Category: Claims handling · Reviewed by Jake Leat, Associate Director · Last reviewed 2026-06-11
A costs budget is the document required by the Civil Procedure Rules in multi-track cases setting out a party’s anticipated costs by phase of the litigation — incurred to date, estimated to trial — which the court reviews and approves as a control on recoverable costs.
Costs budgets were introduced into the CPR by the Jackson reforms (Civil Procedure (Amendment No 6) Rules 2013) and have since become a central feature of multi-track litigation. They sit alongside disclosure budgets and the case management framework to give the court visibility and control over the cost of getting a dispute to trial.
For insurers, costs budgets are doubly important. The defence team’s budget caps the insurer’s expenditure (and recoverable costs if the defence succeeds); the claimant’s budget caps the insurer’s exposure on losing. Budget review is therefore a strategic event for both sides.
The costs-budgeting regime is set out in CPR Part 3, Section II (Costs Management), and is supported by Practice Direction 3E. Form Precedent H is the prescribed budget format.
Key features of the regime include:
The regime is reinforced by the principle of proportionality (CPR 1.1 and 44.3(5)) — the court will scrutinise costs that are disproportionate to the value or complexity of the dispute.
Costs budgets are not the only cost-management tool. Costs orders, summary assessments and detailed assessments all apply post-trial. But the budget is the principal forward-looking control.
Preparing a budget is a substantial undertaking. The defence solicitor (with input from counsel and the insurer) estimates the hours required at each phase, applies the appropriate hourly rates, adds counsel fees, expert fees, mediation costs, court fees and other disbursements. The budget is reviewed internally before filing.
Hourly rates in the budget are usually the rates that will be charged but with the court’s guideline hourly rates (the GHRs) in mind. Rates above the GHRs are not automatically disallowed but require justification — particularly for senior partner and KC-level work on cases of modest value.
At the CMC the parties’ budgets are reviewed by the court. The judge will challenge phases that appear excessive, approve phases that appear reasonable, and may direct further information. The resulting Costs Management Order records the agreed or approved phase totals.
During the litigation, the parties must monitor expenditure against the budget. If a phase is likely to be exceeded, the party should apply to revise the budget — the application should be made promptly and supported by evidence of the change in circumstances. Sharp v Blank [2017] EWHC 3390 (Ch) and subsequent authorities have emphasised that budget revision applications must be made before the costs are incurred, not after.
If the case settles before trial, the budget remains relevant — the parties’ actual costs (whether agreed under settlement or assessed by the court) are typically capped at the budgeted phase totals up to the phase reached.
For defence work funded by insurance, the budget interacts with the policy’s defence costs cover. Where the policy has separate or sub-limited defence costs cover, the budget shapes the cost trajectory and the insurer’s exposure. Where defence costs erode the indemnity limit, budget discipline directly affects the indemnity available for settlement.
“Lite” budgets apply to cases between £25,000 and £50,000 in claim value, in which a simplified Precedent H Lite form is used.
“Budget revision” applications are made under PD 3E.7.6 to amend an approved budget; they must show that there has been a “significant development” warranting revision.
“Costs cap” orders are sometimes made in addition to budgets, particularly in derivative claims or other cases with unusual cost dynamics.
“Hybrid” funding arrangements — where the defence is partly funded by insurance and partly self-funded — require careful budget allocation to identify which costs are recoverable from the policy.
A surveyor’s firm faces a £1.2m PI claim. The defence is funded by the firm’s £2m PI policy. The defence solicitor files a Precedent H budget at the CMC with the following phase breakdown:
Total budget: £370,000. The claimant’s budget totals £410,000. At the CMC the court approves the budgets with minor reductions: defence to £342,000 (disallowing £28,000 of estimated expert costs as duplicative), claimant to £378,000. The Costs Management Order records the phase totals. The matter settles at JSM eight months later before trial; the defence’s actual costs to that point total £208,000 against an incurred-plus-budgeted-to-JSM allowance of £224,000, comfortably within budget.
By Matt Bartlett, Director, on 2026-06-11. Next review: 2026-12-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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