Examinstion of Witnesses (Questions 1-127)
LEGAL SERVICES
COMMISSION AND
MINISTRY OF
JUSTICE
Q1 Chairman: Good afternoon. Welcome
to the Committee of Public Accounts. This Committee will examine
both the Comptroller and Auditor General's Report on the accounts
of the Legal Services Commission for 2008-09 and its Value for
Money Report on the Procurement of Criminal Legal Aid in England
and Wales. We welcome Carolyn Regan who is the Chief Executive
and Accounting Officer of the Legal Services Commission and Hugh
Barrett who is the Executive Director responsible for commissioning
legal aid within the Commission. We also welcome Peter Handcock
who is Director General for the Access to Justice Directorate
within the Ministry of Justice which sponsors the Commission.
I want to focus today on an organisation with very poor management
information and weak control over its finances which is still
spending £2 billion a year. Mr Handcock, why is the permanent
secretary not here?
Mr Handcock: Chairman, I hold
the budget for legal aid spending and I also hold the policy responsibility
for legal aid so it seemed appropriate that I should give evidence
to the Committee.
Q2 Chairman: I have always established
the principle that it is the permanent secretary of the accounting
officer who comes to this Committee. I am very happy for him to
be advised by you and for you to take questions, but this Committee
has to relate to permanent secretaries. They may not like coming;
they just have to come. All right?
Mr Handcock: Yes.
Q3 Chairman: Mr Hancock you have
34 staff and spend £2 million a year overseeing the Legal
Services Commission, yet obviously the Commission—as we
know from reading this Report—suffers from very fundamental
weaknesses. Given the resources you put into this, why do you
not have a firmer grip?
Mr Handcock: Chairman, the first
thing to say is that this study took place while we were in the
process of a re-organisation.
Q4 Chairman: Will you please not
read your notes. Will you please look me in the eye and talk to
me.
Mr Handcock: I am not reading
a note, Chairman. We were re-organising our sponsorship and policy
capability. We now have significantly fewer people than 34. I
believe we do have a grip on legal aid spending and I believe
we can demonstrate that. The system is in the middle of a period
of radical change. We had had a long period when the budget for
legal aid had gone up inexorably year after year. The reforms
that we have introduced have frozen the budget at 2006 levels.
We have dramatically increased the range of issues on which people
receive advice. We have increased the number of cases on which
people got help in the civil system by over 200,000 this year.
We have reduced spending on criminal legal aid by £17 million.
We have maintained the level of help being provided; there is
a service in every police station in the country, as there was
previously. So I think the track record of the reform programme
so far is pretty good in terms of increasing value for money.
There is no doubt that this Report shows there are areas in which
frankly we have not had our eye on the ball as we might have done
so there are things we need to learn from that.
Q5 Chairman: If you have such a firm
grip why were the accounts qualified last year because of poor
financial controls leading to over payments to solicitors?
Mr Handcock: From the Ministry's
point of view it is completely unacceptable for the Commission's
accounts to be qualified and we have made that very clear. The
underlying issue is that the audit process that the Commission
has in place for payments was not sufficiently robust and there
is a difficult balance to strike between, on the one hand, the
amount of bureaucracy that is imposed on suppliers in terms of
proof they have to produce for payment and, on the other, managing
the risk properly. I think it is quite clear that that balance
was wrong and we require the Commission urgently to address that
as they are.
Q6 Chairman: Ms Regan, your accounts
were qualified; what action are you now going to take to ensure
that this does not happen again?
Ms Regan: Obviously we find ourselves
in a regrettable position with the qualification of accounts and
we have put some immediate steps in to address them. For example
we have increased the size of our contract compliance team to
16 people and we are doubling the sample levels of cases that
we are looking at this year. We are also doing some training for
the five and a half thousand providers who are offering legal
aid and we are sending out some refresher guidance. We are increasing
our checks and we have taken immediate steps to increase our financial
controls.
Q7 Chairman: Ms Regan, will you please
look at paragraphs eight and nine of the Report which tell us,
"The Commission needs to improve its knowledge of the suppliers
and users of criminal legal aid". You seem to be putting
all your faith on best value tendering, but how will you ever
get a grip of the solicitors if you do not understand your market
and you do not understand them?
Ms Regan: We do understand the
market and we do have all the data. At the time of the NAO Report
that was not brought together in one central database which we
are now doing. We know from the recent bid rounds that we have
done that some schemes are actually 400% over-subscribed so there
is significant provision of legal aid practitioners everywhere
and we continue to maintain a 24/7 duty rota in all the police
stations in England and Wales. We know there is cover; we know
there is access. We acknowledge that we can bring some of our
data together in a central system.
Q8 Chairman: Do you know in detail
the impact that your decisions are having on the legal aid suppliers
in the bar and among solicitors? Do you actually go to the firms
and to the barristers' chambers to understand the impact that
your decisions are having on those barristers' chambers and on
the solicitors?
Ms Regan: We understand the impact
from a number of angles. We do have those direct discussions with
individual solicitors' firms and barristers' chambers across England
and Wales. In fact we have a network of contract managers who
have individual relationships and have that information. We have
also set up quarterly meetings with solicitors, barristers and
trainees across the country where we take a sample of views and
we do have on-going discussions with the representative bodies
like the Law Society and the Bar Council.
Q9 Chairman: Looking at paragraph
1.19: "Many barristers interviewed by the NAO undertake both
criminal defence and prosecution work, and indicated that the
former pays more. Barristers we interviewed expressed concern
about the long-term sustainability of the Criminal Bar."
You are aware of that are you?
Ms Regan: I am aware that those
are the views. Again we have no evidence of gaps when we put work
out to be tendered for either on the crime side or in terms of
additional work on the civil side with, for example, housing problems
and debt problems.
Q10 Chairman: You know that the junior
criminal bar is having enormous difficulties at the moment because
of the increased use of solicitors in crown courts. You must know
this.
Ms Regan: I am aware of this,
yes.
Q11 Chairman: Is it not a matter
of concern to you that as the junior criminal bar finds it more
and more difficult to get work we are going to find it more difficult
to train people up to become senior barristers and excellent defence
lawyers.
Ms Regan: Clearly one of the issues
of importance is the future work force both in terms of solicitors
and barristers and to that end we make a number of training contracts
available for trainee solicitors. We have spent about £10million
over the last four years helping young solicitors. There are issues,
as you rightly say, in terms of the quality of advocacy and we
are due to pilot a scheme in the New Year which looks at assessing
the quality of advocacy, be it provided by independent barristers
or indeed by solicitor advocates. I could ask Mr Barrett to give
you more information on that if you like.
Q12 Chairman: It has been said to
me that what is happening is that increasingly reputable firms
are leaving criminal defence work and that less reputable firms
are increasingly moving into the market, for instance one tactic
they pursue if they are dealing, say, with a murder case is that
they actually pay the defendant up to £10,000 to acquire
that brief. Are you aware of that?
Ms Regan: I am not aware of that
at all. I am aware of the allegation by some firms that less reputable
firms are taking the work.
Q13 Chairman: Does this not worry
you?
Ms Regan: Of course it does and
we have therefore put in a whole system of quality checks on the
solicitor firms who are doing the work. We have an independent
peer review system looking at the quality of legal aid. In our
contract with solicitor firms we have standards for supervisors
and supervisees. We are using systems to check the quality of
processes being adopted by those firms. So I would argue we have
a high level of quality checks in place and clearly what we are
trying to do is balance, as you rightly say, the access across
England and Wales and the quality. I think there is a role for
the regulators of legal services in assessing quality but at the
moment we have taken on that work and we are doing it.
Q14 Chairman: Could we just have
a moment to talk about the contracts of very high cost criminal
cases which are dealt with in paragraphs 3.11 to 3.17? I have
expressed concern about the junior bar; there is also some public
concern about the very high earnings of relatively few criminal
barristers who rely entirely on criminal legal aid work, who earn
salaries of hundreds of thousands of pounds. Are you addressing
this?
Ms Regan: On the very high cost
cases the Report makes reference to some cases which have not
been managed within the existing system and we are working with
the other parts of the Criminal Justice System to make sure that
we can predict the length of trial. As you know, it is very difficult
to do that but when we do manage very high cost cases there is
a very tight process of case management which means we do check
the level of payments being made to both solicitors and barristers.
Q15 Chairman: Mr Handcock, this is
a very complex area and it is absolutely vital that we get quality
legal defence work, that people are paid a fair wage and all the
rest of it. You are causing the Commission to reduce its staff
by almost a third. Given the problems that we know they now have
and they are struggling to understand the market place, how will
this help them?
Mr Handcock: I do not think the
Commission would necessarily accept that it is struggling to understand
the market place as Ms Regan explained.
Q16 Chairman: You accept they have
all sorts of problems; otherwise you could not be here.
Mr Handcock: I absolutely accept
that the balance between risk and control, for example, in managing
payments needs to be in a slightly different place. I do not think
that is a question of deploying large numbers of additional staff.
The solution to that problem actually is to build in the right
control checks in the electronic payment process which is about
to be rolled out. I do not think the issue is lack of staff; we
are driving efficiency as we must do.
Q17 Mr Bacon: Ms Regan, is it correct
that you went on a trip to New Zealand?
Ms Regan: It is.
Q18 Mr Bacon: Can you tell me when
you went there?
Ms Regan: I went there in March.
Q19 Mr Bacon: How long for?
Ms Regan: For a legal aid international
conference which happens every two years. I think I was there
about ten days.
Q20 Mr Bacon: Right. The conference
lasted for ten days, did it?
Ms Regan: The conference lasted
for five days.
Q21 Mr Bacon: What were you doing
for the other five days?
Ms Regan: I was actually having
a bit of a holiday, having travelled on an economy ticket.
Q22 Mr Bacon: Did you pay for the
ticket yourself?
Ms Regan: The Legal Services Commission
paid for an economy ticket for me.
Q23 Mr Bacon: You took the time to
have a holiday while you were there.
Ms Regan: I did.
Q24 Mr Bacon: Could you send us a
note of all the costs involved in your trip to New Zealand including
not just the flight but all the accommodation and everything,
all the associated costs, travel inside New Zealand and so on?
That would be very helpful.
Ms Regan: I would be happy to
do that. We have also published that as we publish our expenses
quarterly, but I will send you a note as well.[1]
Q25 Mr Bacon: Thank you, that would
be great. I am looking at the Annual Report and Accounts
of the Commission and under senior directors there appear to have
been a lot of changes recently. There are four people in the executive
team at the moment, according to this list—yourself, Hugh
Barrett, Phil Lambert and Hazel Parker-Brown—although there
are seven further names who seem to have departed quite recently.
Ms Regan: Yes.
Q26 Mr Bacon: Can you explain why
there has been this degree of movement?
Ms Regan: Yes, of course.
Q27 Mr Bacon: There has been a lot
of acting and a lot of interim as well.
Ms Regan: Yes, that is right.
We have been going through a significant change within the LSC
focussing on being a more efficient organisation and trying to
drive on the reforms that we have described in the earlier questions.
As part of that we have reduced the number of executive directors
which was five when I came into post to the three that you named,
Hugh Barrett, Phil Lambert and Hazel Parker-Brown. We have also
reduced our senior management team by some 20% over the year and
during some of the interim months we took on two interim directors
who are listed in the Annual Report and Accounts.
Q28 Mr Bacon: Why did you have interims?
Ms Regan: We had interims because
we had to bring in specialist skills, because we did not have
people in permanent posts and because we were recruiting to the
permanent executive director vacancies.
Q29 Mr Bacon: One of the people who
seem to have departed was an executive director for transformation.
Is that not the sort of person you would have to help you achieve
transformation rather than the person to get rid of?
Ms Regan: What we have actually
done is to consolidate that work into the three new directorates
and that work is now covered in part by Mr Barrett, who is sitting
on my left.
Q30 Mr Bacon: Of these people in
the executive team, it is not obvious which one of them is in
charge of financial management. Which one is it?
Ms Regan: It is now Hazel Parker-Brown
and it was David Godfrey at the time.
Q31 Mr Bacon: Was Mr Godfrey a qualified
financial manager? Was he a qualified chartered accountant?
Ms Regan: He was.
Q32 Mr Bacon: Is Hazel Parker-Brown?
Ms Regan: She is not.
Q33 Mr Bacon: She is not?
Ms Regan: No.
Q34 Mr Bacon: So you have replaced
somebody who had a financial qualification to do your financial
management with someone who does not.
Ms Regan: The finance director
is actually the qualified accountant; he is not listed on that
list of names.
Q35 Mr Bacon: Why is the finance
director not part of the executive team? You are an organisation
that spends £2 billion—that is 20% of the whole Ministry
of Justice's budget—surely getting this right is sufficiently
important that you ought to have somebody on the board as part
of the executive team.
Ms Regan: You are absolutely right
and the recruitment we are doing at the moment for a permanent
finance director post—we have an interim in post at the
moment—is someone who will be part of the senior management
team and will attend executive team meetings. The board—the
actual Commission—is made up of non-executive directors
but that new appointment will be part of the management team.
Q36 Mr Bacon: So what is described
here as executive team will grow from you plus three to you plus
four?
Ms Regan: There will be a finance
director at the executive team meetings. We are recruiting now
and the final interviews are scheduled for next week.
Q37 Mr Bacon: I have been reading
your statement of internal control (which is on page 42 of the
Report). What is striking about it is the number of different
levels at which you say that you control risk. You do it at the
strategic level, you do it at the senior executive level, at director
level where all directors are required to sign a personal assurance
statement, through internal audit, at project management level,
at business unit level and there is further stuff about the staff
and then you go on about how it is embedded in five different
ways in the activity of the Commission. Who wrote this statement
of internal control?
Ms Regan: The secretariat of the
Commission wrote it and it was reviewed by a number of committees.
Q38 Mr Bacon: When was it written?
Ms Regan: It was written during
the time when the NAO were doing their audit last year.
Q39 Mr Bacon: Did you have one before?
Ms Regan: We did have one before
but clearly we reviewed it in the light of what was coming out
of the audit.
Q40 Mr Bacon: This is the new one
in light of the NAO investigations and what they found.
Ms Regan: This is the new one
published when we published our annual report. We are in the process
of reviewing it for this year and putting in more checks so that
when people sign off the controls at senior management team level
we actually ask for more evidence.
Q41 Mr Bacon: It says also over the
page under the heading "Significant internal control issues"
that you identified a number of control weaknesses. They include
control over the accuracy of providers' claims, the controls over
the means of assessment of the eligibility of applicants, and
robustness of the accounting systems. When during the year did
you identify that you had a problem with the robustness of your
accounting systems?
Ms Regan: We identified that from
about—I am trying to think of the sequence of events—late
last autumn, probably about this time last year and it was an
on-going process leading up to additional auditing in about May
or June of this year.
Q42 Mr Bacon: I am slightly surprised
that you should take so long to find out that you have weaknesses
in your accounting systems, given that in many ways you are a
payments organisation. It does say—this is you personally
because you have signed it—"I will establish, in consultation
with the MoJ, a clear timetable for the implementation of the
resultant recommendations". Is that timetable now established?
Ms Regan: We have a timetable
and we have a very comprehensive action plan for which I am the
responsible owner of that action plan, jointly with Mr Handcock
and we report to various committees and groups including to the
director of finance in the Ministry of Justice. There is a review
meeting scheduled on that to review where we are with the actions
on Monday of next week.
Q43 Mr Bacon: Perhaps you could just
send us a copy of the timetable for the back of our Report; that
would be very helpful.
Ms Regan: Of course.
Q44 Mr Bacon: Where does it say you
should be by when in the timetable? When will all these issues
be resolved according to the timetable?
Ms Regan: It is an on-going process.
In terms of putting a timetable around the issues that we know
about, it is on-going between about last month and the next four
to five months. There is clearly on-going work as we move towards
electronic working in terms of some of our very labour intensive
paper based systems that we have at the moment. The short-term
measures are for now, in this financial year, but there will be
an on-going programme of work as we move towards electronic working,
translating three quarters of a million pieces of paper a year
which come into us with legal aid applications into electronic
working with instant approvals on line of whether clients are
eligible for legal aid.
Q45 Mr Bacon: I will ask you about
that in a second, but so far as the short term timetable is concerned
are you saying that in this timetable there are specific things
that will be done by specific named dates?
Ms Regan: There are, which takes
us up to the end of April 2010.
Q46 Mr Bacon: You will send that
to us.
Ms Regan: I will do, yes.[2]
Q47 Mr Bacon: As far as the electronic
delivery is concerned, who is your computer contractor?
Ms Regan: It is with capgemini.
Q48 Mr Bacon: How much is the contract
worth?
Ms Regan: I think it is about
£11.6 million. It is in three phases starting with, as I
said, electronic forms in terms of the means test for individual
clients.
Q49 Mr Bacon: Who is the senior responsible
owner of the project?
Ms Regan: Phil Lambert, who is
the other executive director who comes with experience of having
introduced these systems both in the private and the public sector.
Q50 Geraldine Smith: Mr Handcock,
your title is Director General, Access to Justice, so you will
be dealing quite a lot with legal aid.
Mr Handcock: Yes, legal aid is
one of my responsibilities.
Q51 Geraldine Smith: Would you say
it is the majority or your work?
Mr Handcock: It is a fair proportion
of my work, yes.
Q52 Geraldine Smith: Why do you need
a separate Commission then? If you have a team of staff and you
are dealing with it, why do you need this separate Commission?
We have established it is a payment agency, you are basically
just paying solicitors and we know that you are not doing that
very well because the Legal Aid Commission does not bother validating
claims, you just pay them out on a monthly basis (a bit like the
House of Commons Fees Office it sounds like) and there are errors;
the Commission does not know if the solicitors are committing
fraud or whether it is just administrative errors. What is the
purpose of the Commission first of all? What does it add that
your team or a larger staff could not do?
Mr Handcock: The history of the
Commission is that as a non-departmental public body it separates
ministers from decisions about the entitlement to legal aid. I
think your question, if I may say so, is a very good one. Whether
the current delivery model is the right delivery model is something
we are thinking about and we have commissioned a review which
is being led by Sir Ian McGee to think about whether the deliver
model and governance arrangements are right. There is one thing
I should correct. The Commission is not simply a body that makes
payments to solicitors, in fact the reform programme is about
making a transition from that—which is what it used to be,
it certainly was that when the Access to Justice Act was passed—and
the transition will see it becoming a commissioning body which
is managing contracts with providers rather than simply passing
on payments into professions that were entitled to offer the legal
aid service as a right. Its function has changed very substantially
and will continue to change.
Q53 Geraldine Smith: It is very worrying
when you look at what the Commission is doing so far, when they
are just making payments. How much did you over-pay last year
to solicitors? How much in over-payments were made by the Commission?
Mr Handcock: The total amount
of over-payments which were calculated on the basis of an extrapolation
from a sample of files was £25 million. Of that though it
is worth saying that only £8 million was in relation to criminal
legal aid and that represents an error rate on the transaction
volume of around 0.6%, so 99.4% accuracy across a huge number
of essentially paper transactions. The way in which we believe
that this will be improved is by the strengthening of existing
system controls and the implementation of an electronic verification
system for civil payments and then subsequently for crime. As
I have already said, it is absolutely unacceptable that the Commission's
accounts were qualified on the basis that its controls were not
good enough. In relation to criminal legal aid that level of error
would not have led to qualification.
Q54 Geraldine Smith: The National
Audit Office did not rely on the Commission's own testing of solicitors'
claims; that is true, is it not?
Ms Regan: Yes, and that is why
I have said we have doubled the amount of validation and testing
that we are doing as a result.
Q55 Geraldine Smith: What do you
do now that you did not do before?
Ms Regan: We now test 20% of files.
Where there are firms that are clearly outliers in terms of large
numbers of claims, we go and look at them individually. We are
managing the contracts with much more information. The other part
of the jigsaw puzzle is moving away from hourly rates—which
is how we used to pay solicitors and solicitors firms; we used
to pay on hourly rates plus travel and waiting—onto fixed
and graduated fees.
Q56 Geraldine Smith: Only half of
people in police stations that are being held take up the right
to legal representation. Why do you think that is?
Ms Regan: The answer is we do
not know totally because we have not asked all those people, but
we do know that some people choose not to have a representative
for a variety of reasons. However, we are trying to increase the
percentage of people who do take up that advice. We also provide,
as a safety net, a duty solicitor in every magistrate's court
so even if the case goes from the police station into the court
there is the opportunity of having legal representation at that
stage. We are about to embark on a large survey looking at 10,000
custody records across England and Wales to find out if there
is a reason for the low take up, which is increasing; we know
it has increased in the last six months.
Q57 Geraldine Smith: If there is
only 50% people taking it up and you want to encourage more people
to take up legal representation, can you afford it?
Ms Regan: That is one of the challenges
of managing within a fixed budget and meeting the needs of an
increased number of clients. We know that demand, for example,
in things like advice, housing and debt have increased by about
20% over the last year so we are putting in things like more telephone
advice and longer telephone hours to increase the number of people
we get advice to.
Q58 Geraldine Smith: The chancellor
has been talking today about civil servants that earn more than
£155,000. Would any of you have to seek approval from the
Treasury?
Ms Regan: I would at the moment.
Q59 Geraldine Smith: Can I ask how
much you earn, just out of interest?
Ms Regan: You can. It is in the
Annual Report; it is £194,000.
Q60 Keith Hill: Over the years the
government has made a series of efforts to constrain the rising
cost of legal aid, of which I suppose the Carter initiative was
the most recent. I have to say that every time these efforts are
made I am personally, as a Member of Parliament, inundated with
representations from those of my learned friends amongst my constituents—I
have a highly educated electorate in Streatham—and they
write to me or they lobby me here and I have highly articulate
individuals who describe this doomsday scenario which is about
to descend upon legal aid. If these attempted cost savings are
implemented then all of these firms will be going to the wall
et cetera, et cetera. Therefore I was personally surprised to
find in the Value for Money Report that the profit figures for
firms outlined in the Report were on average 18.4% with 37% of
firms making over 20% on criminal legal aid. Ms Regan, were you
also surprised to discover these levels of profitability amongst
legal aid firms?
Ms Regan: I was not surprised
because we have seen a range of profitability figures from firms
before. I believe they exclude the partners' profits from that.
Q61 Keith Hill: Does that mean that
if you actually include them the level of profitability would
go down?
Ms Regan: I think it would but
it is hard to say by how much. That is the question. Perhaps I
can ask Mr Barrett to elaborate on that.
Mr Barrett: What the evidence
in here shows is that, as you quite rightly point out, we do have
a very big disparity in profit levels among solicitors firms.
Some are making what appear on the face of it to be very high
levels of profit but, as you have seen, quite a significant number
are reporting no profits at all. I think that is a symptom of
an administratively set rate of fees; you have no incentive for
firms to innovate, to give better value for money to the taxpayer
by reducing prices and therefore gaining market shares. My analysis
of this would be that this is a symptom of administratively set
fees.
Q62 Keith Hill: Nevertheless, 18.4%
seems pretty significant. Do you have any idea how it compares
with rates of profit in other businesses?
Mr Barrett: Let us take a firm
that has £200,000 worth of drawings from the legal aid firm
at 18% profitability, that would mean the partners' earnings would
be about £36,000. That would be an example of what I would
not regard as excessive profits. Obviously there will be other
examples potentially which might be making much more money, but
you cannot compare these figures with those for a limited or publicly
limited company.
Q63 Keith Hill: I have done some
research on this and I find that these rates of profit are significantly
higher—indeed three times higher—than leisure and
hotels and five times higher than international airlines; manufacturers
of course are in a negative profitability situation; they are
20 times higher than in the retail business, et cetera. Is this
the level of profit margin you have built into the current fee
rates?
Mr Barrett: The current fee rates
are set administratively so they cater for profit levels from
zero to over 20%. Our expectation is that as we move to a market
based set of prices then profitability will be related to the
cost of provision and the cost of capital for those organisations
and therefore you would expect to see the taxpayer getting better
value for money as a result.
Q64 Keith Hill: You would expect
these firms which have a significant legal aid business actually
to be displaying lower levels of profitability in the future.
Mr Barrett: Those that are more
efficient and those that are going to grow their businesses, I
would expect to be working at lower levels of profitability than
the top end of this distribution. Those at the bottom end will
face a big challenge because at the moment they would not be able
to compete successfully for business and they have a difficult
challenge in a competitive marketplace. At the moment it is not
a price competitive market.
Q65 Keith Hill: That is of course
if the reforms, for example envisaged by Lord Carter, were to
be implemented they would find themselves possibly at some risk.
Mr Handcock, Lord Carter envisaged you achieving savings from
legal aid procurement of £100 million excluding those arising
from means testing. Have you achieved this?
Mr Handcock: We have; we will
have achieved significantly more than that by the time we get
to the end of this programme. The programme we are currently running
is the programme that was recommended by Lord Carter, starting
with the process of moving to fixed and graduated fees which has
put significant downward pressure on costs as a precursor to moving
to a full market system.
Q66 Keith Hill: I am sorry to interrupt
you on this but my understanding is that the Commission was originally
committed to begin the tendering process in October 2008 but has
later slipped to a planned nationwide introduction date of 2011,
and in July of this year it was delayed until 2013. Are you saying
that actually by the end of this process you will have achieved
the savings but actually the date by which you expect to achieve
the savings has gone back four years
Mr Handcock: It is inevitably
the case that the process of moving from an entirely non-competitive,
non-market based system to a competitive system is a challenging
one and Lord Carter set a timetable that we are, for a variety
of reasons, a bit behind. We have to be very careful here to strike
a balance between on the one hand preserving an adequate supply
base, and on the other moving at sufficient pace to deliver the
savings that we need to deliver.
Q67 Keith Hill: I would be interested
know from Ms Regan why the post implementation reviews have consistently
been delayed.
Ms Regan: We have delayed some
post implementation reviews and we need to make sure when we start
the project that we actually build in time for the post implementation
reviews. Mr Barrett will be in charge of those and we will be
doing those as we go along. If I can just say something about
the timetable for best value tendering, we actually elongated
the timetable in response to 55 consultation meetings we did with
solicitors and others. There was a strong view that we should
be piloting these initiatives which we are doing and hence the
longer timetable than Lord Carter had originally envisaged. The
first part of Lord Carter's reforms, the introduction of fixed
fees, we have actually kept to the timetable and we have delivered
savings from moving away from hourly rates.
Q68 Keith Hill: What savings have
you secured so far?
Ms Regan: We have flattened the
expenditure on criminal legal aid which was increasing 5% annually
going back over the last 15 years, so we are meeting the needs
within a flat budget and therefore we have been able to spend
more money on housing cases, debt, social welfare and family.
Q69 Keith Hill: Let me turn very
briefly to the issue which the Chairman raised of the very high
cost criminal cases. It appeared to me, Ms Regan, in your answer
you suggested the key variable in cost was the length of the trial.
Is that right?
Ms Regan: Yes.
Q70 Keith Hill: Not the high fees
of the individual barristers.
Ms Regan: There are a number of
issues. One of them is the length of the trial which triggers
the payment and one of the issues is the complexity and the pages
of evidence. We are trying to balance those things and working
very much with the Court Service, the CPS and others to make sure
that we can predict more accurately.
Q71 Keith Hill: Am I right in thinking
that people involved in these trials are entitled to select extremely
expensive, highly qualified QCs?
Ms Regan: We run a panel of people
who are eligible to do this work.
Q72 Keith Hill: Which would include
high and top-end QCs.
Ms Regan: It would, yes.
Q73 Keith Hill: They are presumably
extraordinarily expensive.
Ms Regan: They are expensive but
they are all managed within these rates that we set out for these
cases.
Q74 Keith Hill: I do not want to
interpret that remark, could you explain it to me?
Mr Barrett: At the top end they
would be remunerated at about £155 an hour.
Q75 Keith Hill: You make a calculation
and is it possible for you to say, "No, you can't have this
character"?
Ms Regan: We do quite a lot of
negotiation and part of the management of that case is the level
of fees and individuals and other costs like disbursement. So
we do quite a lot of case management and that is one of the things
we are consulting on at the moment. There is a balance between
how much you spend on staff managing the cases and how much you
set a rate as with BVT and let people get on with it.
Q76 Keith Hill: Do I detect that
you would have a kind of presumption against denying a defendant
a high cost QC?
Ms Regan: It depends entirely
on the case. Assuming that those people are on the list and eligible
to do the high cost cases and are doing the work for the set rate,
then we would approve it.
Q77 Keith Hill: For the set rates?
Ms Regan: Yes, for the set rates.
Q78 Keith Hill: Is there a scale
of set rates?
Ms Regan: Yes there is a scale
of set rates with £155 per hour at the top end.
Q79 Keith Hill: How many hours do
these fellows—I suppose they are mainly chaps—put
in?
Ms Regan: Hence my point about
the length of the case being a big determinant. Some of these
cases are very expensive and account for about 10% of the criminal
budget.
Q80 Keith Hill: That is quite a lot.
Far be it from me to suggest that some criminal does not deserve
the most expensive defence, but have you thought about actually,
on the whole, having a more moderately priced group of barristers
from which people can make their choice rather than highly expensive
barristers?
Ms Regan: We are always looking
to ensure that there is value for money in what we pay. We recognise
that these are complex cases requiring skills and experience and
we need to make sure that we price it accordingly. We are currently
consulting on what we will pay in the new, very high cost cases
which come into being next July.
Q81 Keith Hill: With a view to what?
Ms Regan: With a view to a number
of options, either paying on graduated fees or staying with the
existing system which includes a high level of case management
where we would challenge the fees. Also I go back to my previous
answer on having a quality assurance scheme for advocacy which
could be linked to the level of payment for these high cost cases.
Q82 Chairman: Ms Regan, if you know
what is going on with these very high value criminal cases, why
do we read at paragraph 3.17 "The Commission has not assembled
sufficient data to alter the assumptions underpinning its calculations
for savings from VHCCs"?
Ms Regan: We do have the evidence
to demonstrate that we have made savings from some of the VHCCs
at the higher level. I do not think again we have had the data
in a reasonable shape in one place to look at the totality of
very high cost cases.
Q83 Chairman: What this paragraph
tells us is that you do not know whether this sort of contract
provides value for money.
Ms Regan: We know that this contract
provides value for money at the higher end.
Q84 Chairman: Why does it say this
then?
Ms Regan: It says in the following
paragraph, 3.18, that we have achieved our savings target.
Q85 Chairman: Why does it say, "The
Commission has not assembled sufficient data"? Why have you
not assembled sufficient data?
Ms Regan: That is a fair point
and one which we have rectified in terms of bringing the data
together.
Q86 Chairman: Can you please send
the Committee a note with the top ten earners from criminal legal
aid work and the top ten cases?
Ms Regan: Yes, I can.
Q87 Chairman: I would like the name
and the earnings please.
Ms Regan: Yes.[3]
Q88 Dr Pugh: I apologise for coming
late; if I ask a question that has already been answered please
tell me if you have already answered it. Can I take it as read
that you have demonstrated quite adequately that your organisation
is not very good at procuring the product they asked to procure?
I think that is fairly evident from the Report and I want to move
on to explore some of the explanations for it. Ms Regan, what
I wanted to know really in terms of your organisation, first of
all what is the size of your top management team?
Ms Regan: Do you mean the executive
team?
Q89 Dr Pugh: Yes.
Ms Regan: There are four of us.
Q90 Dr Pugh: How many of them have
legal training?
Ms Regan: No-one.
Q91 Dr Pugh: If we go a little further
to the second tier, how many in the second tier have legal training?
Ms Regan: I would have to think
about that. We have a legal director who is part of the senior
management team and we have another row of other post holders
who also have legal training.
Q92 Dr Pugh: Do you think it would
be helpful if you had more people who had a legal background in
the Legal Services Commission?
Ms Regan: No, I do not actually
because the issue for us is how we move forward with the reforms
and make sure that we are offering value for money with the £2
billion that we currently spend and provide a high quality service
to the increasing number of clients.
Q93 Dr Pugh: In terms of high quality
service 42% of the solicitors you are using describe you as unhelpful
and 28% thought it was unlikely they would use you again in five
years' time. Does that not indicate that something is going wrong
with the legal profession?
Ms Regan: It indicates that we
are half way through a very challenging reform programme.
Q94 Dr Pugh: It is not as though
you are not giving them plenty of money without too much inspection.
Ms Regan: I think there is a view
that managing increasing demand within a fixed budget is a difficult
balancing act as it is for any public service and although we
do not always agree I think the communications and the discussions
are actually quite good. Those same firms also went on to say
that their relationship with their individual contract manager
is actually quite good and they find them very helpful.
Q95 Dr Pugh: What is your relationship
like with the Bar Council?
Ms Regan: I think they would probably
say the same sorts of the things, they do not always find us helpful
although discussions continue.
Q96 Dr Pugh: The briefing I have
been lucky enough to receive from the Bar Council contains the
following sentence: "The Bar Council agrees with the NAO
Report. The division of responsibility between the Legal Services
Commission and the Ministry of Justice has resulted in unnecessary
duplication and complexity. We would go further and say the division
of responsibility has become chaotic. Would you like to comment
on that?
Ms Regan: I have not seen the
brief. I would strongly disagree that it is a chaotic relationship.
I think we work very well together on a number of things and I
could give you a number of examples such as the introduction of
means testing in the crown courts which goes live in January of
next year. That is just one example.
Mr Handcock: Can I add something
to that? It is absolutely no surprise that our relationship—both
the Ministry's and the Commission's—with the professions
is occasionally rocky. We have in effect fixed the legal aid budget
at 2006 values. If you look at what counterfactual growth would
have indicated, we would be spending something like £2.7
billion now rather than £2.1 billion, so we have taken an
enormous amount of potential payments out of the system. That
is pushing the professions to modernise and to adopt different
models and to change the way they do things. Frankly we understand
perfectly well that is tough but the reform of the system and
putting in place processes that would bring expenditure under
control are absolutely urgent and actually they continue to be
urgent. I guess that will mean that the relationship will continue
to be quite a tricky one.
Q97 Dr Pugh: Clearly some of the
people you are working with are not having their profit margins
driven down, judging by the observations that Mr Hill made.
Mr Handcock: It would have been
higher still.
Q98 Dr Pugh: In terms of this relationship,
one point they make in terms of how you deal with the profession
is that sometimes negotiations take place with the Legal Services
Commission which the Ministry of Justice then takes an interest
in, which can lead to strange variations in procedure. Can I cite
you one case? In November 2009, five days before the planned date
of a publication of a consultation paper which was agreed between
the Bar Council and the Legal Services Commission, the Ministry
of Justice insisted on a scheme which had been previously rejected
as unworkable and that that should be included in the options
for consultation. That is what the Bar Council tells me; I have
no reason to disbelieve them. It would it seem that the Ministry
of Justice lunged in—I am looking at Mr Barrett here—to
correct consultations that had been taking place between Ms Regan
and the Bar Council. Is that correct?
Ms Regan: We have issued a consultation
document which has a number of options in it. We have been working
with the Bar Council and others for a while and it has been very
much a joint piece of work between the Legal Services Commission
and the MoJ.
Q99 Dr Pugh: So it is no surprise
to you that the Ministry of Justice insisted, five days before
the planned date of publication, that an option that had been
rejected as unworkable should be included.
Mr Barrett: It has to be remembered
that this is £2 billion worth of public spending and as you
would expect it is something in which ministers take a very close
interest. This particular piece of work on very high cost cases
was, as Carolyn has said, a joint piece of work between the Ministry
and the LSC and ministers decided—ultimately it is ministers'
responsibilities to make those policy decisions—on what
the options are for consultation.
Q100 Dr Pugh: You surely can understand
if you are sitting round a table with the Bar Council and you
have a set of proposals, you produce a consultation paper and
then five days later something else comes out, people are going
to feel a little bit put out.
Mr Barrett: It was before the
consultation. We maybe should have said in the small print at
the bottom of the documents we were discussing with the Bar Council:
"Please be aware that this is subject to ministerial agreement
and sign off" and I would expect that they have enough experience
of dealing with ministers and the Legal Services Commission to
understand that that happens, and it happened.
Q101 Dr Pugh: You are expecting the
lawyers to read the small print.
Ms Regan: It is a consultation
document.
Q102 Dr Pugh: Let us go onto means
testing. Means testing has various effects; it sometimes puts
solicitors in barristers' places representing people and sometimes
the public in the place of solicitors because they turn down legal
aid. Do you keep any records that show the success of these variations?
In other words, is there any evidence the public do any worse
by representing themselves?
Ms Regan: The Court Service, with
whom we work very closely, has data on unrepresented defendants
in court. We have discussed the cover in police station but we
do also provide a duty solicitor in every court should someone
wish to avail themselves of that advice.
Q103 Dr Pugh: You cannot judge the
success of having a solicitor represent you rather than a barrister
where it is possible.
Mr Barrett: I do not think means
testing in any way has altered the balance between the work that
solicitor advocates do and that barristers do. You are quite right
about the potential for more unrepresented defendants because
a defendant who is being asked to pay for it—which he previously
may not have been asked to pay for—may choose not to and
therefore represent himself.
Q104 Dr Pugh: The chancellor today
indicated that there were savings anticipated from the legal aid
budget; what is the share from criminal legal aid?
Ms Regan: We were just talking
about that outside. I am not sure I have an answer but can I just
go back to your quality of representation? As I said before, we
are looking to have a scheme which assesses the quality of that
advocacy, be it provided by solicitors or barristers, so we will
be coming back to that and that is a scheme that everyone has
signed up to participate in.
Q105 Dr Pugh: You say you are not
sure, but did the chancellor consult with you before.
Ms Regan: He did not consult with
me personally.
Q106 Dr Pugh: So you do not know
where the savings are coming from.
Ms Regan: No I do not at this
point.
Q107 Chairman: You must have some
idea. You are running this organisation and this is quite important,
is it not? Give us an idea where you are going to look for savings.
Are you going to hit the Law Society and Bar Council even harder
than you have already or what?
Ms Regan: What we are looking
to do is to continue providing high quality legal aid to an increasing
number of clients. That means looking at things like how long
the telephone service is available for, who is using it and can
it extend the range of cases that it deals with. It also means
continuing to provide high quality legal advice and representation
in criminal cases. That is the balancing act that we have to negotiate.
Q108 Chairman: We have had a tale
of woe given to us by the Law Society in their memorandum to us.
They say, "Independent evidence now shows that the incomes
for both employed solicitors and partners and legal aid firms
are frequently at or below medium incomes in the country, far
removed from the sort of level a professional should be entitled
to expect and could end up in other fields of law. It is clear
that a substantial element of the supply base is not economically
sustainable." We know the junior bar is under very severe
pressure. The truth is, to make significant cuts along the lines
of what the chancellor was talking about this morning you are
going to have to cut the incomes of solicitors and the bar at
junior level, are you not
Ms Regan: We are looking to move
away from administratively set prices so that we do reward those
innovative firms who are doing high quality work.
Q109 Chairman: So the answer is yes,
you are going to have to cut their incomes.
Ms Regan: The answer is that we
want to move away from administratively set prices.
Q110 Chairman: The answer is you
are going to have to cut their incomes.
Ms Regan: We are looking for them
to set the prices rather than us.
Q111 Chairman: So you are going to
cut their income.
Mr Handcock: We are looking to
create a competitive market.
Q112 Chairman: So you are going to
cut their income.
Mr Handcock: We have to get better
value for money.
Q113 Chairman: So you are going to
cut their income.
Mr Handcock: We are going to spend
less money. What the impact will be will depend on the way they
respond to it.
Ms Regan: Some may increase their
incomes.
Q114 Mr Curry: When I look at your
chart here of the executive team, it brings back shadows of the
Rural Payments Agency, people fired with huge compensation, not
quite clear what people do. Ms Regan, you said your salary was
£194,000; in fact your total remuneration is £213,600
if you add in non-consolidated performance payment. Is that right?
Ms Regan: If you add in the non-consolidated
performance payment.
Q115 Mr Curry: Do you earn more than
the PM by the way, just out of interest?
Ms Regan: I believe I do.
Q116 Mr Curry: Dear me, you are a
marked women in those circumstances. I am terribly foggy as to
quite what the executive team is and what the hierarchy is. I
see you are earning £200,000; Mr Barrett, who is part time—
Mr Barrett: I am not part time.
Q117 Mr Curry: Why is Mr Barrett
£150,000 south of you if he is on the executive team? Mr
Lambert is again on the same amount; Ms Hazel Brown is even lower.
Can you list the top five jobs by title and by person and what
those people earn or what you would expect them to earn?
Ms Regan: I can list the top four
and then I will come back to you. In the year that you are referring
to the three people apart from myself were only in post for part
of the year; they came into post on the first of December hence
the figures in the Annual Report.
Mr Barrett: It is the second column
you need to look at, which are the full year equivalents and allowances.
This shows that I only earned 46.7 and the full year equivalent
is 140.
Ms Regan: So 140, Mr Barrett;
Mr Lambert 140; Hazel Parker-Brown, 134.
Q118 Mr Curry: So that is the hierarchy.
Ms Regan: The executive team,
yes.
Q119 Mr Curry: You would hope that
they will stay for some time because, like the Rural Payment Agency,
there has been a bit of heave-hoeing going on.
Ms Regan: Yes, absolutely.
Q120 Mr Curry: Thank you; that helps
with that. Mr Handcock, you have told us that you have had to
get rid of quite a lot of people and as a consequence your service
is much better than it was. How long can this go on for? The logic
of what you were saying appears to be that it seems to me that
if you get rid of everybody the service will become absolutely
wonderful.
Mr Handcock: If I may say so,
I made a point of saying that there is not that fixed relationship
between the numbers of staff and efficiency. One of the things
that drives efficiency is putting in place better systems and
it will be the move away from processing large numbers of claims
on paper to processing them electronically in a much better controlled
way that enables us to operate more efficiently with fewer people.
Q121 Mr Curry: May I suggest before
you do that that you have another look at the Rural Payments Agency
because we have had a very long story of what happened with processing
claims electronically with the Rural Payments Agency. You will
save yourself a great deal of grief if you have a look at that.
Mr Handcock: I am grateful for
the advice.
Q122 Mr Curry: If you link that with
the fact that you are going to have a budget under pressure—there
is no doubt about that at all—and one of the ways forward
for you is to say that you are going to compulsive competitive
tendering. I can remember when I introduced compulsive competitive
tendering into local government and this government said it was
a wicked idea, we were going to get away from all that and have
best value. Compulsive competitive tendering is not like if you
are Tesco because you can go back and say you have had a bid from
so and so, can you get below it? How will it actually work? The
danger is that you look at the headline figure but presumably
these firms have got reputations for being good or not good and
they have reputations for quality of what they do, so there is
a value for money element. How are you going to combine competitive
tendering with value for money? Does that mean that there will
be occasions when the bid which is not the cheapest might present
the better value for money? Take me through that, as it were.
Ms Regan: Let me start and I am
sure Mr Barrett will want to come in. The first thing to say is
that we set very strict quality standards that anyone wishing
to bid for work has to meet, that includes a score of three in
the independent peer review, and that includes standards for,
for example, the number of people supervised by a qualified lawyer.
So we have a number of quality thresholds that people have to
meet before they can even bid. The second point is that we are
not going to one firm in each locality; we are looking for a minimum
of eight which is different from some other best value tendering
systems. The third thing is that we are looking to increase the
views and feedback from the clients who are getting legal aid.
Q123 Mr Curry: You will then feed
that back to the bidders, will you?
Ms Regan: Yes. I think there is
an issue about potentially publishing some of those peer review
ratings or client feedback.
Q124 Mr Curry: Just like when schools
are inspected—schools which have had a consistently good
record get a lighter touch—will you have an A list of bidders
so they perhaps do not have to provide as much information as
others because they have a track record of delivery?
Ms Regan: We will and this will
feed into our electronic working with them and the amount of checking
and validation that we do. Clearly we need to focus our efforts
on checking people who come out less well from the inspection.
Q125 Mr Curry: What would a new entrant
have to provide for you? This is their first ever bid; would you
mentor them at all, or help them produce the bid? How much is
it going to cost people to produce this sort of bid?
Mr Barrett: I could not tell you
but it would not be particularly expensive. It is not like bidding
for a big IT contract for government.
Q126 Mr Curry: There are a lot of
stories there as well.
Mr Barrett: The key thing would
be, could they demonstrate they meet the quality standards that
we have set so do they have the required levels of accreditation?
Do they meet either our SQM or the Law Society's Lexel standards?
They would have to demonstrate that they meet the quality standards,
that they have a firm financial basis and then they would be treated
on a level playing field.
Q127 Mr Curry: Figure nine on page
20 is the response to the question: "What is the most common
reason why people do not claim legal aid at police stations? Police
may discourage/put pressure on not to take legal aid." A
third of all people, according to this list, would say that. Another
third would say the length of time it takes. Do you agree with
that? Do you think that is the correct analysis? If it is the
correct analysis then two thirds of people are either put off
by the police or think it is all too complicated.
Mr Barrett: We are doing some
independent research on this which we are going to publish very
early in the New Year. The Legal Services Research Centre is doing
research on this and Ms Regan referred earlier to a big study
of custody records which will get a more independent view of what
the truth of the matter is.
Mr Bacon: I would ask for two quick notes
if I may, first of all from Ms Regan. Can you send us a note about
the total cost to public funds of all the executive team members
that are referred to in the Annual Report, both the current ones
and the ones who either left or who were interim or who were made
redundant like Mr Collins, or who were transferred from the Ministry
of Justice on secondment for the three financial years 2006-07,
2007-08, 2008-09, with a summary of all costs to the public purse
including any pension payments, lump sum payments, redundancy
payments and that kind of thing.[4]
Secondly, Mr Handcock, you mentioned something very interesting
in answer to your question from Geraldine Smith about the possibility
of changing the business model and whether the architecture you
currently have is the correct one. Could you send us a note on
that and on the Ministry's thinking on that it would be very interesting.[5]
Chairman: I would like a note on your
reply to paragraph 2.24 where you place a lot of emphasis on peer
review but you are now moving to risk analysis. I would like to
understand from you how it is going to be as effective as what
you have done before.[6]
Thank you very much, that concludes our hearing.
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