LORD CARTER OF COLES, CAROLYN REGAN and RICHARD COLLINS

DES HUDSON, ANDREW HOLROYD, GEOFFREY VOS QC and TIM DUTTON QC

Evidence heard in Public Questions 1 - 103

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Oral Evidence

Taken before the Constitutional Affairs Committee

on Wednesday 17 January 2007

Members present

Rt Hon Alan Beith, in the Chair

Julie Morgan

Bob Neill

Rt Hon Keith Vaz

Dr Alan Whitehead

Jeremy Wright

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Witnesses: Lord Carter of Coles, a Member of the House of Lords, Carolyn Regan, Chief Executive, and Richard Collins, Executive Director of Policy and Planning, Legal Services Commission, gave evidence. 

Chairman: Lord Carter, Ms Regan and Mr Collins, welcome. We have first to declare any interests that we might have around the table.

Keith Vaz: I am an employed barrister but I do not do any legal aid work.

Jeremy Wright: I am a criminal law barrister but non practising at the moment.

Bob Neill: I am in the same position, a criminal barrister but no longer practising at present.

Q1 Chairman: Thank you very much. I wonder if I could start by asking Lord Carter, what was your perception of your task as an independent reviewer on the legal aid procurement arrangements, and how much was your brief one to save costs?

Lord Carter of Coles: The real brief, as I took it, was to establish value for money and to try and see how we can make the whole system work more effectively and more efficiently, and to really test every part of the system to that end.

Q2 Chairman: Were you given a very explicit steer when you were appointed about this?

Lord Carter of Coles: No. I think it was clear that the system was under financial pressure and one can never ignore that. That was always there as a sort of light motif in the background, but I think because it was independent I wanted to be clear that we took the whole system to pieces as much as we could to establish the fact, and there are inconsistencies in the system, which I am sure will come out.

Q3 Keith Vaz: Were you disappointed that your proposals were not accepted in their entirety by the Government?

Lord Carter of Coles: I think it is always difficult. I think it is rarely, if I may say, that governments accept things in their entirety. I think we set a direction of travel and to sort of show which way it would go, and I think one prepares oneself for things not being wholly and always accepted.

Q4 Keith Vaz: Because the minister, in a debate last week attended by the Chairman and other Members of the Committee, was at pains to tell us that she had fine-tuned your proposals. Do you know what she did to them?

Lord Carter of Coles: I think there were issues about timing, the timing of the introduction of things, I think issues which had to be settled around things like minimum contract size and things like that. So there were some open issues and to my knowledge really issues of timing were the main things that she changed.

Q5 Keith Vaz: Were you disappointed that the professions were so disappointed with what you were proposing and that the term "Carter" seems to be now a term of abuse?

Lord Carter of Coles: Disappointed? Probably not, is the answer. I think one has to expect, when you propose something like this, that people actually do come forward and express strong views about it, because it involves quite a lot of change and that is often not popular.

Q6 Keith Vaz: Because what they will say, I am sure, and I put this to you, is that already in various parts of the country there is what people described as "advice deserts" where there is no legal aid work provided in a particular field. What you are proposing is going to make matters worse?

Lord Carter of Coles: I do not think that is quite right. Where there were legal aid deserts was often a function of the pricing system, which was pretty even throughout the country, and there were rural areas, for instance, where actually there was not sufficient supply because I believe the pricing was wrong. I think one of the things which possibly has been overlooked in our proposals is that a market works both ways. If we looked at the sort of supply to the market, there was no shortage of supply in metropolitan urban areas, plenty of supply in most of them. In some of the desert areas, the more rural areas, et cetera, I would presume, I would hope, that prices would rise in response to market forces to bring forth the necessary supply those people need so we had equality of provision throughout the country.

Q7 Keith Vaz: But you would accept the premise that there will be a reduction in the supplier base? There will be fewer lawyers, fewer firms of solicitors providing this work and they will be paid less. So, going back to the Chairman's initial question to you, this is in the end about saving money, is it not?

Lord Carter of Coles: The point perhaps I could address there and come back to the money point is that actually we think there will be fewer firms. There may be fewer offices. I doubt there will be fewer solicitors.

Q8 Keith Vaz: But there will be a reduction in the number of suppliers as a result of your proposals?

Lord Carter of Coles: That is absolutely so. Absolutely.

Q9 Keith Vaz: And that must have an impact, must it not, on the consumers, on the very taxpayers who fund legal aid? They are going to be paying for less, are they not, in effect?

Lord Carter of Coles: No. I think if you look at many of the metropolitan areas, a large amount of provision is duplication in many areas. We could see closures, I believe, in many areas and not suffer a denigration of service or availability. I think I am clear on that, actually.

Q10 Keith Vaz: Yes, but what I am not clear on, and perhaps you can help me, is that you said you were aware of these "advice deserts" when you started your work. You have had officials working with you. You have obviously put your proposals to the Department of Constitutional Affairs. Do you have a map as to what it is going to look like after your proposals? We know what it is like now. We have people complaining that they do not have access to publicly funded lawyers doing certain types of work. Once your proposals go through, do you have another map showing us what is going to happen?

Lord Carter of Coles: No, I do not have a map, but I do believe that what will happen is that the Legal Services Commission will have to pay more per case in the areas where there are legal aid deserts which reflects the higher costs in those desert areas to get people to go in and practise in them. So I do not believe there will be a map of deserts because
I believe they will be removed.

Q11 Chairman: Does that mean that the rural, small town solicitors misunderstand the situation if they are now deciding that they are probably going to have to give up legal aid work to the point where there is either no legal aid solicitor in a market town, or perhaps only one and therefore no potential competition at all? Is this a complete misunderstanding on their part?

Lord Carter of Coles: I think it is for the Legal Services Commission to settle what those contract sizes should be. One of the issues around minimum contract size is that if in a small market town it needs a smaller contract to sustain somebody, then in the interests of access to justice clearly we would want to see - I would certainly want to see - an amount of money going into that town. Whether in fact it would mean, because it was unsustainable, because there was not enough business in the totality around that town, that maybe two towns need to combine, or something like that, there is just the minimum level, but I think that what you say should be correct.

Q12 Keith Vaz: Lord Carter, help me on this. I am not an economist and I know you are. I just about scraped economics A-level. We know that there are advice deserts at the moment. Your proposals, you have just told us, are going to result in a smaller supplier base. There is going to be less money spent. How is that going to result in the advice deserts disappearing? Just help me with that.

Lord Carter of Coles: The answer is that we are seeking greater efficiencies in metropolitan urban areas. So if you look at the system as it is presently constructed, for instance in payment for travel and waiting time, we have situations where people, for instance - and London is a good example - travel very large distances because the way the system is constructed encourages it. Now, actually I firmly believe - and I believe most people do - that what we need is people not spending time travelling and waiting but actually representing in court. So we want to actually get people proximate to where they practise and build the size of those practises up so that we can actually take those efficiencies and spend more on representation generally, if you like.

Q13 Keith Vaz: So your reforms are dependent upon the Lord Chancellor and the Secretary of State making the court system more efficient, because these lawyers are not just standing there waiting for fun, are they? They are waiting because their cases are not being listed properly or files have not arrived, or there is something wrong with the system. So it is a package, is it not, that you are putting forward?

Lord Carter of Coles: It was very tempting to think about that and go into that space. Sadly, it was not in my terms of reference. There are issues around the operation of the courts. I think one of the things we will see as a result of moving to a market-based system is that where practitioners find the court system particularly irksome and badly organised I would hope to see prices rise in those court areas and draw attention to those facts and let people actually in the court service thereby do something about it. One of the things that strikes one about it is that there are not silver bullets to court reform. What we need to do is take individual action in specific cases and how do we draw attention to those, and I hope the market mechanism is going to help do that.

Q14 Keith Vaz: What impact do you think the reforms may have on the recruitment of young legal aid lawyers? When I went into the profession, I do not know about Mr Wright but I really wanted to work in a law centre. I wanted to work in a legal aid firm. Nowadays, young solicitors and members of the Bar all want to become tax consultants because there is no money, is there, in legal aid any more?

Lord Carter of Coles: In terms of solicitors, I think it is an issue. I think if you are a young person in a training contract and you want to do criminal work it is very difficult and I hope, as part of the quality framework which the LSC build into these contracts there is a requirement to see what people are going to do about training. I think one of the things which does emerge is that the larger firms are better at providing training. One can find evidence of that, and I hope that will be one of the strong outcomes from the larger firms being able to do that.

Q15 Keith Vaz: Sure, but if in the end there is less money available, there are going to be fewer contracts. That is going to be the knock-on effect. Again, I am not an economist and you are, but I would have thought that is what is going to happen. If you contract the number of suppliers, then the number of contracts (which is very difficult for people to now, as you say, compete for) are going to be fewer, are they not?

Lord Carter of Coles: I am not sure that necessarily follows.

Q16 Keith Vaz: Well, are there going to be more?

Lord Carter of Coles: I could not say that, but what I do believe is that larger firms will be in a better position to offer training contracts. I think you could have a hundred small firms with actually none of them offering a training contract. We find very little evidence of that. I would hope that ten larger firms doing the same amount of work may possibly be able to find five training contracts on the same basis. That is really part of what we are trying to see. Larger entities are able to in a sense deal with the challenges we face.

Q17 Keith Vaz: Ms Regan, this is your firm appearance before the Committee, I think, so welcome to the Committee. What has become of your predecessor?

Carolyn Regan: My predecessor, who was the acting chief executive and the deputy, Brian Harvey, has retired. The predecessor chief executive has left, and the one before that retired, I think, as well.

Q18 Keith Vaz: Right, so we hope we have got you for a while, have we?

Carolyn Regan: I hope so.

Q19 Keith Vaz: Good! We have received evidence that firms are already closing legal aid departments in anticipation of the Carter reforms being implemented. Is that correct? Is that your understanding as well?

Carolyn Regan: It is true to say that the number of people we have contracts with has declined over the last four to five years, that is an ongoing trend, but the number of clients actually served has increased, and I think that is an important benchmark as well. So there are about 6,000 contracts which the Legal Services Commission now has with professions.

Q20 Keith Vaz: So there are fewer contracts but more clients being helped? That is your evidence?

Carolyn Regan: Yes.

Q21 Keith Vaz: So why do you think they are writing to us and telling us that they are closing their legal aid departments?

Carolyn Regan: Well, I suppose some of them are making business decisions. Some of them are anxious about what is going to happen, and some of them are saying that they see this as a good opportunity to change their business practice. In fact I was with an immigration practice yesterday in London and that is what the discussion was focused on.

Q22 Chairman: I have not noticed the words "good opportunity" in many of the letters I have received.

Carolyn Regan: No, me neither, but when you talk to them on a more individual basis, or when I have been going out on visits, some of that has come across.

Q23 Keith Vaz: We have been given quite a bit of evidence to suggest that solicitors are giving up legal aid work at the moment, partly due to the inefficiencies of your organisation. One of the criticisms of the Legal Services Commission - and I am sure you are not hearing this for the first time - is that they are really not up to scratch at paying bills. People have to wait a long time to get their money. Your predecessor told me that he agreed with a member of your board who said that the LSC had more pilots than British Airways! What guarantees do they have that you are going to be mo
re efficient in the way in which you dispense public money?

Carolyn Regan: I think there are some fair comments about the way the Legal Services Commission has operated in the past, which we are looking to address at the same time as this reform programme. A number of things - having contracts with suppliers who have been through peer review and are quality assured. That is a large piece of work which is in train now. Having more electronic business with firms, reducing the amount of time they spend in discussion with us over billing and inevitably moving towards fixed fees or variations thereof will reduce a lot of that discussion. Part of the preferred supplier work and the peer review is delegating a large number of decisions to those firms, so there will be much less delay and transaction between them and us than is currently the case.

Q24 Keith Vaz: But neither you nor your new chairman have a legal background?

Carolyn Regan: We do not.

Q25 Keith Vaz: You have never worked in the legal aid field?

Carolyn Regan: I have not, no.

Q26 Keith Vaz: How many have you visited since you became the CEO?

Carolyn Regan: Probably about twenty-five in the last three months. I have got a few more to go.

Q27 Keith Vaz: When you arrive at the firm, do they greet you with universal love and affection?

Carolyn Regan: I cannot say they did. I have also met lots more solicitors in groups. Those are only the firms I have visited. I have seen a large number in groups around the country as I am visiting the regional offices.

Q28 Keith Vaz: Finally, one of the key things you have got to do is to work with the professions, because without the professions this is not going to work, is it?

Carolyn Regan: Absolutely.

Q29 Keith Vaz: They are against all this, are they not? The Law Society was slow off the mark, but it is the Law Society and you do not expect it to rush off and do things quickly. Eventually it got its act together and started saying this was a bad thing. How are you going to deal with them when they just do not want Carter?

Carolyn Regan: A number of things. First of all, we have ongoing discussions with the Law Society and with others and there is a national stakeholder body being set up. The first meeting is on 1 February, so we will take forward those global discussions. At individual level, where we are consulting and re-visiting fees, there are ongoing discussions with the Law Society, as there are on things like the unified contract proposals. So there are individual and more rounded discussions. The other thing to say is that this is a clear agenda and we need to build on what there is and take those discussions forward. I do not think it is a one-way discussion. It is not universally negative and we need to build on all the positive aspects.

Q30 Julie Morgan: Lord Carter, I wondered what are your views about the effect of your reforms on firms which are owned by the black minority, ethnic firms?

Lord Carter of Coles: This is something which has concerned me very greatly. It is a very difficult issue. About 11 per cent, I believe, of firms are owned by BME groups, so it is an issue there. They do tend to be smaller and therefore any reforms which lead to consolidation may affect them disproportionately, I suppose, to the whole. There is a key issue, therefore, as to how BME groups get representation in a sense of the type that they wish. We took advice. We could find no affirmative steps to recommend in this because we had to come up with something which was across the whole system. We have encouraged the LSC to set up a diversity group to look at how to deal with these issues and I think what we want to see is that in the contracts that are let there is the ethnicity of the client basis reflected actually in the solicitors doing it. What we are looking to see is diversity within firms. Having said that, I have recently met with and seen various people from those groups. Also, I get a sense that there is going to be consolidation among those groups as well.

Q31 Julie Morgan: I think the Bar Council said that this is likely to be a breach of the non-discrimination provisions under the Race Relations Act. What is your comment about that?

Lord Carter of Coles: That is not the advice I had.

Q32 Julie Morgan: That is not your advice?

Lord Carter of Coles: No. I took advice and that is not what the advice was.

Q33 Julie Morgan: I wonder if Ms Regan could comment on this situation?

Carolyn Regan: Yes. I suppose the two things to say are that as we move towards a best value tendering exercise there are opportunities for new entrants to come into the market, and we can also put something in the auction process about maintaining the diversity of supply. So I think you can address it in that way. The other thing is our impact assessment, which is being linked to all the consultation documents, picks up some of those issues and we will need to respond on individual schemes. I do not know if Richard wants to comment.

Richard Collins: Yes. We have already begun to act on Lord Carter's proposals around putting obligations in the contract. So we have been working with the Law Society to put new provisions in the new contract which will come in in April to require firms to have effective diversity policies and to be taking account of the diversity of the client groups they serve. I think that is really important, and we intend to make that provision real by making sure that we hold firms to account for that. We have spent time and we have already established the diversity working group which Lord Carter has referred to and we have had several meetings already and been working with them to identify what the most appropriate way forward is. So we are already beginning to take the sort of action which Lord Carter recommended.

Q34 Julie Morgan: I can see that it is admirable to try to get diversity across the sector within firms, but it does seem a great risk to take when we are trying to encourage BME solicitors to practise. It just seems to me a big risk which is being taken.

Lord Carter of Coles: I think one of the interesting questions and one of things that perhaps I should make clear is the definition of "small" in this as well. I think it does depend on what the minimum contract size is set, but if people are solely doing criminal legal aid work and the contract is set at, say, ?50,000 or a number like that, it is going to leave a large number of people intact. This is not quite the sort of wilderness that people may be representing here. There will be changes. I think there are 120 firms from all types which are doing less than ?10,000 of legal aid, and I think possibly those would disappear and some of those may be from the BME groups, but I do not think that is sustainable anyway.

Q35 Jeremy Wright: Lord Carter, can we come to what is likely to happen with the implementation of best value competition in your view. Your vision of how it might work is that in some geographical areas we may be reduced to somewhere between four and six suppliers of legal aid work. In the criminal field, which is where I practised, it certainly was not unheard of to have a large affray, riot, public disorder trial where there would be more than six defendants, all of whom may have conflicts of interest with the others. What happens in that scenario?

Lord Carter of Coles: This is why in the contracts we propose 20 per cent of the business could come from without the area. In other words, if everybody was conflicted, then actually they could go to firms outside the area and get representation, and we hope that will deal with that.

Q36 Jeremy Wright: As and when the best value competition process takes effect, you have the number of suppliers who have then won their contracts. Assuming there are other firms in the area which have not won a contract, how do they survive for long enough to be able to bid for the next time the c
ontract process comes around so that you have a fair bidding process and open competition?

Lord Carter of Coles: I think that is going to be very difficult. I think people will leave. I think the traditional thing which seems to have happened, how the market has evolved, is that people have broken away and started up and formed new firms to actually do that, you know, somebody leaves a big firm and has some clients and goes away. I would hope to strike a balance between over-fragmentation (which is what has happened in the past, endless fragmentation and lots of small suppliers) to something where, if people saw that there are weak suppliers in an area, people did break away, or alternatively people came in from other areas, which is probably more likely.

Q37 Jeremy Wright: In the same vein, do you anticipate problems with new firms starting up, being able to get themselves into the contract bidding process successfully enough that they can offer sensible competition to those companies that already have won a contract?

Lord Carter of Coles: I think it is going to be something that the LSC is going to have to look at, market management, and to bring people into the market. It will be easier, obviously, to bring existing suppliers with a proven track record in from another area, which, as I say, is the more likely, but I certainly would not rule out people breaking away and forming firms - and it depends on the minimum contract size - which can, based on the individual's record, actually put in a bid and succeed.

Q38 Jeremy Wright: Going back to the questions Mr Vaz was asking a little earlier on, it is inevitable, therefore, is it not, that we are going to see fewer suppliers by quite a dramatic amount if that is what happens?

Lord Carter of Coles: We are already seeing fewer suppliers. In the provision of criminal legal aid the number of suppliers in terms of offices has already dropped ten per cent in the last four or five years, and that is trend which is continuing, so consolidation is there. I think yes, we will, but I think it is a really well-established trend.

Q39 Jeremy Wright: Having given me the cue then, can I ask Ms Regan to deal with the points I have raised as to what the LSC expect that you can do, or should do, if the issues I have raised actually happen?

Carolyn Regan: Your first point was about how you encourage new providers into the market, and I guess that is part of the sort of market management framework which we are very much working on. What we need to do between now and October 2008 is to make sure that that framework is developed, drafted and discussed with all the stakeholders. I think the other point to make is that we need to roll this out in a sensible phased approach, using ideally a combination of a rural and an urban area before doing it on a wider scale, and that is what we are aiming for. So we have got 18 months to do that work and to pick up those discussions with stakeholders.

Q40 Jeremy Wright: What about what happens to the firms which do not win a contract but would wish to be in a position to bid later on? What do they do in the meantime?

Lord Carter of Coles: They would go until the next round. That is the point about meeting clients' needs and making sure there is access to high quality legal aid, but probably with fewer firms. That has been an ongoing trend. It is very clear, for example, in mental health over the last four years.

Q41 Dr Whitehead: I am sorry to interrupt the questions, but why would a firm which was not a provider under a contract set up arrangements for new entry with all the risk that entails once the contract had been awarded in a particular round and the firm was then outside that contract procedure? Have you looked, in your discussions, at how this might work with, say, some of the experience of contracting in local government circles and the effect that has had, particularly on the number of providers and how the contracts have been awarded in the second, third and fourth rounds out?

Carolyn Regan: Local government is one of the areas we want to talk to. I think the other example to give is a firm from outside which has taken some time to consolidate and possibly grow and which wants to come into a subsequent phase. That was the example I was referring to, but local government and other public services we will be looking to have discussions with about the lessons they have learned.

Lord Carter of Coles: I think firms go, but what we are seeing now is people saying that these changes are already occurring. With firms for whom criminal legal aid is marginal now - and I think there are many for whom it is; it is not central, it is the odd ?10,000 or ?20,000 here - what I sense is beginning to happen is that those firms are saying, "Actually, this is not a mainstream business for us any more. We are leaving this," and the people practising in that town often go to another firm. So it is more a consolidation than a closure process, I think. Obviously in market management terms, will there be enough firms left in the second, third and fourth rounds? My strong sense is that this is a very vibrant supplier base. People are used to building up enterprises, legal firms taking risks, and I have actually been very impressed with the capacity of some of the people I have met to do that.

Q42 Jeremy Wright: Coming to the money, and particularly what the implications are going to be for the LSC of these proposals, the premise that this is all based on is that market forces will operate within the legal services arena. Assuming that the market decides that the value of particular legal services should go up, how does the LSC propose to meet those financial obligations without cutting access to legal aid?

Carolyn Regan: As Lord Carter said, that is one of the consequences of moving towards a market. So we would then have discussions about the legal aid budget, both in terms of the amount and presumably the scope and eligibility. That is a question we come back to.

Q43 Jeremy Wright: Right, but you know what the answer is going to be from the Government, do you not, if you come back and say, "Well, I'm terribly sorry, but because of the operation of these proposals we need more money"? The answer is going to be, "No," is it not?

Carolyn Regan: What we have got to do first of all is go via the fixed fees and make the other changes that we have to make first which get us to that point. I think the other things are more efficient ways of providing services, more outreach services, more lower transaction costs - which will play into that, which will be part of what we are doing over the next few years - more electronic business, more case management, simpler payments. All those sorts of things will impact on the efficiency and therefore on the cost.

Q44 Jeremy Wright: So is the answer that you do not think it is likely that the market will determine that the price must go up?

Carolyn Regan: I think it is slightly unclear at this point, but that is the direction of travel.

Q45 Jeremy Wright: On the other hand, what happened is peer review suggests that what is happening is that there is an erosion of quality and that standards are falling? How do you resolve that without increasing the flow of money to ensure the quality goes up?

Carolyn Regan: The independence of the peer review process should ensure that that is not the case, that quality is benchmarked and that we are increasingly doing business with those suppliers who reach the quality mark or above, and I think that is back to the way the peer review will work and the accreditation of high quality suppliers.

Q46 Jeremy Wright: Right, but the market rate that will be set will be a certain value for that work to be done. The companies which are then doing that work at that rate will be peer reviewed, will they not, to see whether they are able to do that to the required standard?

Carolyn Regan: Yes.

Q47 Jeremy Wright: What ha
ppens if the peer review reveals that they are not doing it to the required standard and cannot do it beyond the required standard, or even at the required standard, at the rates which have been set?

Carolyn Regan: But at the moment there are firms which are being peer reviewed to those standards which are doing it up to a whole range of costs and prices. So part of what we have got to do is look at that and see if we can bring everyone up to that standard. I suspect we will not, hence the working with fewer firms. That does not automatically mean less solicitors, neither does it mean less clients, as is the case over the last few years.

Q48 Jeremy Wright: Lord Carter suggested that there should be minimum contract sizes in relation to these proposals but, as we know, you and the Department have decided not to proceed with that at this stage. Can you tell us why? Lord Carter proposed them and the LSC and the Government have said, "Not for the moment." Can you tell us the reasoning behind that?

Carolyn Regan: What we have said is that the final decision will be made in the context of the new boundaries, as we are consulting on them, and the local markets, and that is the position as it stands at the moment.

Q49 Jeremy Wright: Right. So it is not a principal objection? It could happen?

Carolyn Regan: It is not a principal objection.

Q50 Jeremy Wright: Lastly, Lord Carter, if I can come back to you, you have obviously made an assessment of how many firms, were there to be a minimum contract size, would have to either restructure (to use a fairly neutral word) or effectively go out of business. Your estimate is something of the order of about 400 firms, were we to have a minimum contract size, which would equate to about 200 cases per year?

Lord Carter of Coles: Yes.

Q51 Jeremy Wright: The Law Society, as you will know, have through LECG a study of their own which suggests it is 800 firms, so double the amount. Can you give us any understanding of why there might be that substantial difference?

Lord Carter of Coles: I believe it revolves around three issues. One is the minimum contract size, so 200 cases - and it is more about money than cases, and I suspect that the LECG numbers actually are around the minimum contract size of about ?150,000, which of course a lot of people would get. Ours were based on ?50,000. Secondly, there is a large number of firms doing small amounts of work, as I said, ?10,000, ?20,000. Probably I see those going, so marginal, but I think if you took out firms which do VHCC work and firms which do civil and family work, even on the LECG numbers - so if you applied the same methodology - it would be about 500. So when you apply the same methodology. I do not believe there is a lot between us.

Jeremy Wright: Thank you.

Q52 Bob Neill: Lord Carter, could I just first of all come back very briefly to an earlier point you made, which was your desire not to see solicitors and barristers travelling and waiting, and building up a local base. I wonder if you can help me in relation to an example which I am certainly familiar with, and most people will be, in the criminal area in particular, that is to say where the same firm of solicitors, sometimes the same counsel as well, may have represented a defendant on a number of occasions, and there is a measure of confidence there which is important for the system, but the Timpsons of this world, if I can put it that way, are not always cognisant of the boundaries of legal aid areas. Very often it is advantageous to have that continuity of representation, not least because sometimes the client may be more prepared to listen to robust advice from somebody who has represented him before and that may achieve savings in time at the end of the day. How are you going to safeguard that sort of situation?

Lord Carter of Coles: It is very interesting. One of the things we looked at was the issue of choice and how people travel out of area and those sorts of things. Of course, I suppose if one was absolutely after saving all the money, you would just limit it to no choice and that is, but we could not see that working. The answer is that I do not believe barristers or solicitors make money out of travelling. People tell me that. Travelling is not the way to build successful business, but you have to from time to time. I think what we saw in this was certainly swings and roundabouts. In a decent size practice you are not going to be travelling out of your area, and in fact we have recommended 20 per cent only out of area. We believe that the swings and roundabouts would cover that in a decent size practice. If you have only got ?20,000 of billing a year, then it is going to disproportionately affect you, but I think a decent size practice can actually cope with that in the swings and roundabouts.

Q53 Bob Neill: The 20 per cent is interesting, because certainly if you look at the big conurbations, London and the South-East, those of us who did practise in places like Essex and Kent might well think that perhaps very often more than 20 per cent of offenders might not actually come from within that area. It is just the nature of things and the transport arteries out of London, for example.

Lord Carter of Coles: I think that is the case, but in fact - and I can recall the evidence - I think we did find that that dealt with it. People do travel out to attend, of course, but it is not on a huge scale and we thought 20 per cent would cover that.

Q54 Bob Neill: So it is somewhere in the evidence?

Lord Carter of Coles: I believe so, and I will dig it out and come back to you on that.

Q55 Bob Neill: That would be helpful. Thank you very much. You mentioned swings and roundabouts and that is the other point I wanted to move on to, because that is central to the whole concept, is it not, that the differential in average cost between firms is dealt with by the swings and roundabouts within a body sort of approach?

Lord Carter of Coles: Yes.

Q56 Bob Neill: What is the concrete evidence base for the findings on the difference in costs, in particular were you able to establish to what extent those variations are explicable by differing complexity of case loads or, let us say, the needs of the client base?

Lord Carter of Coles: Yes, obviously complexity is an issue and it has been one of the harder things to assess, the argument of rising complexity. What we did, because of the swings and roundabouts argument, was we looked at actually what was being spent in areas in great detail. Clearly, some cases would be more complex and some, of course, would be somewhat simpler. In the averaging process we believe that what we propose took care of that. Also, it led us to a further saving which we really wanted to see, which is a simplification in the administration costs of the LSC. One of the key recommendations, practically by far the largest single saving, is to make the LSC more efficient and to deploy that money to the front line.

Q57 Bob Neill: Is there not the risk, of course, that if one is doing it on the swings and roundabouts and the volume, the easiest way from a business point of view is to establish your volume by turnover of lots of straightforward cases, and you cherry-pick those cases and you do not want to act for the particularly complex case or the client who may be a particularly difficult client, perhaps because he is vulnerable or, for other reasons, a time-consuming client to deal with? How do you safeguard against that?

Lord Carter of Coles: I believe that has to be taken care of in the contracting arrangements. There have to be anti-cherry picking provisions in those contracts, and I think one of the keys to this and one of the really go forward keys to the whole success of the LSC is better information, it is to watch those contracts and get much more real time information about how these things are going and to listen, if suggestions are out there that people are cherry picking.

Q
58 Bob Neill: How can you achieve that without equally running the risk that the monitoring arrangements themselves become complex and expensive, and perhaps onerous? There is a complaint, as you know, about the management sometimes of the contracts in very high cost cases, for example.

Lord Carter of Coles: Yes, which we have sought to simplify, as you know. I believe in the contracting process that these are very valuable contracts to people and you inevitably, as we have seen historically, get people trying to "game" it. People will try and optimise. They will try and find ways of getting the best they can out of it. I do believe that is a management issue and based on information. In other sectors where people are reimbursed for these things, there are systems built to check on these things and I think we can deal with that.

Q59 Bob Neill: Is there evidence in Scotland and other jurisdictions that there may have been a decline in client contact time after the introduction of fixed fees?

Lord Carter of Coles: None that we saw. You may have some, but none were brought forward to me.

Q60 Bob Neill: Perhaps it would be worth looking at the study by Professors Frank Stevens and Sirus Tarto, published only in December, so that may be fairly new, which does suggest that when fixed payments were introduced in 1999 in Scotland one of the consequences was that the solicitors appeared to deal with more cases than before and spent less time per case. Sometimes that is sufficient, but that may not always be appropriate in a difficult and time-consuming case.

Lord Carter of Coles: I have not seen that and, as you say, it post-dated my report.

Q61 Bob Neill: I appreciate that. Perhaps it is something I can leave with you. Ms Regan, welcome. It is nice to see you in a different context. I was explaining to the Committee that we have met before. Is there not also the risk that the fixed fee system actually disadvantages the specialist provider? Not the really big chaps who deal, let us say, with the white collar crime, but the specialist provider in the more middle level of serious crime. It is almost tending towards the generalist. Is that a risk? That has been suggested to us in some of the submissions. Perhaps those submissions are wrong. Perhaps you can help us with that.

Carolyn Regan: I am not sure that is a risk. I think what the proposals offer is a better way of procuring a service which meets the local need, and of course the duty solicitor scheme as it operates in 100 per cent of places across the country takes care of some of that. So I think this is a different way of procuring. I am not aware that that is a potential distortion.

Q62 Bob Neill: We do know, in terms of past history, that the fixed fees scheme for non-civil family work, of course, has been with us now since May 2005. Have you done any research into any potential changes in providers' case mix since then in that field to see if that shows up whether there is any risk of the cherry picking or similar concerns?

Carolyn Regan: We have got some information, and I will ask Mr Collins in a moment. The point I wanted to make, for example using mental health, where there have been fixed fees in for a while, representing 40 per cent of the total cases, is that the number of people covered has gone up, although the number of organisations has actually gone down, and the cost per case has actually reduced as a percentage of what it was before. So there is some good data. I will ask Mr Collins to come back to that. Just to build on what was said before, the use of management information of all of this is crucial and the use of management information electronically rather than in the paper-based way that we do it at the moment.

Richard Collins: We have looked at some of the data which has come through from the tailored fixed fees scheme, particularly in respect of matrimonial cases, and where we have looked at that we have not seen this change in case mix. We have not seen firms cherry picking and taking simpler cases, we have seen a consistent pattern from the data which has come in, but I agree with Patrick Carter that that is something which absolutely we would want to continue to monitor as the fixed fee system rolls forward.

Q63 Bob Neill: Is that material which could be made available to us?

Richard Collins: We will see if it is in a form that we can distribute.

Q64 Bob Neill: I understand the difficulties. The final point to all three of you is that particularly, again, in the criminal field the fear is that sometimes the easiest way to shorten a case is actually to advise the client that he should plead guilty. We all know that part of our professional training is that one is told to tell them that it is ultimately their decision and you give them their assessment, but nonetheless in terms of the public that surely must be an element of concern to make sure that public confidence is not damaged or any fear that there might be a tendency, for costs reasons, to advise inappropriately. Is the management which Lord Carter mentioned, the systems, the contracts and the monitoring, going to be able to deal with that, because how can you when actually it is in the conference room, is it not? How do you safeguard against that?

Lord Carter of Coles: It is the professional reputation. We are dealing with a profession and I think one has to recognise that and rely upon it. On the other hand, I think we all want to see people who are guilty pleading guilty early. I think that is wholly appropriate.

Q65 Bob Neill: Having given some robust advice in my time, I would not disagree with you, but you appreciate why the concern is there?

Lord Carter of Coles: Absolutely.

Q66 Bob Neill: It is important that we ventilate it. Thank you.

Richard Collins: If I could just add, on that last point, I think Lord Carter's point about reputation is key. As anyone who knows anything about criminal defence work knows, the reputation of the firm amongst the client base is key. Also, quite a lot of criminal defence work is already paid under fixed fee systems of one sort or another, in magistrates' courts and crown courts, and we have not seen that happen.

Q67 Chairman: Let us have a look at quality control, which is central to this whole thing. Can you give us an indication of how it is going to work? Will all of the firms' offices be peer reviewed if they are operating in more than one place, and how many of the firms' practitioners would have their files reviewed? Have you got a picture of how it is supposed to work?

Carolyn Regan: We are aiming to accelerate the current peer review programme so that all firms have been peer reviewed by the time we get to October 2008. There is a question then about how we share the outcome of that peer review and make that information public, which has not been the case to date. There is also sharing the data which comes out of that, and just picking up a previous point, the peer review one and two is actually cheaper than peer review level three, in answer to a previous question. I would like to just make that point now. So there is a whole programme of peer review. I do not think it is the only kind of quality measure either, and there are other things we will want to be developing with the profession and discussing with the Law Society and others.

Q68 Chairman: How long will it be between, say, final assessments or in the full-blown peer reviews in a given firm? How often is it going to happen?

Richard Collins: Peer review will operate every three years, so we would look at a firm every three years, and we would do it on the basis of a random sample of files across the firm. A lot of work has gone in with the Institute of Advanced Legal Studies on that and in fact they run the peer review process for us to demonstrate independence. As I say, there is a lot of work which has gone into the validity of the system and we would be quite happy to provide the Committee with t
he background information, which to us demonstrates the validity of peer review, and I believe generally the professions accept it as being the best quality measure which has been developed to date.

Q69 Chairman: Will the very high cost case peer review be carried out by reviewers who themselves have experience of such cases?

Richard Collins: At the moment there is not a separate peer review process designed specifically for very high cost cases, but it is something we are working on to develop a quality measure through peer review which is tailored for those very high cost cases. So at the moment those firms are being judged on their general criminal defence work in terms of looking at the peer reviews.

Q70 Chairman: Lord Carter, does what has been put in place meet your requirements?

Lord Carter of Coles: Yes, it does, Chairman. One of the surprises to my review was the need for this, that in fact quality was not sufficiently safeguarded for the public and for a large amount of public money, so we really welcome this, and I think what is being proposed is starting in the right place and we will have to see how it develops.

Dr Whitehead: Could I return to the question of particularly procurement and supplier base. Lord Carter, you suggested that the firms concerned would be entrepreneurial and would therefore bid in subsequent rounds in the local area. I have in mind the actual experience of local authorities so far as - and I am sorry to make this analogy - bidding for waste collection services are concerned, where the local provider is the local authority, competitive tendering takes place and if the local authority loses they cannot magic up dust carts a number of years subsequently and therefore they will never bid again, but nor will any other provider come in under those circumstances and eventually what has happened is that about four or five very, very large national companies do all the bidding and can actually sustain losing a few rounds of bidding because they have so many other irons in the fire in other parts of the country. Have you modelled in any way how such procurement might work over a period of time and would you consider that an outcome which actually perhaps ended up with a very, very small number of very large firms doing that sort of bidding arrangement would be a good thing or a bad thing?

Q71 Chairman: I am just prompted to throw into Dr Whitehead's question, are you seeing all this against the background of new business structures? What are you actually trying to do?

Lord Carter of Coles: Of course, the new business structures make that possible, but on the question of whether I see the emergence of four or five mega law firms, I certainly think not. I think at the moment, just to give some sort of scale to this, the largest City law firm turns over a billion pounds and I think the largest criminal legal aid only law firm probably does not get up to ?10 million, if I remember correctly. There is a number of reasons why I do not think it will happen. First of all, I think this will remain a localised business in many ways. It is highly fragmented now and I do not really see the margins there for consolidation in the way of, for instance, the waste disposal industry and things like that, and higher environmental costs and things like that. I can see consolidation, but I could not see a case where this ?2 billion industry would be dominated by four or five people. But I think firms will grow in size. I would not rule out seeing a firm grow to ?100 million, for instance, but that would be a five per cent market share.

Q72 Dr Whitehead: Is that view based on your feelings about how things might go, or is it based on any empirical view?

Lord Carter of Coles: No, it is based on evidence and discussions, but you asked me if we had built a model and the answer is, no.

Q73 Dr Whitehead: I do recall, if my memory serves me correctly, Mrs Thatcher suggested that redundant steel workers might buy up a couple of buses to bid for bus services at a local level, and obviously the way bus services are now procured is also on the basis of a very small number of large companies. Would it not have been a good idea, bearing in mind these are fundamental reforms, to perhaps assess their potential impact by some piloting or some particular area experiments which would actually inform future debate empirically?

Lord Carter of Coles: I think in terms of the contract the interesting thing is the contract size will provide here some safeguards for that, and I think we will see a mixed provision. I do not see that. The driving forces for consolidation, I think, are not as powerful as you would see in other industries.

Q74 Dr Whitehead: A question, if I may, to Ms Regan. The timetable for the implementation of the reforms are severely criticised, and in particular it was criticised because it was stated there was not enough time for firms to restructure, and although the introduction of fixed fees has been postponed by half a year, on the other hand the competitive tendering arrangements have been brought forward by a year. Do you think the steps which firms might need to take to prepare for fixed and graduated fees can be done in the period which is now available?

Carolyn Regan: On the one hand people were asking for a longer time to prepare, and that is why we have delayed some of the implementation from April to October this year, and then on the other hand some firms were also asking to bring forward the larger volumes of work potentially they could bid for, hence the bringing forward of the competition by a year, so I think it is a very mixed picture. We have tried to respond to the large number of responses received in the consultation and effectively people have got a year from the publication of the way ahead to October this year, with ongoing discussions and consultations along the way and quite a lot of work on packages of business support to firms as well. So I think there are steps that we are taking to mitigate against that.

Q75 Dr Whitehead: But in reality it is two reforms in 20 months, is it not? Do you think firms can deal with that?

Carolyn Regan: It is a lot of change, but having said that there has been quite a lot of change for the last few years in terms of some of the things that we have already mentioned and the introduction of tailored fixed fee schemes for certain parts of legal aid, so I think it is a continuation of this. It is undoubtedly an acceleration of the pace but, as I said, with discussions and consultation along the way about elements of the total package.

Q76 Dr Whitehead: You have, in terms of civil legal aid contracts, a three month break clause. Do you think that is reasonable for firms to entertain the idea of the three month break clause in terms of their own forward planning, and particularly in terms of the sort of contracting discussion that we previously had, i.e. the idea that, well, within a three month period that could all be gone?

Carolyn Regan: The contract is under discussion at the moment, as we speak. I think it is reasonable to have that sort of break clause, and indeed that is the case with other public services, so I think there is a parallel with that. Again, it depends to a certain extent on the discussions and the support and the packages which are available to work through with those organisations, and that is what we have been doing.

Q77 Dr Whitehead: This is really rather more of a general question. The overall savings goal which was suggested, I think indeed by Lord Carter, was ?100 million overall, which suggests, I think, a reduction on criminal legal aid by over 20 per cent in real terms over the next four years, something like that. There are re-consultations on the police station fixed fee, mental health, family, asylum, immigration and graduated fees. There are one or two other changes in the pipeline. Do you think, in the light of that, that target of ?100 million of savings is still realistic to
achieve?

Carolyn Regan: We are re-doing the savings plan in the light of these delays and slight adjustments which you have mentioned. We are still proposing to make that order of savings and in addition to that, if I can add, there is also a 30 per cent reduction in the cost of administering the Legal Services Commission.

Q78 Dr Whitehead: What is that based on?

Carolyn Regan: That is based on reducing the number of staff at the Legal Services Commission on the basis of what has been discussed about different ways of doing business, but in answer to your first question -

Q79 Chairman: Arising out of these proposals?

Carolyn Regan: Yes, arising out of these proposals. It is a reduction of head count from about 1,600 to about 1,000 over the same period.

Q80 Dr Whitehead: Is that not a little counter-intuitive in as much as particularly in the transitional period one would think that the new system would require quite a lot of activism on the part of the Legal Services Commission in order to make sure it works? That logically looks to me as though it would require rather more bodies rather than less bodies.

Carolyn Regan: The reduction we are aiming for is by the end of the period, so to coincide with the other savings and the total package. I think it goes back to the point about doing business very differently, electronically, faster, with more effective ways of working with suppliers, and indeed working with the ones that score three and above in the peer review. So I think all of that leads us to a smaller number of staff.

Chairman: Thank you very much indeed. We are very grateful for your evidence. There is a lot more to be said in formal evidence over the coming weeks, but we much appreciate your help.

Memoranda submitted by The Law Society and the General Council of the Bar

Examination of Witnesses

 

Witnesses: Des Hudson, Chief Executive, Andrew Holroyd, Vice-President, the Law Society, Geoffrey Vos QC, Chairman, and Tim Dutton QC, Vice-Chairman, General Council of the Bar of England and Wales, gave evidence.

 

Chairman: Mr Holroyd and Mr Hudson, from the Law Society, welcome back. Mr Vos and Mr Dutton from the Bar Council, you are equally welcome. The impact on the two branches of the professions is different in some respects and that will no doubt emerge during the course of our questioning, and it may be that the Law Society has quite a lot to say on some key points and we are obviously open to hearing it.

Q81 Dr Whitehead: There has obviously, as is widely known, been a great deal of criticism of both the remuneration system on the hourly rates and the wider reform proposals, particularly the procurement proposals, published by Lord Carter and the LSC. Could you conceive of a system which encourages both greater flexibility and efficiency on the part of the service provider and sensible use of financial resources whilst at the same time discouraging cherry picking simple cases, obviously to the detriment of the more vulnerable clients by the service provider? Is there an alternative system which might provide those sorts of safeguards?

Andrew Holroyd: I believe there is, and we worked with Lord Carter to try and find a solution to those kinds of conundrums, but I think this all has to be seen against a background of cuts which have been made over a very long period of time. Since 1993, when franchising was brought in, we have seen a 43 per cent rise in the retail price index and we have seen less than one per cent per annum increase in legal aid rates. That is the context in which all this has to be seen and we have to see that firms are extremely hard-pressed. That, I think, is the background against which everything has to be looked at. Now, firms have gone away from hourly rate systems. They have moved to tailored fixed fees in the civil cases, non-family civil cases, but the trouble is that those tailored fixed fees have stayed tailored fixed fees now for two years, at a time when inflation goes on at three per cent per annum and we have got our staff to pay and all the extra overheads that we have. I think what we all think in this sustainable system is that we actually must be sustainable, and sustainability must provide a way for suppliers to increase their remuneration at a time when overheads are increasing, and we have just not seen that. My argument about this is that we have reached the stage where there is no fat left in the system and what is really disturbing to our members is that at a time when they are asked to go through tremendous change, yet more cuts are being taken out of a system where the supplier base is really under threat. We are seeing people leave the system in large numbers. I have come from a special general meeting of the Society today when 400 of our members attended and, for example, in Salisbury we heard that the number of firms there has reduced from eight to three. One firm has 70 per cent of the market. The number of duty solicitors has also reduced from 15 to nine. Those are the kinds of situations that we are seeing replicated all around the country, and quite frankly for a market-based system to operate there has to be a supplier base and I think some of the questions we have heard indicate just what difficulty there is. You might get a bidding round the first time, but where do the bidders come in succeeding rounds in a very specialist service which is, quite frankly, quite difficult to provide?

Q82 Dr Whitehead: But in your written evidence you did say, I think, that in principle the Carter blueprint can be made to work, so is your concern really the question of the blueprint as a whole or is it the question of the level of the fees - and I think there is some suggestion that that is the primary concern - or the whole system of fixed and graduated fees in the context of procurement?

Andrew Holroyd: A system can be made to work, but we have consistently said it could only be made to work with more investment in the system. What we have seen is a straitjacket on the legal aid fund, whilst at the same time we have seen a huge demand for the services on the legal aid budget. I think the plain fact is the Government is getting about ?3 billion of work for ?2 billion, and this cannot go on. There has to be more investment in the system for this to work. There has to be more investment because, as somebody has quite rightly said, how can firms put in bids when, quite frankly, the only consequence of that, if they are actually bidding at levels which cover their costs plus a reasonable profit, are going to lead to an increase in rates over the ones we see at the present time. Quite frankly, my members do not really believe that when the Government says there is a fixed budget there is actually a willingness to pay any increased prices that come through a market-based system.

Q83 Chairman: What will be the impact of the move from tailored fixed fees in non-family civil work to the national fixed fee scheme for London-based suppliers?

Andrew Holroyd: We are going to see some winners, I suppose, and some losers in the system and one would have great sympathy for those in London who have much higher costs than out in the provinces. How we are going to see the survival of the legal aid supply for those very specialist services for the most vulnerable in society when the salaries paid to commercial solicitors just down the road have doubled, trebled, quadrupled what we can afford to pay our assistant solicitors or our other members of staff for doing the work. One of the consequences is not just the effect on the owners of the practices but it is actually the low wages we all have to pay to those we employ.

Q84 Chairman: You mentioned Salisbury. I think you said a number of practices were whittled down to far fewer engaging in legal aid. What do you think the situati
on will be in those small towns which have perhaps three practices engaging in legal aid work?

Andrew Holroyd: We can see a situation where client choice and the problems of multi-handed trials - we have already got a problem in those areas and I think we can only see that problem getting worse as time goes on. I think the Government is playing with fire here because if it pushes the system any further they are going to find that they are not going to be able to honour their obligations to access to justice and to maintaining the ability to provide defence lawyers in every area of the country.

Q85 Chairman: Just to return to Dr Whitehead's earlier analogy, which I am sure you heard in the earlier questioning, is all this really contingent on the business restructuring which is going on at the same time, or at least the legislative basis for it is going on at the same time, and do you think the Government is embarking on this obviously because it wants to contain the legal aid budget but on the assumption that the entire structure is going to change and that, to over-simplify it, Tesco will send a solicitor to wherever one is needed rather than the traditional pattern of locally based firms?

Des Hudson: Perhaps I can answer on behalf of the Law Society. We doubt that there are any assumptions on the part of the Government, if I am frank with you, about how these things might work. I will give you some examples of that, but let us address the point you have made here. It is correct, I think, that an ABS may introduce some new players into the legal services market, but we have the greatest doubts that any profit-orientated major player would come into this market and choose to do legal aid work. Think of the overhead cost, the investment they would have to make to provide a coterie of appropriately qualified solicitors, barristers, whatever it might be, yet they are being asked to sign a contract where, without a breach on their part, that contract can be terminated on 90 days' notice. Who would make that investment? So our submission to you would be that the idea that there will be an influx of these mega PLC corporations that are going to do that work, that there will be the emergence of major firms, we believe is really fanciful. The idea that people are going to risk private capital to sign personal undertakings to guarantee overdrafts from banks we believe will not happen. The supplier base which you see now is suffering from three factors. First of all, that supplier base shrinks. It shrinks month by month by month. Secondly, that supplier base is in an incredibly fragile state. This is the evidence of a report, which I think the Members of the Committee have referred to already, commissioned by the Law Society and LECG and shows, we would suggest to you, with incontrovertible clarity that this supplier base is in a very, very fragile state. Thirdly, this is a supplier base which has suffered from a system which has been impoverished for year upon year. If I use the example of criminal work, the report from LECG indicated that their level of profitability was in the range of minus six per cent to two per cent. No solicitor chooses to do legally aided remunerated work to become rich. What we are seeing is that this is a system on the verge of collapse in terms of supplier base, and yet they say, "You must go through a series of two changes or so in the next twenty months," on top of the change upon change upon change we have seen over the last few years. The pace of the proposed changes is, in our view, foolhardy. The nature of those changes is, in our view, ill-conceived and there is an absence of any evidence to support it. If I may, I would draw your attention to this one particular point. Let us go back to the fundamental proposition, it seems to me, within Lord Carter's report, a move to market-based pricing. I cannot see, on the information which has been made available to us, how that can be in the interests of the taxpayer, assuming we put no value on the valuable concept of access to justice. It seems to me that what will happen is that if the people on this table, for example, were to make a tender and the majority of us were unsuccessful, the likely length of contract, we would guess, would have to be in the region of, say, three to five years to give people a reasonable attempt to recoup costs, and so on and so forth. Who will be left three or five years later to bid a second time? I think, with the analogies and examples which were quoted by the Members of the Committee before of what is happening in the waste market where we have a concentration of supplier and therefore, it seems to me, a non-dynamic market, because it is not vibrant, that costs are not going to go anywhere other than up if that is the rule base you set. The idea also that we are going to have any sets of firms re-dividing and lawyers re-organising themselves so that they might bid a second time round I would suggest to you is also in severe doubt. Consider the LSC's proposals for preferred supplier status. You have to achieve tier one or tier two status to be eligible to be a preferred supplier. How do I do that if I am just setting up a firm today to bid for a contract in twelve months' time, when I am currently employed by the local firm in Salisbury which has the current contract? We see problem upon problem upon problem. We would be very anxious indeed for the LSC or the DCA to explain to us and to explain to taxpayers how this system can work.

Q86 Bob Neill: Your submission includes some evidence carried out by LECG, a survey about the number of firms which might have to restructure, to put it euphemistically, merge, relocate, leave the market, to meet the minimum contract size. Lord Carter had previously suggested that only involves about 400 firms. LECG's figure (your consultants) is about 800. That is a very significant difference. Can you give us some explanation for that?

Des Hudson: Yes, we can. If I may, just to add some clarity to this, LEGC made the point in the report that their estimate of 800 (which they recognised was very different at the time they wrote it from the Carter report) was an absolute minimum and could be much higher, and it is based very centrally upon that concept of a minimum contract size. What I think we have heard this afternoon is that the comments made by the minister for legal aid in the Westminster Hall debate about there not being a minimum contract size seems to be, again, in doubt. The whole of the Carter report was based upon a minimum contract size. You will remember the point Lord Carter made towards the end of his evidence about the importance as a safety measure of minimum contract sizes. What I think the LEGC report says is, if you look at that, what we regard as an absolute necessity to the Carter system working, a minimum contract size, there will be significant consolidation - and that is another euphemism for firms of solicitors ceasing to trade. If I may, we would go one step further and say, take that catalyst for change. Who would go back into the market in the present circumstances? We have spoken to a very large number of our members and what they are saying to us is, "I have to make choices now about consulting with my staff about redundancy. I may have an overdraft review. I may have the lease on the office to renew," and what we are being told is that people say, "I see no viable and sustainable future for publicly funded work and we are making unpalatable choices." So this uncertainty, the lack of clarity about the nature of how all these changes would work, the experiment which is being run here, if I may put it so, all of these things militate against anyone staying in the business and what we are seeing is that fewer and fewer solicitors can afford to run their practices on legally aided work, whether that be civil or criminal. We fear - and I do hope we are wrong about this - that that will get worse.

Q87 Bob Neill: From what you are saying Lord Carter and his team have significantly underestimated the number of firms affected?< /p>

Des Hudson: Yes.

Q88 Bob Neill: Is that an error of methodology or interpretation of the evidence, as far as you can judge?

Des Hudson: We are not in a position to judge because this comment came from independent experts that we commissioned. All I can say to you is that they have used the same data. They made that assertion knowing the figures that Lord Carter had estimated, and still they made that point. We are confident in the information that report contained on that point.

Q89 Bob Neill: Lord Carter seemed hopeful that a significant proportion of those affected in such firms would stay within the market. That does not seem to be shared by you and your experts?

Andrew Holroyd: I think there are several factors here. One thing you have to recognise is that many people who are in this market have grey hair. They are coming to the end of their careers and they are saying, "If I could just get a few more years out of this, that would be okay by me, and I'm out," and that is actually the nature of the beast.

Q90 Bob Neill: I understand that. The other issue I want to come on to is the recruitment of young lawyers as opposed to those of us with or without the grey hairs. Do you have any evidence on the increase or decrease in the number of training contracts provided by legal aid firms in the light of this? Is that likely to be affected, do you think, by the Carter reforms?

Andrew Holroyd: Yes. The evidence that we have is that we have had a survey of our members on our website and those planning to take trainees were drastically down. There is a lot of idealistic young people who still want to come into legal aid. My experience is that actually you get quite a few applications to come in, but the difficulty is providing a career structure. How do you actually provide them with advancement when actually the most they can make on legal aid rates is about ?70,000 a year in gross fees, and the most you can pay is two and a half times their salary? You can work out that the salary you can offer to a highly qualified solicitor is very poor indeed if they are doing that quality of work at those rates of pay and the difficulty is not, in my experience, actually encouraging that idealistic sector of the market to come in, it is actually keeping them once they have got their mortgages and their family commitments and everything else, because there is no way you can increase the pay.

Q91 Bob Neill: Mr Vos, does that apply to the Bar, do you find?

Geoffrey Vos: It does not apply quite in the same way to the Bar, although we have less people wanting to come in to do legal aid work, for obvious reasons. The graduated fee scheme which Lord Carter has recommended for the Bar will give, as we had requested, a major increase to the junior end of the profession doing the short one to ten day cases. They will get inflation restored from when there was last an increase, ten years ago, and that, I think, will have an effect in encouraging people to come in to do criminal work, provided the structure is maintained and the rates are kept at a proper, fair level. They were fair ten years ago. The junior rates have been now restored to roughly where they were ten years ago, but of course they cannot remain static for all time and the Treasury spending round in fact only envisages no increase before 2011, and even that is likely to be a problem.

Q92 Bob Neill: Anecdotally, it is sometimes reported to me that there is a problem about retention of the senior junior, if you like, the ten, fifteen year core practitioner, in doing legal aid work. Is that borne out by your researches and experience?

Geoffrey Vos: I think there are some problems with that. There are several reasons for it, I think, and some of them have not fed through the market yet. The money which is being given to the shorter cases in broad terms is being taken from the bigger cases. That is less of a problem in the very big cases, where in some cases the rates were imbalanced, but in the middle ranking cases taking money from a 30 day trial, a 40 day trial, which is the stuff of senior juniors and Silks, will be a problem and certainly will reduce the attractiveness of public funded work to barristers coming into the profession and to those already there.

Q93 Chairman: The Law Society envisages having a role in peer review, taking responsibility for it. Are you happy about that? Are you geared up to taking on that?

Des Hudson: We have very serious reservations. There is a lack of clarity about quite what we might be asked to do, what the costs of that would be and how would those costs be recouped. I think we have also got concerns stemming from the fact that we have here, in our view, a very impoverished supplier base. We have a sense where we believe that the pace of change is ill-considered and all of those factors at the moment I think would lead us to move against taking on that role, but I should say that as yet nobody has put in front of us a document or a specification saying, "This is what we think you should do. We would like to consult about it." At the moment this is simply a comment, a line in a report. It goes back to my point that the level of change which is required across this piece within such a short time is really very, very significant indeed and in our view if the Government, the LSC, has got this wrong the people who will pay the price are the ones who will be denied access to justice. The people who are, as it were, carrying the risk in this matter are the most under-privileged and un-voiced, the ones who need help most from a legal aid system.

Q94 Chairman: Just staying with peer review for a moment, do you think that what is proposed for peer review, whether it is done by you or by somebody else - obviously nobody can make you do it and some people might even think the Law Society's track record in running schemes which examine what solicitors are doing does not necessarily make it ideal to take the job over, but leaving all that aside, do you think the mechanisms proposed with the kind of random investigation and the intervals between review mechanisms is going to be adequate to maintain quality within whatever supplier base we have got?

Andrew Holroyd: I think one of the real concerns we have - and this has happened over many years - is that we have had a ratcheting up of the quality demands, the audit requirements, at a time when we have seen this erosion in the fees which were being paid, and we all know that you get what you pay for. Actually, a lot of the peer review quality requirements are to do with how much do you inform the client, how much advice do you record in writing, all these sorts of things. That is extra letters. It is extra costs. The fact is, if the LSC do require these higher quality standards it has got to be prepared to pay more for them. You cannot go on demanding more and more quality at the same time as you keep on reducing the rates of pay that you get. I was surprised because I had thought that we had won the argument that competence was going to be the threshold for peer review and we now find it is competence plus, which does demand these extra requirements. So we either need to see a redefinition of what "competence plus" means, or I think again it is another demand which is not being met in the pricing structure. There is a very great difference between the local authority and tenders in this sector and that is that there often for legal services a firm which provides tendering will only do a small proportion of their work with that local authority. We have captured practices which have actually put all their resources, all their efforts into providing services through the legal aid system and there is nowhere else to turn. You may have a dozen different contracts and the requirements are that each of the contracts has to reach the requisite required standard. What happens if one of the contracts fails? What is the position then with the other nine? There are all sorts of unanswered questions about th
e way this quality will work.

Q95 Dr Whitehead: I think you may have heard the questions in the exchange earlier about the question of time for managing the change which is envisaged by the Carter proposals, and indeed there has been a range of serious criticism of that timescale in written evidence to us. Do you think firstly the proposals to postpone the introduction of fixed fees but bring competitive tendering forward was the right way round, or do you think the whole thing is misconceived as far as timescale is concerned?

Andrew Holroyd: I think we need some pilots. This is a system which is untested. We have heard now that there were no models out there to base something on. I think it is vital that if we are going to attempt to make anything work in this sector it has got to be done very carefully, very cautiously. It has to be done in a small scale way and I think it is dismaying that there is a helter-skelter of different proposals coming forward. We are involved in at least a dozen different consultations at the moment with the LSC on all sorts of ranges of issues and quite frankly it is very difficult to keep up with them and to ensure that we are getting sensible solutions in all the areas in which we are consulting.

Q96 Dr Whitehead: I presume you welcome the re-consultation on the police station, family, mental health, asylum and immigration graduated fee schemes, but do you think that should be accompanied by any sort of way-leave on timescales, or do you think that the re-consultation perhaps aids with resolving some of the timescale problems?

Andrew Holroyd: One of the problems with this is that what it is in effect is the LSC recognise that the way they carved up their capped budget will be looked at again. Unfortunately, and I come back to the point I made at the beginning, the actually envelopes which are being used to divide up these fees are simply too low to provide a sustainable system in which suppliers are likely to stay in the system. I am an immigration lawyer and I know that many people in the immigration and asylum field in London do not see any way they can stay in with the kinds of rates which have been proposed, and I think many people feel the same in mental health and other specialist services. So if we do not see more investment, however you carve the budget you are going to have, in my submission, a flood of people leaving the system.

Q97 Dr Whitehead: Of course, as again has been mentioned, you have two reforms in a period of roughly twenty months. Would those reforms, in terms of how firms might look at those reforms, effectively be taken together so that it would not be, "Well, we'll cross one hurdle and then we'll think about the next one"? Do you think maybe having that timescale and having reforms at different stages is actually a benefit or a disbenefit in terms of the conceivable way forward?

Andrew Holroyd: I think we need a staged approach to implementation and at the same time we do not need it to be part of a cost-cutting exercise.

Des Hudson: Just to add to that, if I may, one of the arguments we have urged upon the LSC is that given the range and the depth and the significance of the change which is being proposed here, the better way forward would be to institute a series of pilots and to assess the information with data which flows from the first pilot to better inform the next stage. Fundamentally, and again this is a repetition, our submissions to this Committee are that we have a very helter-skelter timetable here and it all appears to be based around a financial time period where the project must be down to that amount by this point, and the risk which is being run is a risk which is being carried by, as I say, the most vulnerable people in society. So we are saying, let us look at the pilot. Let us inform the next stage on assessment of the data. I would hope you would not misinterpret that in any way as the Society saying there should not be reform or that the Law Society is trying to protect or stop change. We recognise that there must be reform. We recognise that we must move legal aid funding onto a sustainable basis and that there must be constraints to the size of the public purse, but this, in our submission, is not the way to make change.

Q98 Dr Whitehead: In the context of what we have discussed, though, how would you see pilots actually working, because it does almost remind me of badger culling whereby you had badger culling in certain parts of the country but not in other parts of the country in order to see whether badgers are the cause of TB in cattle or not? That is rather bad luck on the badgers in certain parts of the country if it proves to be the case they are not responsible for the TB. So would you then say there should be some pilots where all these changes should take place, with the possible detriment to providers and company viability and service levels, and so on, in order to demonstrate for other people who continue to work as they are whether the system is viable or not?

Des Hudson: Indeed, I think I am faced with that problem in putting to you the argument that there should be pilots. One has to say, reluctantly, that I think that is the better course to take. It may be more appropriate to take those risks, as it were, with solicitors than with the people who need access to justice. I suspect it may also be appropriate to do that in, as you say, geographically discrete areas rather than running a pilot across the entire country, which I fear may be a way of describing the current proposals. We have heard a lot from those who gave evidence on behalf of the LSC this afternoon, "Well, they could make new ways of working. They could use electronic information." Absolutely fine. There is no legally aided funded solicitor in the country who would not be anxious to learn of ways in which he could reduce his costs and improve his profits. We would be delighted to learn of what these new working methods are. I have not seen them. I do not see any of that laid out in any of the propositions or proposals put before Parliament or put before the professions. We are given the assertion, "This could happen. We could do that. We could do this." We need some way of finding out whether there is reality there and at the moment I would suggest to you the pilots, notwithstanding the very legitimate concerns you have expressed, maybe the only safe way forward. I think it is certainly preferable to what I see as a nationwide pilot which we are being asked to undertake.

Q99 Dr Whitehead: Could I ask Mr Vos and Mr Dutton, do you think there should be a single graduated fee payable for crown court work, and if that were the case how do you think the LSC could ensure that there were no conflicts of interest between barristers and solicitors under that arrangement?

Geoffrey Vos: We do not think that a single graduated fee scheme is appropriate. First of all, we do think that a graduated fee scheme is a good thing. It was introduced into the Bar ten years ago. It has been extremely successful in limiting costs and when it is fixed at the proper level it provides a fair method of calculating remuneration in a predictable way. However, there is no basis, in our view, for amalgamating an advocacy graduated fee scheme with a litigator's graduated fee scheme and no need to do so. Our view is that the two reforms suggested by Lord Carter for the solicitors' fees are simply unnecessary because once a graduated fee scheme is introduced for litigators' fees at a fair level - and I emphasise that because that, I think, is the burden of Mr Holroyd's song in what he has been saying - the lack of cost control, which has been the bane of the LSC and the DCA over some years and has given rise in reality to the Carter process, will be seen in a different light because graduated fees do deliver predictable outcomes. What Carter has recommended is a very good scheme if it was fixed at a fair level - I am leaving aside the overall envelope - but there is then an unnecessary embellishment to that sc
heme to introduce price-competitive tendering which will have serious detrimental effects. If it is introduced for advocacy it will threaten the existence of an independent referral profession, which we think was accepted by Lord Carter as being beneficial to the system of justice, beneficial to the quality of justice and beneficial to the client and consumers of justice. So that threat is a very serious threat. Price-competitive tendering could be introduced in some ways provided the schemes were not totally amalgamated. It could be introduced in such a way as to allow my profession, the Bar, to survive, but then you have problems of quality because in reality the agenda is to drive down prices by price-competitive tendering, not to drive them up, plainly. The market is thought to be at too high a level, which is plainly, as Mr Holroyd has suggested, wrong and if it did drive down price it would drive down quality with it and the system of justice would suffer. But even more importantly than that, diversity within the profession would suffer very seriously and the Bar is as concerned as the Law Society about diversity. The problem with price-competitive tendering, with or without minimum contract thresholds at the solicitor level, is that in fact the way it is proposed to work is, if I can just give you an example, if you have a million pounds' worth of work in an area, people bid for contracts at whatever level they want. So if the big firm comes in and says, "I'll do 400,000," at the right price, he gets it. The next firm says, "I'll do 300," the next firm 200, the next firm 100. There is no room for the small firm. Whether there is a minimum contract threshold or not, there is no room for the small firm to have any work because the bigger firms have got all the work. So the diversity issue comes in there and what you find is that by introducing price-competitive tendering you will take out of the market the smaller BME firms. That means they tend to instruct BME barristers and that squeezes BME barristers out of the market in exactly that way. So we are very much opposed to the introduction of PCT and very much opposed to the amalgamation of the two schemes. What is more, we think it is unnecessary. It is simply unnecessary to save the costs which they want to save. They will, if they introduce proper schemes - and I am not commenting on the litigator scheme at all because it is not my business and I do not want to tread on the Law Society's toes, but I am quite certain that such a scheme could be fair, could be set at a proper level and could work.

Q100 Dr Whitehead: But you have done really rather well out of the Carter proposals on increased fee rates for the criminal Bar?

Geoffrey Vos: We have not actually done any better than the Law Society overall, looked at in envelope terms. What we have done is re-distributed the income from the top to the bottom, as we said was necessary, so that the bottom end has got a justified inflationary increase, having had no increase for ten years and having sustained graduated fees for ten years. The top end has thereby suffered and certainly received no increase, and so still suffering from the hit of inflation, not over ten years because graduated fees did not come to the top end until rather later. I do not want to mislead anybody. But we achieved, therefore, a redistribution for the junior Bar, which was very much our intention and that will be beneficial in entry into the Bar, as I indicated earlier, but in fact in overall envelope terms we are taking the same cut as the solicitors, or very broadly the same, as one can see from an annexe to Lord Carter's report.

Q101 Dr Whitehead: Is that absolutely right? My understanding of the comparison strictly speaking is that yes, it is true that there is re-balancing and there are changes in who gets what, but the reductions for publicly funded solicitors' defence work is between minus five per cent and minus 16 per cent, whereas the re-balancing, shall we say, of the value of crown court cases for barristers is between minus three per cent and plus 20 per cent. So although it is re-balancing, it is re-balancing in different ways. Do those two things not sit rather uneasily alongside each other?

Geoffrey Vos: I cannot quite trade those figures with you, but I can trade envelopes with you and in envelope terms, as one can see from, I think, table 6.2.3 to Lord Carter's report, our envelope reduces between 2005 and 2009 from 362 to 290, which is minus six per cent, as I think you have mentioned, but the point is that where the reductions are taking place are in efficiencies in VHCC cases. We do not know what rates will be paid for VHCCs, but we are certain there will be efficiency savings in VHCC cases, and there will be no increase and possibly decreases in some of the longer graduated fee cases as well. Of course, this is all based on an assumption that volumes will remain the same as they were in 2005/2006 and that is a fairly unscientific assumption actually. There are pressures in the system to reduce volumes, so it is possible that the envelope will be maintained because of the reduction in volumes, save and except for the possibility of terrorism trials burgeoning in the next few years. We are trying to persuade the Government to take terrorist trials out of this equation, I should say, because it would be quite unfair to be hoist with an envelope when there are unexpected terrorist trials which cost a lot of money, plainly, and are absolutely vital in the public interest.

Tim Dutton: Could I add a short point of reassurance? If you look at the figures in the boxes for barristers in the graduated fee scheme as it applied until April 2007 and then you look at the figures for April 2007 onwards, this is the bulk of cases, graduated fee scheme cases, you will simply find that inflation has been, if you like, restored. So we are back to where we were ten years ago and, as Geoffrey says, the savings have been made elsewhere in the system. So this is not a case of one branch of the profession doing well, and that is not what we are being told.

Q102 Dr Whitehead: Just at the risk of straining the metaphor, Mr Holroyd and Mr Hudson, do you feel suitably "enveloped"?

Andrew Holroyd: Unfortunately, we have not been restored to ten years ago. We are still at rock bottom and actually our envelope has reduced more than the Bar in percentage terms and, quite frankly, it is our end of the profession which has to keep the bank manager happy with the big overdrafts, which has the expense of running our offices and has more exposure to the influence of inflation elsewhere in the system as we run our office systems. We are the people who have to get the IT investment in and I would say that the risk that we carry as businesses with the level of the money that we owe our banks, with the increasing interest rates now, puts us in a much more vulnerable position than the Bar.

Q103 Chairman: I am not sure we want to set up a dialogue.

Geoffrey Vos: We would not want, Chairman, to enter into any exchange of that kind. We support the solicitors' claim to fair remuneration for the work they do and we certainly do not think that a comparison between percentage reductions is actually appropriate. There are different cases, different factors affecting the payment of the professions and one major factor which affected us was that for many years long cases were paid in what is called ex post facto taxation so that the fees were taxed afterwards based on hourly rates and how much time was expended. That has gone out of the system completely and that has caused some of the saving to the figures I have been talking about, but I should not be taken in any way as suggesting that we want to profit at the expense of solicitors and I do not think they want to profit at our expense either.

Chairman: Gentlemen, thank you very much indeed. We will be seeing quite a few other members of the profession, particularly on the solicitors' side, in the course of our evidence sessions over the next c
ouple of weeks. We are very grateful to your two organisations and to the four of you for your help this afternoon.