Costs Budgeting is Changing: What You Need to Know About Precedent Z

From 6 April 2025, costs budgeting in civil litigation entered a new phase, with the introduction of three pilot schemes aimed at simplifying the process for multi-track claims under £1 million. Central to this shift is the new Precedent Z, a streamlined budgeting format intended to reduce the administrative burden of costs management.

These changes form part of the 179th and 183rd Practice Direction updates and will run as pilot schemes for three years. While the ultimate goal is simplification, the new regime brings with it several practical questions for solicitors, costs professionals, and litigants alike.

Why Is Precedent Z Being Introduced?

The pilot schemes – PD51ZG1, PD51ZG2 and PD51ZG3 – aim to modernise costs budgeting by introducing simplified formats: Precedent Z (costs budget), Precedent RZ (budget discussion report), and Precedent TZ (budget variations). The new system applies to certain Part 7 multi-track claims issued between 6 April 2025 and 6 April 2028 in designated courts.

Rather than overhaul the entire budgeting process, these pilots seek to test whether a more efficient approach can deliver the same benefits – fairness, proportionality and transparency – with less paperwork.

Which Claims Are Affected?

Each pilot applies to slightly different types of claims:

Across all three pilots, parties must file a simplified costs budget (Precedent Z) 21 days before the first case management conference (CMC). In most instances, a Precedent RZ must follow seven days later. Failure to comply may result in the court making a costs management order without reference to the offending party’s budget.

A Closer Look at Precedent Z

Precedent Z is designed to be more user-friendly than its predecessor, Precedent H. But while the format may be simpler, the underlying expectations have not been diluted. Courts will still expect budgets to be accurate, reasonable, and justified. The budget includes assumption boxes, but there’s currently no formal guidance on how much detail is expected. Many practitioners are taking a pragmatic view: provide sufficient background detail to support the figures, but don’t over-complicate. Where appropriate, additional narrative may be supplied on separate pages or reserved for oral advocacy.

Importantly, the preparation of costs budgets under Precedent Z is still subject to the 0.5% cap for budget preparation and 1% for costs management. However, unlike Precedent H, Precedent Z does not include separate rows for these figures – a potential source of confusion unless clarified in due course.

Unanswered Questions and Practical Uncertainty

As with any pilot scheme, some uncertainty remains. One area of concern is the treatment of interim applications. Under current rules, these costs fall outside the scope of the main budget. It’s unclear whether the same will apply under Precedent Z, and guidance is awaited. A cautious approach may be to deal with these costs separately until more clarity emerges.

There’s also some ambiguity around the division between time costs and disbursements in the new Precedent RZ. Although judges can comment on these separately, it’s anticipated that practitioners will continue to agree global figures for each phase, with internal allocation left to the legal teams.

Similarly, the lack of detailed guidance on what should be included in Precedent Z – such as breakdowns by hours or expert costs – leaves open the question of how best to present a comprehensive yet concise budget. While the court may prefer a streamlined format, background information is likely to remain essential for oral submissions and negotiation.

What Happens for Claims Over £1 Million?

For higher-value claims, the default position is that costs budgeting will not apply unless the court orders otherwise. However, if the court does decide that budgeting is necessary, it may allow the use of either Precedent H or Precedent Z and will provide directions accordingly. Parties should be prepared to justify the need for budgeting – especially in cases where proportionality is in issue.

Looking Ahead

The new pilot schemes represent one of the most significant shifts in civil costs budgeting since its introduction. While the ambition is clear – to simplify – the practical realities may take time to settle. As the pilots unfold, we expect further clarification from the courts, judicial training materials, and evolving practice among costs lawyers.

What remains unchanged is the importance of sound budgeting. Even in simplified form, the risks of over- or under-budgeting can have major consequences for costs recovery.