Legal Aid Reform - Justice Committee Contents

Supplementary memorandum submitted by the Ministry of Justice


  Fixed fees have been introduced to ensure that cases are dealt with efficiently and that a larger number of people can be helped within the limited legal aid budget. The Legal Services Commission (LSC) introduced fixed fees in October 2007 for the Not for Profit (NfP) sector, bringing payment arrangements in line with that for solicitors (from quarterly payments in advance for hours worked, to payment linked to submission of bills). Under the system, providers receive a standard monthly payment against which cases are reconciled at a fixed rate at the close of a case. Where cases are assessed as exceptionally costly (i.e. at three times the standard fee) the LSC will continue to pay for these at hourly rates, meaning that providers are not discouraged from undertaking complex cases.

  The LSC consulted NfP representative bodies prior to the introduction of fixed fees and agreed transitional arrangements for all NfP providers. Between April and October 2007, the LSC changed the payment system for NfPs by moving from quarterly payments in advance to monthly payments in advance to help NfP providers to prepare for the new fee scheme. Other transitional arrangements were introduced to give a staggered approach and gradually align reconciliation processes with that for solicitors. As part of this, the LSC and the NfP representative bodies agreed a transitional buffer up to 31 March 2010, allowing agencies to be overpaid by up to three times their average claim value (based on a 12 month average) at 31 March 2008; falling to two times at 31 March 2009. This effectively allowed continuation of payments in advance for those that needed them.

  The Ministry of Justice (MoJ) and LSC remain committed to working constructively with the third sector and discussing ways in which to reasonably support providers. However, the LSC must also follow legislation such as competition law and EU procurement law and must treat all contracted providers equitably. The LSC must operate in a financially responsible way and has agreed payment extensions where there is a good chance that an agency will be in a position to repay monies in due course. It would be irresponsible and inappropriate for the LSC to do otherwise and to offer ongoing funds to agencies that are unlikely to be repaid.

  Since the introduction of fixed fees, LSC contracts have not been withdrawn for any NfP agency purely because of the level of debt owning. The transitional arrangements in place are in effect a two and a half year plan to bring levels of overpayment to within one monthly claim (i.e. effectively one month's payment in advance) in line with payments to providers on solicitor contracts. The LSC will continue to work with agencies to provide practical assistance and to help improve performance wherever possible.

  I recognise however that some agencies are facing difficulties in adapting to the new system, despite the further flexibilities introduced to the transitional arrangements. Through the MoJ Third Sector Strategy, published this June, we are committed to ensure best practice in funding and procurement practices overall, and will continue our discussions with the Office of the Third Sector and advice organisations on these issues. The local advice study I have commissioned will also explore this further by examining the impact of fixed fees on local providers. The LSC, however, is not the only funder of advice providers. Some NfP organisations receive funding from a variety of other sources, such as local authorities, the Big Lottery Fund and other grant-making bodies. Changes to these funding streams for their own reasons have contributed to the problems experienced by a number of providers and this will also be looked at as part of the study.

  The LSC is committed to the Third Sector compact and has published a statement explaining how they will implement it. The statement can be found at Annex A. The LSC Third Sector officer assists staff working with NfP agencies on compact compliance. The LSC meets regularly with Third Sector representative bodies on both policy and operational issues, including, for example, implementation of fixed fees and the transitional arrangements. Issues relating to the Compact are also discussed at these meetings.


  As part of the review he is undertaking, Lord Laming has been asked by the Government to consider the issue of legal costs to local authorities of care proceedings, with particular reference to the increased court fees. I should stress though that the fee increases do not form part of the wider care proceedings reform programme. We firmly believe that the introduction of the fee increase will not have any impact on local authorities fulfilling their statutory obligations, and we are not aware of any evidence to the contrary.

  As I said to the Committee, the fee increases for Public Law applications were set at a level that would increase total fees paid by £40 million in a full year if paid in every case. An additional £40 million was therefore reflected in the local authority Comprehensive Spending Review 2007 Spending Settlement and built into allocated spending totals with effect from April 2008-09 till 2010-11. Not only is this £40 million in excess of the likely total court fees actually payable by local authorities as a result of the increase, the allocation mechanism used by DCLG means that it is directed preferentially to those local authorities that are likely to need it.

  Four local authorities recently brought Judicial Review proceedings against the decision to introduce the new fees structure. This was rejected by the court on all grounds. Lord Justice Dyson, in summing up, said that the overall compensation given to local authorities was "sufficient to avoid any real risk that the new fee regime may lead to the interests of vulnerable children being harmed."

Lord Bach

Parliamentary Under-Secretary of State

December 2008

Annex A


  The Compact between the Government and the voluntary and community sector (VCS) exists because of a shared commitment to recognise distinct roles and build upon shared objectives and common values. The Legal Services Commission is committed to the Compact. Here I set out some of the key challenges that we face in taking Compact forward within legal aid.

  The two areas that are perhaps most apposite for legal aid are consultation and procurement: both have their own Compact Code of Good Practice. It is worth restating some of the key principles from these as we consider how best LSC and VCS can work within Compact to deliver the Government's legal aid agenda. These are both considered within the recognition that the VCS must always remain independent and is neither an arm of Government nor commercial business.

  In many ways the relationship between the LSC and the VCS can be split into two distinct parts. The first is the contractual relationship—VCS agencies acting as the LSC's delivery channel for legal aid. That is of course central to Compact but it is also more fundamentally subject to contract, procurement and public law. The second area is about recognising the unique position of the VCS in terms of client engagement. A much wider spread of VCS agencies can contribute to this element of our relationship than the former and it is vital that the two are not confused.


  The LSC is committed to consultation and has its own code of consultation based on the Cabinet Office Code of Practice on Consultation.

  We aim to ensure the sector's position is being considered in relation to policy. We recognise the need to consult widely with providers and other stakeholders on overarching policy direction and have done this in examples such as the LSC strategy for the Community Legal Service "Making Legal Rights a Reality" and on Lord Carter's report "Legal aid: market based approach to reform" through "A Sustainable Future".

  We are also committed to providing clarity about what is and what is not open to change. Thus, after setting out the way ahead for legal aid reform in November 2006 (in response to the above consultation exercise) subsequent consultations have been focused on implementation of those reforms—the detail of some fee schemes, specification of services and indeed as we move forward the implementation of a competitive process for procuring legal aid.

  The Commission must and will remain flexible in its consultations. Written, formal consultation is necessary where widespread views are sought and this may need to be supported by presentations, road shows and meetings with representative bodies. But equally, informal consultation on more specialist issues or where the likely number of interested parties is lower may be appropriate. A range of approaches is often necessary—especially if we are to encourage responses from a diverse population. Whatever the approach, it is important that we ensure we specifically engage with VCS wherever they, their users or beneficiaries are affected.

  This leads to another important element of consultation. The VCS should always be clear about whom they represent and who their constituency is in replying to consultations. Where ever possible VCS should involve service users in developing their response and remain evidence based—identifying the interests of their users and taking account of the specific needs, interests and contributions of women, minority groups and the socially excluded. The LSC would like to encourage a much wider spread of VCS agencies to contribute to consultation from the perspective of users of legal aid services—it is distinct from consultation about the relationship (financial or otherwise) between LSC and VCS agencies.

  For consultation to be effective there needs to be trust and that is often based upon an open and transparent recognition of different roles and responsibilities and a respect for those parties. In bringing VCS agencies into the provision of legal aid in recent years and in encouraging a level playing field in funding terms the Commission continues to demonstrate its commitment to the partnership.


  The LSC currently contracts with about 500 VCS providers and our investment in the sector currently stands at about £80 million per annum. In 2006-07 NfP providers delivered 201,875 acts of assistance out of a total of 796,563.

  The LSC cannot provide funding to VCS to deliver their objectives. It exists only to procure legal aid services within the statutory framework set by Parliament. Equally, that VCS do not exist just to deliver legal aid services must also be recognised. Within these differing frameworks is a clear overlap for many agencies delivering legal aid services and involved in the delivery legal aid services.

  We recognise the right of VCS to include overheads in costing legal aid service delivery and indeed have sought to implement real equality in treatment between the VCS and private sector in this regard—fixed fees apply regardless of sector. This is important as it means the most efficient VCS provider delivering at a cost comparable to the best private sector firms is able to retain a surplus equivalent to that firms profit. Such profit actively supports the independence of the VCS as it is unrestricted funding that can be used to further other charitable objectives. This not only recognises the `added value' of the VCS but supports and enhances it.

  The NAOs office of Third Sector report "Implementation of full cost recovery" recognises that there are a range of financial relationships that exist between the Government and VCS. The legal aid relationship is moving squarely into what it characterises as a "shopping" relationship "where a purchaser [the LSC] designs a specification for a service it is statutorily obliged to provide, and seeks a supplier to provide that service". The typical characteristics of this relationship are that it is contract based, market contestable, price based, defined outputs, certainty, enforceable, defined outputs, risk with providers and provider keeps surplus.

  This "shopping" approach is entirely consistent with both the LSC move towards competition and the Compact. We welcome the sector's involvement in the legal aid market and, like all providers, will help and encourage it to bid for a higher stake in the £2 billion spent each year on legal aid. It falls to the VCS bidder to know their costs and bid appropriately. It falls to the VCS provider to deliver the agreed services and it can expect to be managed against agreed key performance indicators. In return it can expect certainty through longer-term contracts.


  Underpinning all of this—for both LSC and VCS—is a real commitment to improve client engagement and thus make legal aid services organised around the needs and experience of clients rather than the preference of providers or convenience of funders. Inevitably the LSC contracts with a narrow group of VCS agencies—those able to deliver complex legal advice that falls within the scope of legal aid. However this should not prevent a much wider group of VCS agencies from engaging with us to help us shape services around clients needs. Joint research projects such as between Youth Access and LSRC provide good examples of how to do this so that we have a real evidence base for policy-making and service delivery.

  In the spirit of Compact LSC will seek to improve its engagement with VCS groups that can represent clients experience—and often this is the experience of the clients who do not get advice, because it is these clients that legal aid and its providers are currently failing.

  It is vital that we do not allow clients to be a political football in the contractual discussions that inevitably follow LSC procuring services from VCS agencies. We must all rise above that to ensure that client voices are heard over and above the voices of commissioners, advisers and lawyers—together that is possible.


  The move towards a market based procurement regime for legal aid is undoubtedly challenging for all stakeholders. However, we believe it represents the best opportunity to enhance our shared objectives:

    —  It is good for clients:

    —  Increased access to client focused services delivered by high quality providers;

    —  It is good for VCS providers:

    —  Real reward for delivering innovatively to meet client need;

    —  It is good for LSC and government:

    —  Priorities are met and value for money evidenced.

  Only if we continue to seek to align the interests of VCS providers, the LSC and clients can we make the Compact a meaningful enabler of our shared objectives.

Carolyn Regan

Chief Executive

Legal Services Commission

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