The RAC is set to pay its bodyshop repairers in the South East higher hourly rates than those in other areas in a bid to stave off further closures in the region.

The move is a reaction to the deepening crisis facing bodyshop repairers in the South East which have been hit by crippling costs and wage inflation.

Bodyshop trade bodies warn there is already massive undercapacity partly due to a shortage of skilled labour and also because of insurers imposing strict contracts.

Direct Line was forced to close its two bodyshop repair centres on the M25 last year because of a lack of skilled labour.

But many insurers are reluctant to increase hourly rates as it will require a further rise in motor premiums which already increased 20% on average last year but is still wallowing in a soft market. Most of this rise simply gone to pay for new claims inflation.

RAC Accident Services met with representatives of its 130-strong authorised repairer network and the body shop trade body, the Retail Motor Industry, this week to discuss better terms.

As a result, its service level agreements are likely to be improved, including the hourly rate.

This will benefit all RAC repairers, but special attention will be given to ailing businesses operating in high-cost areas of the UK.

Currently, the motor recovery group RAC pays its bodyshop repairers £21.50 an hour in line with most insurers.

RAC network manager Stuart Birch said: "We fully understand the financial pressures facing all repairers in South East England.

"It is our intention to retain the long-term commitment of top quality repairers and this will only be achieved by providing profitable work based on a service level agreement which is both fair and reasonable to both parties.

"There is a high price in providing the service levels demanded by our customers. Repairers, particularly those operating in the expensive South East cannot continue to subsidise these costs because a number of business failures will inevitably continue to rise."

RMI representative Bob Hood said the meeting had been productive, and hoped it would inspire insurers to follow suit.

He said the RAC was seeking to adopt the same philosophy based on remuneration that Allianz Cornhill adopted with its repairer network.

Figures from the Bodyshop Opinion Survey, published by Sewell's International, finds the industry is currently suffering from ten per cent undercapacity across the UK, and that the shortfall is covered by overtime.

The bodyshop repair industry is worth £5 billion a year and 85% is paid for by insurers.