Seema Kennedy OBE
The Law Commission’s review of product liability law in England and Wales may sound technical, but the implications are not. The way liability rules are designed affects how companies assess risk, price products, insure themselves and decide where to invest. For sectors built on long development cycles and high upfront costs, those questions matter a great deal.
There is a straightforward case for updating the law. Product liability rules were not designed for a world of software, AI systems, connected devices and complex digital supply chains. Consumers should have effective routes to redress when products cause genuine harm, and the law should be capable of dealing with modern products and services. But reform should be approached with caution. A liability framework that is too broad or too uncertain can do damage well beyond the courtroom.
That is the concern now emerging in Europe through the revised EU Product Liability Directive. The Directive was presented as a modernising reform. It extends liability more clearly into software, digital services and newer technologies. Those are exactly the sectors that the UK and Europe say they want to attract and grow. That makes the legal design especially important.
The problem is not the objective of reform. It is the risk that, in trying to modernise the framework, the EU has also made it less predictable. Concern has been growing around the breadth and uncertainty of certain provisions, particularly on defect, causation and evidential burdens. Businesses and policy experts worry that this will increase litigation risk, raise insurance costs and make claims easier to assemble and harder to defend.
Recent modelling by think tank ECIPE gives some sense of the possible economic impact. It estimates that the revised Directive could reduce EU GDP, lower household welfare and push liability insurance costs sharply higher in sectors newly brought within scope. The precise numbers can be debated, but the broader point is hard to ignore: if liability becomes broader and less certain, the cost will be felt in the wider economy. It will show up in investment decisions, pricing, compliance costs and the willingness of firms to launch new products.
This is sometimes described as an American concern. That misses the point. Yes, many large US companies are exposed, especially in technology and life sciences. But so are British and European businesses. The sectors most affected are not foreign to the UK economy. They are the very sectors the government says it wants to promote: life sciences, digital services, advanced manufacturing and AI. If liability reform creates a more volatile legal environment for those sectors, the damage will be felt here too.
That matters especially now. The UK business environment is already unsettled. Growth is weak, investor confidence is fragile, and companies are dealing with geopolitical risk, tighter capital and regulatory uncertainty. In that context, legal predictability matters more, not less. A more expansive and less clearly bounded liability regime would add another layer of uncertainty at a time when businesses are already cautious. A real danger to the UK economy is a combination of broader product liability rules and an already permissive collective actions regime, consisting of claims that are funded by unregulated litigation funding firms. Each raises concerns on its own. Together, they create the conditions for a dangerously aggressive claims market. That is the perfect storm the UK should avoid.
There will inevitably be pressure to move in the EU’s direction. Some of that pressure will come from the Northern Ireland position and the practical complications created by divergence in product rules. Some may come from a broader political preference for closer alignment with Europe. But alignment should not be treated as a default virtue if it means importing a framework whose economic effects have not been properly tested.
The UK also has a direct interest in how the EU framework develops. British exporters selling into Europe will still have to deal with the Directive, and ECIPE’s analysis suggests UK exports to the EU could fall as a result. So this is not simply a question of watching events in Brussels from the side-lines. The consequences will reach the UK either way.
None of this means the law should stand still. Product liability reform is necessary. But it should be based on evidence, clear drafting and a proper understanding of how legal incentives work in practice. In a system already seeing the growth of funder-backed group litigation, broader liability rules could interact with an increasingly opportunistic claims environment in ways policymakers do not intend.
That is why the Law Commission’s review matters. It gives the UK an opportunity to update the law without reproducing the uncertainties now causing concern in Europe. The aim should be a modern framework that protects consumers, reflects technological change and remains clear enough for businesses to plan around with confidence.
The question is not whether product liability law should change. It is whether the UK can modernise it without making itself a more attractive venue for speculative claims and a less attractive place to invest. That is a question worth getting right.
