Select Committee on Constitutional Affairs Fourth Report


2 Background

7. Legal aid consumes the major part of the Department's budget. In Financial Year 2002/2003 legal aid took up £1,908,500,000 out of a total budget of £3.2 billion.

Legal Aid Spending since 1998-99
Cost per year in £m 1998-991999-00 2000-01*2001-02 2002-03
CIVIL
Legal representation net 564.9 560.2476.2 483.3
(of which Family) (362.1)(378.9) (349.1)(389.1)
Legal Help*** 203.6231.7 258.3329.5
(of which Family) (59)(64) (50)(61)
Total Family element of Legal Rep & Help 423.5421.1** 442.9399.1 450.1
TOTAL CIVIL 836.4768.5 791.9734.5 812.8
CRIME
Criminal defence net 401.7411.6 450.4508.3 526.4
Higher Courts 422.0 474.1569.3
TOTAL CRIME 872.4 982.41095.7
TOTAL CIVIL + CRIME 1664.4 1716.91908.5
Notes:

*  Introduction of contracting inflates expenditure due to influx of old bills prior to start of new system.

**  "Total Family element of Legal Rep & Help" has been revised using a more sophisticated apportioning technique than previously employed (see ***).

***  The legal help figures are being re-examined for years prior to contracting in order to more accurately align what would have scored as legal help then. Prior to the implementation of the Access to Justice Act "Legal Help" did not exist. Up until April 2000 legal help would have comprised matters falling under Assistance by Way of Representation and Green Form advice and assistance (which included criminal advice and assistance). From 1997 contract pilots were also brought in. This makes the task of comparing "like with like" complex and the LSC is addressing this issue as part of an exercise to provide more accurate data to the Fundamental Legal Aid Review.

This data, drawn from Legal Services Commission/Legal Aid Board Annual Reports, is expressed in Cash terms, and is not therefore directly comparable to the information in table 2 of the DCA Annual Report, 2003/04, which is expressed in Resource terms.[7]

8. These figures indicate that the civil budget has remained fairly constant; however, there are several factors which influence how these statistics should be interpreted. The first is a drop in funding for civil representation. This is partly explained by the disappearance of personal injury work, which is now done almost entirely on the basis of conditional fee agreements (CFAs) rather than through the legal aid system. The drop in spending on civil representation is rather greater than was predicted when CFAs were introduced, which may suggest that there is a further drop in civil representation over and above that caused by personal injury work.[8] The second factor is the impact of asylum and immigration costs. The legal aid costs of providing advice and representation in those cases rose from £81.3 million in 2000 to 2001 to £174.2 million in 2002 to 2003.[9] This accounts for the overall civil budget increase between those years. In addition, there has been a dramatic annual increase in criminal legal aid costs.

9. The Legal Services Commission has previously told the Committee that average civil case costs were steadily increasing.[10] In 2001 to 2002 the Legal Services Commission said: "The upward trend in the cost of advice is …much higher than anticipated and has yet to flatten out",[11] and in 2002 to 2003 this trend continued with an above inflationary rise "increasing pressure on the budget".[12] The former Chief Executive of the Legal Services Commission, Mr Steve Orchard, stated that "average cost growth in civil work is high and unsustainable within a fixed budget. Either average cost is brought under control or fewer people will be eligible for help."[13]

10. In a letter to our Chairman of 4 February 2004, Mr David Lammy MP, Parliamentary Under Secretary of State, Department for Constitutional Affairs, said:

"….While in an ideal world we might all wish for more resources, the reality is we have a fixed budget within which we have to live. While you cannot prevent your witnesses proposing solutions which call for increased funding, I would hope that they will also be asked how to achieve that within the available funding of £1975m (resource) in 2004/05.

My intention, and the LSC's is that, besides answering the questions posed by the Select Committee, we will indicate how we intend to maintain the supply of legal services with the constraints of a fixed budget, what choices we may have to make and how we are looking for ways of reducing cost which do not impact on services."[14]

In other words, there is no prospect of an increase in the budget for civil legal aid—and every prospect of a cut.

11. The Access to Justice Act 1999 introduced a cap on the civil legal aid budget (covering representation and Legal Help) for the first time. The criminal legal aid budget was not capped; this would be difficult to do for human rights reasons (Article 6 of the Convention guarantees a right of funded representation for criminal defendants who cannot pay). There is, of course, a tension between the duty to provide for the most vulnerable in the community by way of legal aid and the need to exercise prudence over public expenditure. Lord Irvine, before he became Lord Chancellor, stated that:

"Cost capping … is unattractive in principle, because legal aid would cease to be a benefit to which a qualifying individual is entitled. It would in practice become a discretionary benefit, available at bureaucratic disposal, a benefit which would have to be disallowed when the money ran out, or when another category of case was given precedence. Legal Aid would cease to be a service available on an equal basis."[15]

12. The Legal Action Group echoed these concerns when it commented that:

"The Legal Services Commission operates within a cash limited budget. We of course recognise that there must be reasonable containment of costs. However, we strongly object to the arbitrary capping of legal aid expenditure. If a cash limited budget is allowed to undermine quality of services, access, consumer choice or independence, the legal aid scheme will fall short of providing satisfactory access to justice. We are very concerned about the growing pressures on the civil legal aid budget from the increasing costs of criminal legal aid. There is a clear need to introduce a transparent separation between the civil and criminal legal aid budgets—not only to ensure adequate access to civil justice, but also to ensure the long-term survival of the supplier base for civil legal aid."[16]

13. The Criminal Defence Service budget is demand led. Increases in spending on criminal legal aid reduce the availability of money for civil help and representation. Provision for civil legal aid has been squeezed by the twin pressures of the Government's reluctance to devote more money to legal aid and the growth in criminal legal aid, as well as the cost of asylum cases. Whatever action the Government may take to reduce the financial impact of asylum cases on the legal aid system, it is likely that the growth in criminal legal aid will continue to be a burden. There may be scope for bearing down on the cost of criminal legal aid by better case management and a new criminal procedure code. The Government should ring fence the civil and criminal legal aid budgets so that the funding for civil work is protected (as immigration work is) and considered quite separately from criminal defence funding. We will continue to examine the means by which the Department for Constitutional Affairs monitors expenditure on criminal cases and the impact that such expenditure has on civil legal aid expenditure. We will be reporting separately on the Government's draft Bill on the Criminal Defence Service.

14. A further area of difficulty is that expenditure on civil legal aid is affected by policy of other Government departments. The Matrix Review of the Community Legal Service, which was commissioned by the Department for Constitutional Affairs, noted that there is a need to "protect the CLS budget" and for the DCA to:

"undertake more robust legislative impact analysis and seek an understanding either from the Treasury or other government departments that the DCA's budget will increase by the amount necessary to meet increased demand due to new legislation".[17]

It goes on to note specifically that:

"At a national level, the CLS is vulnerable to policy changes made by other Government departments, with the civil legal aid budget being eroded by the changing demands of the criminal legal services agenda".[18]

This problem was underlined by the former Lord Chancellor, Lord Irvine of Lairg, when he gave evidence to the Committee in April 2003 about the departmental budget.[19] Although he was speaking about the impact on the criminal legal aid budget, his comment is relevant to civil legal aid expenditure as well.

15. At present, there seems to be no coherent or transparent way in which the Government factors in the cost to the civil legal aid budget of new initiatives and rights for citizens. If this is not done, many of these rights will in practice be unenforceable. It is vital for the Government to ensure that part of the cost calculation of policy initiatives includes an assessment of the impact on the legal aid budget and that there is adequate liaison between the Constitutional Affairs Department and departments such as the Home Office which legislate in relevant areas. This is a key recommendation; we expect the Government to be able to demonstrate that it has significantly improved its system for ensuring that legislative changes proposed by departments are costed to take into account the full impact on the legal aid budget.

Access to Justice Act 1999 changes

16. The Access to Justice Act 1999 introduced a number of reforms into the way the budget for civil legal aid was managed.

17. The Legal Service Commission (LSC) was created as an executive non-departmental public body under the Access to Justice Act 1999 to replace the Legal Aid Board. It is responsible for the development and administration of two schemes in England and Wales, namely:

a)  The Community Legal Service, which from April 2000 replaced the old civil scheme of legal aid; and

b)  The Criminal Defence Service, which from April 2001 replaced the old system of criminal legal aid.

18. The 1999 Act introduced new controls which took three main forms: quality assurance was strengthened and made compulsory; Legal Help contracts were let on the basis of fixed 'matter starts' for each area of civil law; and Cost Compliance Audits replaced billing.

19. These controls over costs were primarily aimed at Legal Help work. Specific approaches were adopted for very high cost cases in civil representation, but otherwise control over civil representation took the traditional form (bills were assessed or taxed).

Quality Assurance

20. No firm can now undertake legal aid work unless it meets the Specialist Quality Mark (SQM) and it has a contract with the LSC. The Specialist Quality Mark is based on a previously voluntary system of quality assurance that met minimum standards of specialisation.

21. The requirement that solicitors' firms should have a civil contract in order to start new publicly funded cases was introduced in January 2000. The contracts cover two broad types of cases: those involving formal legal representation, each of which requires an individual application to the Commission for a public funding certificate; and those mainly involving legal advice (Legal Help).

22. In addition to meeting the requirement of the SQM, firms must have a specialist lawyer in each field of law in which the firm has a contract to act as supervisor for all the work done under the contract. The supervisor does not have to be a qualified solicitor. Much publicly funded civil work is carried out by specialist firms or agencies working under a subject specific contract, although firms are sometimes entitled to undertake a small number of cases outside their normal field (known as tolerance work). The main reason for these tolerances is to enable firms to provide a holistic service to existing clients and to ensure access to legal services in fields which are low priority, or in which there is insufficient demand to justify the LSC granting a contract.

23. A firm's contract with the LSC contains a licence to undertake work under a public funding certificate. The contract places no limit on the numbers of such cases that a firm can do. The bill for each certified case is assessed by the LSC, or in some cases the court, and paid for individually.

Matter starts and Legal Help Contracts

24. Under the Access to Justice Act 1999 the contract for Legal Help (and Controlled Legal Representation) specifies the number of cases the firm can undertake (referred to as 'matter starts'). Legal Help is roughly equivalent to the old green form scheme. It covers advice and correspondence in connection with people's rights, initial steps in dispute resolution prior to issuing Court proceedings and preparation but not representation for certain tribunals in fields such as welfare benefits and employment. It does not cover any steps within Court proceedings. To be funded by legal aid for Court proceedings, the client must obtain a public funding certificate. The process for obtaining one is broadly similar to an application for a legal aid certificate under the pre-1999 scheme. There is a means test to ensure that the client falls within the eligibility limits and a merits test to ensure that the case has sufficient legal merit to proceed. Both tests are carried out by the Legal Services Commission. The means test has been simplified, which has brought some people into the scheme and excluded others who would previously have qualified. The merits test has been significantly tightened compared with the pre-1999 Act system. Most importantly, personal injury negligence claims, business matters and neighbour disputes no longer fall within the legal aid scheme, apart from some very limited exceptions.

25. If the firm reaches the limit for matter starts under its contract, it can ask for more matter starts, but the Commission is not obliged to grant them; and if it does not do so, the firm must refer all new clients elsewhere. The LSC retains the right to reduce the number of matters starts issued to all firms each year to ensure that it does not overshoot its budget.

26. Under the 'matter start' system, suppliers must organise carefully the way in which they accept cases. This means, for example, that they must restrict the number of cases which they take to a set number each month. Necessarily, when they reach their set maximum for a particular month they must turn clients away. The system encourages solicitors to choose cases which are more profitable. [20]

27. The LSC has attempted to relieve difficulties arising from the shortage of "matter starts". It told us that:

"So far this year, the rate at which new cases are being started is lower than it was last year. In order to ensure that as many people as possible get the help they need from the funds available, the Commission's Chief Executive announced on 25 November 2003 that a further 20,000 "matter starts" (authority to start new cases) were being made available to solicitors for use by April 2004. The additional new matter starts are focused on priority areas such as mental health and family cases."[21]

28. Although the Legal Services Commission has responded by providing new matter starts, its action underlines two serious problems with the system:

  • Certain case types are seen as being unattractive. There is a good deal of anecdotal evidence, for example, that domestic violence cases are often turned away because they involve a lot of unremunerative work and occupy scarce resources.[22] By their nature, they require immediate action which takes priority over other (more profitable) files. The system is so tightly controlled that solicitors' firms do not carry the spare capacity to cope with emergencies of that kind.
  • The uncertainty surrounding the number of matter starts in any particular year make it impossible for solicitors' firms to make proper forward business plans. As the LAPG told us:

"…when a firm is allocated a set number of matter starts, it can run into various problems. First, it will be cut if their average cost per case increases. Secondly, the number can be cut if the firm does not take on new matter starts at the rate expected. Thirdly, if the demand for their services increases, whether or not their contract capacity is increased accordingly is entirely within the discretion of the LSC. If the LSC believes there is other capacity available (and unfortunately the LSC cannot know when firms are turning matters away for reasons other than having exhausted their contract capacity) it will refuse to increase matter starts and require the firm to refer clients to its competitors. And if the budget does not permit an increase, it will be refused regardless of whether there is alternative supply, except in the highest priority cases."[23]

29. When making its forward planning for matter starts, the Legal Services Commission must take into account the need for solicitors' firms to make similar forward planning. It is entirely unreasonable to expect solicitors' firms to be able to function without making such forward business plans.

Cost Compliance Audits

30. Suppliers no longer submit bills for Legal Help work. They submit basic claims containing minimal information. Cost Compliance Audits were introduced to enable the LSC to check a sample of files to see if the cost claims submitted on those files are justified and clients are demonstrably eligible for legal aid under the scheme. Firms are graded on these audits ("1" being good, "3" being poor). Where claims are found to be too high, they are reduced. If the overall level of claims reduction is high, then the LSC extrapolates the findings on the sample of files to reduce claims across the whole of the supplier's caseload (subject to appeal). The process is extremely controversial. It has led to accusations that solicitors firms have indulged in significant levels of over claiming, although the profession has countered that the process is flawed, being subject to sizeable regional variation and relying on auditors who do not have appropriate legal knowledge to be able to judge properly the justification for work done on files.[24] We discuss this further in paragraphs 76 to 94 below.

Number of people helped

31. The right to access to justice raises many questions relating to eligibility, opportunity and take-up.[25] During the course of this inquiry, it became apparent that there are serious problems relating to all these issues. In particular, in respect of opportunity and take up, there have been concerns about geographical access and the ability of solicitors to take clients because of both the matter start system and the limits of physical capacity. Moreover, the LSC accepts that it is helping fewer people. Excluding immigration/asylum cases, about 585,000 people were helped in 2003/04 (658,000 were helped in 2002/03).[26] LSC also calculates that about 128,000 people with immigration/asylum cases were helped in 2003/04. This is fewer people than the 156,000 helped in 2002/03, but these numbers reflect changing Home Office practice in the processing of asylum applications.[27]

32. The Legal Aid Practitioner Group commented that:

"Apart from in the immigration field, there is no evidence of any reduction in demand. We attribute the drop partly to restrictions on matter starts under the contract, and in part to the drop in the number of solicitors offering legal aid services, and a reduction in the amount of legal aid carried out by those remaining within the scheme."[28]

33. The Legal Aid Practitioner Group also provided evidence that in the current year 74% of firms reported that they had turned clients away. Of those, 36% said they had run out of matter starts (even though the survey on which the evidence was based was carried out less than three quarters of the way through the year), and 45% said they had run out of physical capacity to take on clients.[29]

34. The LSC provided a number of reasons for the fact that it is helping fewer people. It said:

  • Early in the year, the Commission may have controlled too tightly the number of new cases that some solicitors' firms were authorised to start. They sought to address this by authorising a further 20,000 nationally in November 2003.
  • Some solicitors' firms started fewer cases than were authorised by their contracts—perhaps because they wanted to concentrate their efforts on the most profitable or meritorious cases ("cherry picking")
  • New initiatives introduced as part of the CLS—telephone services and the internet, for example—may have reduced the need for face-to-face services in some areas.
  • Economic circumstances may have meant that fewer people had problems about which they sought advice.[30]

35. Despite the factors raised by the Legal Services Commission, we are satisfied that there is still ample evidence of unmet demand. When there is no evidence of reduced demand the number of people helped is a key indication of how successful the system is. It is unacceptable that the system is helping fewer people.


7   Source: Department for Constitutional Affairs Back

8   The cost savings to legal aid fund of removing all personal injury cases from the legal aid scheme were originally estimated as being in the region of £37 million. See Parliamentary answer of Geoff Hoon MP, Minister of State, LCD HC Deb 2 February 1999, Col 561W. See also [1999] 1 Litigation Funding 12 Back

9   Public Consultation on Proposed Changes to Publicly Funded Immigration and Asylum Work, LCD, June 2003, CP 07/03 Back

10   Oral evidence, 16 September 2003, HC 1106-i Back

11   LSC Annual Report 2001/02, para 2.17 Back

12   LSC Annual Report 2002/03, para 2.16 Back

13   Development Of Legal Services Policies in England and Wales 1989/1990 to 2001/2002, Steve Orchard, Chief Executive, Legal Services Commission and Aoife O'Grady, Legal Services Research Centre Back

14   Ev 72 Back

15   Speech at Bar Conference, 29 September 1996 Back

16   Ev 117 Back

17   Matrix Review, para 1.3.3, p 6 Back

18   ibid, para 5.3, p 27 Back

19   Oral evidence, 2 April 2003, HC 611-i Back

20   Q 25 Back

21   Ev 161, para 19 Back

22   Advice Needs of Lone Parents, Moorhead, Douglas and Sefton, OPF, London, 2004 Back

23   Ev 145, para 17 Back

24   Q 111 Back

25   Integrated Legal Services: The role of law related education presented by Tim Bannatyne, New Zealand Legal Services Agency, 25 March 2004, LSRC Conference 'Social Exclusion: A Role For Law' Back

26   Ev 229 Back

27   Ev 231, para 16 Back

28   Ev 146, para 21 Back

29   Ev 145, para 15 Back

30   Ev 231, para 15 Back


 
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