identify failings and learn from them. The critical component has to be that negligent events should not be reoccurring.
The NHS delivers comprehensive and complex treatments and things will invariably go wrong but reducing the incidences of Clinical Negligence has to be the ultimate aim. Artificially lower expenditure through ideas like capped damages and restricted costs will not directly address the incidences.
The NAO last report in 2016-17, almost a decade on they have reported along similar terms. If they are asked to report again in another decade the most positive outcome would be seen to the number of claims reduce but not because of a lack of viability or access to justice but because the incidences have reduced.
To repeat:
Reduce the incidences. Reduce the claims. Reduce the costs.
And this is how we secure better outcomes for everybody.
