Previous Section Index Home Page

8.15 pm

Amendments such as those that we have tabled would ensure that the low-risk definition is in line with Government developments in respect of schedule 16. They would help to ensure that firms are not discouraged from coming together to share overheads and offer combined services that will benefit the consumer, because of the regulatory hoops that they will need to jump through once part 5 comes into force. It would be of great concern if the effect was to hinder small and rural practices, depriving them of the benefits of being low risk, while assisting retail giants. I will be interested to hear the Minister’s reaction to these points, as this is an outstanding issue that needs to be looked at.

Mr. Kidney: I want to thank the Minister for the amendments that she is making in respect of “legal practice plus”—allowing people other than lawyers to join lawyers in a practice earlier than the full introduction of the alternative business structure scheme, which will probably be around 2011. I argued in Committee that there should be more flexibility, and as the hon. Member for Huntingdon (Mr. Djanogly) said, Sir David Clementi’s report and the Joint Committee recommended this incremental approach to introducing the provisions. These amendments do provide for a more incremental approach, so I thank the Minister for that.

Like the hon. Gentleman, I also thank the Minister for having regard to the concerns expressed about the difficulty in rural areas of coping with the changes that alternative business structures might bring to access to justice. It is not necessarily all one way, however, in that there might in future be innovative ways of delivering businesses between different types of professionals that actually enhance access to justice, rather than take it
15 Oct 2007 : Column 634
away. That point was illustrated by the exchange between the hon. Gentleman and the hon. Member for Cities of London and Westminster (Mr. Field). I remind Members of the success of Which? in Scotland, with its super-complaint about the Scottish legal system, and of the decision by the Office of Fair Trading on 31 July. The OFT concluded that the restrictions in question were unnecessary, and it believes that there would be benefits to consumers if they were lifted, such as efficiency gains and higher levels of innovation in the provision of legal services. So although it is right that we have regard to the people’s worries about the loss of access to justice, we ought to bear in mind the possible benefits to consumers, including residents of rural areas, of introducing alternative business structures and the innovations that they might well bring.

Mr. Heath: The hon. Member for Stafford (Mr. Kidney) is absolutely right to say that the possibility exists of enhancement of, as well as detriment to, the service in rural areas. However, he also indicated his concern about the potential difficulties. I very much welcome Government amendment No. 85, and I hope that it is sufficient to the task of ensuring that we deal with the access to justice issues that many of us fear will be a reality. I heard the intervention from the hon. Member for Cities of London and Westminster (Mr. Field), and I am sure—given that I am one of his constituents in at least one of those cities for a couple of days each week—that there is no great difficulty in his constituency in accessing lawyers. Were he to come to Somerton and Frome, he might find that the distances involved are a little longer, and that the opportunities to find a suitably qualified lawyer—or, more importantly, a lawyer who has the business capacity to provide services, particularly in legal aid work—are a little more limited.

My great concern is that in the sort of communities that I represent, where there is often a dearth of criminal practice solicitors providing legal aid work, for instance, and of those involved in family law under legal aid provision, and where the legal aid regime itself is constantly tightening the screw and concentrating work in a few areas, mainly the urban conurbations, the only way that some of these services are provided to our constituents is via a complex mesh of cross-subsidy within practices. In such a situation, certain work is more profitable and effectively underwrites the ability of the one or, at most, two practitioners who are prepared to do these non-cost-effective parts of the practice. It does not take much disturbance to that system for the remaining partners to say, “Sorry, this cross-subsidy is now more than we can bear.”

The concern about alternative business structures is that the system will provide that level of competition in areas of maximum profitability that will undermine the whole thing and mean that there is a difficulty in access to justice. I hope that what the Government are proposing will mean that not only is that examined carefully, but that we have a constant monitoring role. I hope that my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) and his Committee will play a part in ensuring access to justice for many of our constituents. I am talking not only about those in rural areas but about minority communities within
15 Oct 2007 : Column 635
urban areas. Some suburban areas are also remarkable for their lack of legal advice facilities—they include some unexpected places where, by definition of the postcode, it is simply assumed that people have lots of money and can afford to go to expensive practitioners or to the nearest city for advice. As we all know, that is far from the case for all people.

Lastly, I turn to the amendment on notaries tabled by the hon. Member for Huntingdon (Mr. Djanogly). I do not have much to add to what he has said on the issue and I am interested in the Minister’s reply. I simply put on record a caution about notaries public. This is occasioned by a lady who came to my advice surgery in Wincanton just two weeks ago and who was appalled about something. She is a grandmother who has occasion, for reasons that I need not go into, to take her grandchildren across national boundaries on planes to visit their parents, from whom they are currently separated. She found that in order to gain entry to the United States of America she required a notary’s affidavit to establish that she had the right of care for those children. She compared notes with a French citizen who happened to be behind her in the queue and found that in France the affidavit was provided for free by the mayor or the mairie in the village or town from which that person came. She had to pay £50 for that certificate, and will have to pay £50 every time she makes the trip. That is a substantial fee for simply rubber-stamping a piece of paper drawn up by the person making the application.

Are there sufficient numbers of notaries public across the country? Can they justify the fees? Would competition in this area be a good thing? In any case, should we have some system in our municipalities that provides for others to swear declarations of that kind rather than rely on a notary public, because there is often limited access to them in many parts of the country? I leave all that for the Minister to ponder. I dare say that it is not entirely relevant to the hon. Gentleman’s amendment, but I thought that it was a good point to make now, because if it makes a change in the arrangements for the notary public, it will have been worth while.

Mr. Mark Field: Understandably, the potentially huge change to the structure of the UK legal practice heralded by the creation of alternative business structures in part 5 of the Bill has been the subject of fevered debate. As a former solicitor who has an ongoing interest in a company that provides professional services to the legal profession, I applaud the sensible way in which the Government have taken on board some of our suggestions during the passage of the Bill. In dealing with the determination of licensing authority rules, I hope that the Minister will also be persuaded that new clause 6, tabled by my hon. Friend the Member for Huntingdon (Mr. Djanogly), is similarly important.

Much of the debate on this matter has focused on access to justice. I accept the concerns that were expressed by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) and the hon. Member for Somerton and Frome (Mr. Heath). Although the provision of legal services should never be considered quite as
15 Oct 2007 : Column 636
straightforward as picking up a can of beans from the local supermarket, I appreciate what the Minister was trying to get at when she made her now notorious statement in The Daily Telegraph some months ago.

Perhaps too little parliamentary attention has been given to the effect of part 5 on the largest commercial law firms in the City of London, which I represent and which have an increasingly strong international reach. One of the great success stories of recent years has been the dramatic growth in UK law firms both since the ending of partnership restrictions by the legislation on the issue passed in 1967 and over the past 15 or so years. Many envisage that the changes brought about by this Bill will bring towards law firms the idea of a big bang similar to that which happened in the City of London in 1986.

Perhaps it is inevitable that much of the press speculation on this matter has been on the financial implications of law firms trading their independence by going to the financial markets. The events of 1986 in the City ensured that it was no longer a club. There is already a big distinction, among the larger commercial firms, in legal services, which have already evolved in an international way; I doubt whether many partners in law firms see the alternative business structure route simply as a means of cashing out.

Given that most of the UK’s top 20 law firms are already £100 million a year turnover businesses, a recognition exists of their need to attract the top talent in respect of lawyers and of the running of the business, as my hon. Friend the Member for Huntingdon mentioned in relation to new clause 6. That need applies to finance directors, marketing directors and human resources professionals—a range of different areas. Inevitably, these law firms are on a different scale to the firms that have been discussed by other hon. Members. None the less, they are an important part of the invisible exports of this country. We need to have those individuals—the finance directors and so on—as full equity participants on a par with the lawyers who make up those practices.

There is also little doubt that we are seeing great international expansion among the legal fraternity. We need only consider what is going on in Beijing, Shanghai, Bombay and Delhi to see that. In the future, as the Indian profession begins to open up, there will be tremendous opportunities for British professional services companies, law firms and accountants to make an impact. Increasingly, the middle east, in places such as Dubai, Abu Dhabi, Doha and Qatar, will be an enormous growth market for internationally minded British law firms. It is therefore crucial that the role of the LSB be given full attention at this stage. It needs to be an enabler rather than a restrictor. We need to consider how it can enable such services to be provided, rather than simply being an old-fashioned regulator. I hope that new clause 6 recognises the potential conflict that can arise between shareholders, professionals and their traditional professional bodies, and seeks to define more fully what amounts to low risk in the eyes of the licensing authority.

8.30 pm

My hon. Friend the Member for Huntingdon gave a sensible example that would not apply only to large city firms—he mentioned a three-partner firm that fell foul
15 Oct 2007 : Column 637
of the current rules. I hope that the Minister will give careful thought to the flexibility that we have requested. I could say much more on this issue, but I appreciate that time is tight.

It is difficult to foresee exactly the effect that the Bill will have on the structure of the UK’s legal profession. We can speculate, but no one foresaw that in the immediate aftermath of the big bang in 1986 no stockbrokers or merchant banks would remain in British hands. I do not think that we face that risk, although foreign money on the stock exchange may play a part for one or two of the more innovative law firms that wish to become fully listed. However, we want the flexibility for the reasons that I have set out. Alongside the importance of protecting the public interest and of access to justice, the licensing authority needs to ensure that our world-class reputation for international legal services is similarly maintained.

Bridget Prentice: I appreciate the comments made by the hon. Member for Huntingdon (Mr. Djanogly), although I am not sure that things were entirely as he describes. I also agree with what my hon. Friend the Member for Stafford (Mr. Kidney) said about the benefits that can accrue from ABS, which I hope will enhance the opportunities and choice for consumers. On the notorious remarks about the can of beans, a journalist suggested that the Bill’s effect on legal services would make it like choosing a can of beans in a supermarket. I thought, “Well, what’s wrong with that?” Given the choice of cans of beans one can get now, I hope that consumers will benefit from the choice that will be available to them in legal services, so I do not regret having that comment attached to me.

In addressing new clause 6, I also wish to address amendments Nos. 148 to 151 and how they would alter the definition of a low-risk body in clause 108. First are bodies that have up to 25 per cent. non-lawyer managers, as long as the non-lawyer managers are the only non-lawyer owners. The second are bodies that have up to 50 per cent. non-lawyer managers, as long as those non-lawyers are members of a “recognised professional body” and are the only non-lawyer owners. That sets the actual threshold for non-lawyer managers at 50 per cent., or 40 per cent. higher than the current threshold we have set out in the Bill. That means that those bodies, which would be multi-disciplinary partnerships, could have up to 50 per cent. external ownership and still be automatically classified as low risk.

As I have said before in relation to similar amendments, I am not convinced that the bodies proposed here would necessarily be low risk. The amended versions of the amendments have not changed my position. Allowing any multi-disciplinary partnership with non-lawyer management or ownership over 10 per cent. to be automatically classed as low risk might be highly inappropriate in any context. The view of Clementi, the Joint Committee, this House and the other place has always been that multi-disciplinary practices might present greater regulatory challenges than other forms of ABS—for example, the non-lawyer-managed LDPs I will be seeking the permission of this House to incorporate that into schedule 16. It is a view that is even more
15 Oct 2007 : Column 638
important in multi-disciplinary partnerships where lawyers account for less than 90 per cent. of the management.

However, I recognise that once part 5 comes into force, it might transpire that the board is of the view that certain ABS provisions are not necessary to regulate certain kinds of multi-professional practices. It will be open to the board, should it so choose, to recommend to the Lord Chancellor that certain categories of practices could be regulated more flexibly. The Lord Chancellor could then make an order under section 106(1)(e) to create a new category of special body, which in principle could be a category of multi-professional body that is similar to one proposed here. Given the complex regulatory issues that such bodies could present, it is right that that should be left to the board’s judgement. It will be in a position to make an evidence-based assessment of the risk profile of those bodies, and it should satisfy itself that granting low-risk status would be acceptable, having regard to public and consumer interest. For those reasons, I hope that the hon. Gentleman will withdraw the amendments. However, the low-risk bodies referred to in schedule 16, and for which we allow 25 per cent. non-lawyer management, are completely different from the low-risk bodies described by the hon. Member for Huntingdon. The schedule 16 bodies are approved by the Law Society and work under its rules, so up to 25 per cent. non-lawyer managers may be involved in providing solicitor services. There is no external investment. The part 5 low-risk bodies can be externally owned and may include up to only 10 per cent. non-lawyer management providing legal and other services. I do not think it appropriate to equate the two; there is an important difference and I hope that the hon. Gentleman will understand why I feel unable to accept the amendments.

On notaries, I have said on several occasions that the whole point of the part 5 regime is that it will operate on a voluntary basis; there will be no compulsion on an approved regulator to seek licensing authority status, and no compulsion on firms or individuals to seek an ABS licence or even to become part of an ABS firm. The process is entirely facilitative, so it is right for the notary profession itself—obviously, with its regulator, the Court of Faculty, and the legal services board—to decide, when the time is appropriate, which it clearly is not at present, whether it is desirable and appropriate for notarial services to be provided under that part of the Bill.

Under the arrangements, one of the objectives of the licensing authorities is to maintain professional principles, which include acting with integrity and independence. The special requirements of notarial activity will be recognised. Anyone wanting to provide notarial services will have to demonstrate that their arrangements take the principles into account before they can obtain a licence, so amendments Nos. 65 and 156 are not absolutely necessary.

Government amendment No. 85 adds a duty for licensing authorities to give special attention to access to justice in considering the issue of ABS licences. I appreciate what colleagues have said both in Committee and in the Chamber. Other amendments have been tabled on the subject, and I and my colleagues in both Houses have spoken about some of
15 Oct 2007 : Column 639
the problems raised by those proposals. I shall not go into detail, except to say that I felt the amendments were unnecessary because there were already sufficient safeguards in the Bill. However, I have included amendment No. 85 to signal the importance of access to justice to licensing authorities.

Earlier, we talked about perception and it is clearly important in this case. It is important that people perceive that access to justice is a key part of what we are trying to achieve. The amendment is drafted in a way that allows access to justice without sidelining other objectives, and I am pleased that the Opposition support it.

As I have already explained, amendment No. 156 is unnecessary and I hope that our proposed amendment on access to justice will help to clarify the position. I remind the House that I do not want regulatory objectives or professional principles ranked; we do not want any one of them to take priority over the rest—they must all be effective. After all, if everything is a priority, nothing is.

Amendment No. 86 deals with the information powers of licensing authorities set out under clause 93 and provides that they apply to all categories of interest-holder. That brings the clause into line with Clause 85 and will allow licensing authorities to impose obligations on all interest-holders as part of the licence terms. Licensing authorities might want to use their information powers to determine not only whether a body is complying with the licence terms, but also whether its interest-holders are complying with licence terms. They could also be used where an interest-holder might be in possession of information that would help a licensed body ascertain whether the body was complying with its terms.

Finally, I hope that Government amendments Nos. 87 to 92 will enhance consumer protection by amending clause 108, to ensure that a body cannot be entitled to low-risk status if 10 per cent. or more of its ownership is held by another licensed body, which might be 100 per cent. owned by non-lawyers. The existing reference to authorised persons in clause 108 does not distinguish between licensed bodies and other types of authorised person, and it is right that we should do so, since the intention of clause 108 is to confine low-risk status to those bodies in which non-lawyers form a very small proportion of the overall management and ownership. It is not appropriate, however, to apply automatic low-risk status to a body just because it is a subsidiary that is perhaps 90 per cent. or more owned by another licensed body. That is why I have tabled these amendments to correct that. On that basis, I ask the hon. Gentleman to withdraw the motion, but I am grateful to him for the support that he has shown for the amendments that I have tabled.

Mr. Djanogly: A lot of important points have been made in the debate, and I wish that we had more time to discuss them, but there are still groups to discuss, so I want briefly to address the key issue on clause 108. The Minister thought that 25 per cent. bodies should not be automatically considered as low risk. I totally agree with that, but such 25 per cent. limited
15 Oct 2007 : Column 640
disciplinary partnerships will be much more likely to be low risk and a known entity by the time that the full ABS licensing provision comes into effect. Although I hope that the regulators and the LSB will consider the issue carefully and in good time, so that no upset is caused as a result, I take the Minister’s point that the Lord Chancellor can recognise the need for flexibility based on the board assessment, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 83


Licensing rules

Amendment made: No. 85, page 49, line 7, at end insert—

‘( ) provision as to how the licensing authority, when considering the regulatory objectives (in compliance with its duties under section 3(2) or 28(2)) in connection with an application for a licence, should take account of the objective of improving access to justice;’.— [Bridget Prentice.]

Clause 93


Information

Amendment made: No. 86, page 53, line 5, after ‘who’ insert

Clause 108


“Low risk body”

Next Section Index Home Page