UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 163-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

THE committee OF PUBLIC ACCOUNTS

Wednesday 9 december 2009

 

 

THE PROCUREMENT OF CRIMINAL LEGAL AID IN ENGLAND AND WALES BY THE LEGAL SERVICES COMMISSION/THE LEGAL SERVICES COMMISSION ACCOUNTS

 

 

LEGAL SERVICES COMMISSION

MRS CAROLYN REGAN and MR HUGH BARRETT

 

MINISTRY OF JUSTICE

MR PETER HANDCOCK CBE

 

Evidence heard in Public Questions 1 - 127

 

USE OF THE TRANSCRIPT

1.	This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Oral evidence

Taken before the Committee of Public Accounts

on Wednesday 9 December 2009

Members present:

Mr Edward Leigh, in the Chair

Mr Richard Bacon

Mr David Curry

Nigel Griffiths

Keith Hill

Dr John Pugh

Geraldine Smith

________________

Mr Amyas Morse, Comptroller and Auditor General, Mr Robert Prideaux, Director, Parliamentary Relations, and Mr Paul Keane, Director, National Audit Office, gave evidence.

Mr Marius Gallaher, Alternate Treasury Officer of Accounts, HM Treasury, gave evidence.

REPORT BY THE COMPTROLLER AND AUDITOR GENERAL (HC29)

THE PROCUREMENT OF CRIMINAL LEGAL AID IN ENGLAND AND WALES BY THE LEGAL SERVICES COMMISSION

 

Examination of Witnesses

Witnesses: Mrs Carolyn Regan, Chief Executive, Mr Hugh Barrett, Executive Director - Commissioning, Legal Services Commission and Mr Peter Handcock CBE, Director General, Access to Justice, gave evidence.

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: Mrs Regan, your accounts were qualified; what action are you now going to take to ensure that this does not happen again?

Mrs 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 our internal audit 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: Mrs 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?

Mrs 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?

Mrs 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?

Mrs 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.

Mrs 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.

Mrs 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?

Mrs 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?

Mrs 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?

Mrs 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 Mrs 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: Mrs Regan, is it correct that you went on a trip to New Zealand?

Mrs Regan: It is.

Q18 Mr Bacon: Can you tell me when you went there?

Mrs Regan: I went there in March.

Q19 Mr Bacon: How long for?

Mrs 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?

Mrs Regan: The conference lasted for five days.

Q21 Mr Bacon: What were you doing for the other five days?

Mrs 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?

Mrs 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.

Mrs 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.

Mrs 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.

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.

Mrs Regan: Yes.

Q26 Mr Bacon: Can you explain why there has been this degree of movement?

Mrs Regan: Yes, of course.

Q27 Mr Bacon: There has been a lot of acting and a lot of interim as well.

Mrs 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?

Mrs 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?

Mrs 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?

Mrs 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?

Mrs Regan: He was.

Q32 Mr Bacon: Is Hazel Parker-Brown?

Mrs Regan: She is not.

Q33 Mr Bacon: She is not?

Mrs 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.

Mrs 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.

Mrs 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 executive team, the management team. 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?

Mrs Regan: There will be a finance director. 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?

Mrs Regan: The secretariat of the Commission wrote it and it was reviewed by a number of committees.

Q38 Mr Bacon: When was it written?

Mrs Regan: It was written during the time when the NAO were doing their audit last year.

Q39 Mr Bacon: Did you have one before?

Mrs 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.

Mrs 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?

Mrs 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?

Mrs 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.

Mrs 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?

Mrs Regan: It is an on-going process. In terms of putting a timetable around the issues that we know about, it is on 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?

Mrs Regan: There are, which takes us up to the end of April 2010.

Q46 Mr Bacon: You will send that to us.

Mrs Regan: I will do, yes.

Q47 Mr Bacon: As far as the electronic delivery is concerned, who is your computer contractor?

Mrs Regan: It is with Gapgemini.

Q48 Mr Bacon: How much is the contract worth?

Mrs Regan: I think it is about £12 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?

Mrs 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 will be improved is by the implementation of an electronic verification system for payments. 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?

Mrs 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?

Mrs Regan: We now test 20% of claims. 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 weighting - 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?

Mrs 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?

Mrs 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?

Mrs Regan: I would at the moment.

Q59 Geraldine Smith: Can I ask how much you earn, just out of interest?

Mrs 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. Mrs Regan, were you also surprised to discover these levels of profitability amongst legal aid firms?

Mrs 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?

Mrs 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 or 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, 80.4% 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 Mrs Regan why the post implementation reviews have consistently been delayed.

Mrs 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 elongate the timetable in response to 55 consultation meetings we did with solicitors. 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?

Mrs 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, Mrs Regan, in your answer you suggested the key variable in cost was the length of the trial. Is that right?

Mrs Regan: Yes.

Q70 Keith Hill: Not the high fees of the individual barristers.

Mrs 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?

Mrs 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.

Mrs Regan: It would, yes.

Q73 Keith Hill: They are presumably extraordinarily expensive.

Mrs 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"?

Mrs 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 BBT 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?

Mrs 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?

Mrs Regan: Yes, for the set rates.

Q78 Keith Hill: Is there a scale of set rates?

Mrs 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?

Mrs 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?

Mrs 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?

Mrs 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: Mrs Regan, f 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"?

Mrs 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.

Mrs Regan: We know that this contract provides value for money at the higher end.

Q84 Chairman: Why does it say this then?

Mrs 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?

Mrs 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?

Mrs Regan: Yes, I can.

Q87 Chairman: I would like the name and the earnings please.

Mrs Regan: Yes.

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. Mrs Regan, what I wanted to know really in terms of your organisation, first of all what is the size of your top management team?

Mrs Regan: Do you mean the executive team?

Q89 Dr Pugh: Yes.

Mrs Regan: There are four of us.

Q90 Dr Pugh: How many of them have legal training?

Mrs 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?

Mrs 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?

Mrs 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?

Mrs 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.

Mrs 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?

Mrs Regan: I think they would probably say the same sorts of the things, that 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?

Mrs 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 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 Mrs Regan and the Bar Council. Is that correct?

Mrs 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.

Mrs 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?

Mrs 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 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?

Mrs 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.

Mrs Regan: He did not consult with me personally.

Q106 Dr Pugh: So you do not know where the savings are coming from.

Mrs 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?

Mrs 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

Mrs 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.

Mrs 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.

Mrs 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 the respond to it.

Mrs 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. Mrs 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?

Mrs 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?

Mrs 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?

Mrs 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 figure 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.

Mrs Regan: So 140, Mr Barrett; Mr Lambert 140; Hazel Parker-Brown, 134.

Q118 Mr Curry: So that is the hierarchy.

Mrs 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.

Mrs 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.

Mrs 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?

Mrs 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?

Mrs 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 the meet the quality standards that we have set so do they have the required levels of accreditation? Do they meet either our or the Law Society's SQM or 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 Mrs 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 Mrs 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. 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.

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. Thank you very much, that concludes our hearing.