UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 223-v

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

CONSTITUTIONAL AFFAIRS COMMITTEE

IMPLEMENTATION OF THE CARTER REVIEW OF LEGAL AID

Tuesday 20 February 2007

RT HON LORD FALCONER OF THOROTON QC, SIR MICHAEL BICHARD and CAROLYN REGAN

Evidence heard in Public Questions 298 - 394

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Constitutional Affairs Committee

on Tuesday 20 February 2007

Members present

Mr Alan Beith, in the Chair

Julie Morgan

Mr Andrew Tyrie

Keith Vaz

Dr Alan Whitehead

Jeremy Wright

________________

Witnesses: Rt Hon Lord Falconer of Thoroton QC, a Member of the House of Lords, Secretary of State and Lord Chancellor, and Sir Michael Bichard, Chair, and Carolyn Regan, Chief Executive, Legal Services Commission, gave evidence.

Q298 Chairman: Lord Chancellor, Ms Regan, Sir Michael, welcome to the Committee. We are sorry to hear that Vera Baird is unwell. I hope this was not the result of her stalwart defence to the Human Rights Act in the House of Commons yesterday evening following your own speech!

Lord Falconer of Thoroton: Anxiety at appearing before the Committee, I imagine was the reason, but she is too ill to be communicated with so I do not know whether that is right or wrong.

Q299 Chairman: We are sorry to hear that. It will give you more questions to answer. You have kindly given us a note, which we all have, about your general approach to this issue.

Lord Falconer of Thoroton: Yes. I was told that you did not like opening statements, so if you have a moment to read what I would have said had I been allowed to make an opening statement, whether or not you were preventing me, then it is there in the letter.

Chairman: I think you will find that much of what you want to say can emerge in your answers to questions. Interests to declare?

Jeremy Wright: I am a non-practising barrister. When I did practice I practised in the field of criminal law.

Keith Vaz: I am an employed barrister but I do not do Legal Aid work.

Q300 Chairman: Thank you. I was going to ask you by what tests do you think this Committee, or anyone else, should judge whether these proposals, if fully implemented, have been a success if we were to look at them in two to three years' time?

Lord Falconer of Thoroton: I think more people are getting help through Legal Aid, either through representation or by advice, a thriving legal profession, money being spent much more on the front line than on ancillary stuff such as travel, waiting, overheads.

Q301 Chairman: That is a complete list so far as you are concerned?

Lord Falconer of Thoroton: A strong Legal Aid system.

Q302 Chairman: With a strong, thriving legal profession.

Lord Falconer of Thoroton: Yes. I said that, I hope.

Q303 Chairman: You did. In your letter to us you referred to our own report about the number of people helped being a key indication of how successful the system is?

Lord Falconer of Thoroton: Yes.

Q304 Chairman: But today, rightly, you have referred to both elements. Why is speed of implementation important to you?

Lord Falconer of Thoroton: I do not think speed is the critical thing; I think doing it in the right time is the critical thing. Once you decide that you are going to have a system which relies more on fixed fees than previously and you are going to move to a market based approach, you cannot delay it for so long that there is a blight over the solicitors' profession. You have got to do it in such time as it can be accommodated by the profession but also in such a time that it does not lead to blight and, therefore, difficulty in development for the profession: because for those people who significantly rely on Legal Aid it will be a significant factor in what they do develop in the future.

Q305 Chairman: But the blight that you have at the moment and firms making plans which could affect the future availability of a thriving legal profession is not simply caused by the time taken to make the decision, it is caused partly by the perception of what the system is going to be, is it not?

Lord Falconer of Thoroton: Indeed, but we are trying to be as clear as we possibly can about what the system is going to be. The clearer we are, the more people can make plans about it; and so, for example, views that this Committee expresses on the scheme will no doubt have an impact, but I do not think the critical thing is the timing in relation to it. If people think it is much too concertina'd, then that will be an issue, but we have listened to consultation, we have extended the timeframe, for example, the introduction of the tendering arrangements, so we have extended our listening to representations by people, but it is plainly wrong to think just by stretching out the time for a long period that somehow eases the issues. I think the issues are much more about whether or not people think moving more to
fixed fee schemes and there being a market process to determine who gets the work are the big issues, rather than the timing.

Q306 Chairman: Is it arguable that, except for Legal Aid Crown Court defence work and childcare, Legal Aid spending peaked in 2003/2004 and that control is being achieved now?

Lord Falconer of Thoroton: If you look at the big drivers, at the moment it is Crown Court defence work and public law children work, in part because post 1999 a lot of work was taken out of the scope of civil Legal Aid, so you see a great dip at that particular point, yes. If you look at the history of Legal Aid, it goes like that. The one thing you should not do is the moment you see the figures going down, you relax and do not try and get a sustainable system for the future.

Q307 Mr Tyrie: It does not sound to me that if the costs are going down there is an indication that it might be sustainable for the future?

Lord Falconer of Thoroton: What you have got to try to do is to make sure that you spend as much money as you possibly can on the front line. Look at the history of Legal Aid. I cannot do it now by waving my hands around - which is not very effective - but if you have a moment, look at the pattern of Legal Aid expenditure. I think the other thing that we have got to try to do is to increase Legal Aid expenditure on civil and family stuff. We are being forced into spending more money on family stuff because of the increase in public law children cases, but we want to expand the scope of people, particularly in social welfare law, who can get access to advice when they need it, and that is the problem we are seeking to address.

Q308 Mr Tyrie: Can I quote you what the Civil Justice Council have said about this whole process?

Lord Falconer of Thoroton: Yes.

Q309 Mr Tyrie: They said: "The CJC takes the view that the proposals, if implemented, carry greater risks in terms of damage to civil Legal Aid provision and access to justice than the minimal financial improvements to the overall Legal Aid budget." Could I ask you to comment on that?

Lord Falconer of Thoroton: Yes, you can. I am not sure, because it is not clear from what the Civil Justice Council have said, as to the extent to which that is comment before the family, the mental health, the immigration and asylum schemes that were proposed had been withdrawn for further work, but if and in so far as they were making those comments after those schemes had been withdrawn, then I very much disagree with them. I think the critical question (and the Civil Justice Council needs to address this, it seems to me) is if you increase the amount you are paying for each piece of work, you are reducing the number of people that you can help through Legal Aid and what we are trying to do is to focus, as much as possible, on those who need help, and it is a totally inadequate response, in my view, to say there are lots and lots of advice deserts and the way to deal with them is to increase the amount of money you spend for individual cases because the consequence of that will be unquestionably to increase, in my view, the number of advice deserts. We are trying to strike a balance and it is very difficult to do, but that is what we are seeking to do, and the Civil Justice Council in its response is focusing entirely, in my view, on the impact on the provider and not at all on trying to reach more people to give them help.

Q310 Mr Tyrie: Do you agree that the proposals would disadvantage London particularly, since London has a higher cost base?

Lord Falconer of Thoroton: There is a figure which says - and this is in relation to civil Legal Aid only - that 68% of providers in London would be losers, in the sense that they would get less money per case, and I accept that that is probably a right thing. It is an LSC estimate. Those are the areas where the advice deserts do not exist. How do you get people to go to places like the North East, for example, where there is not advice available at the moment? The corollary of the 68% number of firms who are losers in London (and I am not saying this is the only winner), for example, in the North East is a 77% increase. For Wales, which I would simply say because a number of members of the Committee are Welsh, a 77% increase in the number of winners. If you are trying - I keep coming back to this - to reach more people in the welfare field, you need to address the issue of how much it costs per case.

Sir Michael Bichard: I wonder if I could add a footnote to that, because there is a feeling abroad that somehow London is being disadvantaged unfairly in all of this. It is quite interesting in that the changes that have been made over the last few years, particularly the introduction of tailored fixed fees and other controls on expenditure, have actually led to an increase in the number of people receiving legal help and, indeed, those figures are now at the highest level, but, even more interestingly, a disproportionate increase in the number in London who are receiving legal help. In 2004/2005 in London, if you exclude immigration and asylum, some 91,000 people were receiving legal help. In 2005/2006 that had gone up to over 102,000. So, I do not think that this sense that London is being disadvantaged, certainly if you look at the help to clients, is actually true.

Carolyn Regan: Can I add another point in relation to London? There is also provision for individual remuneration for difficult cases, and in London that amounts to 10% of the total workload, which is a much smaller volume outside of London (I think, about 4%) and so there are provisions for reflecting that. As the Lord Chancellor has said, Wales and the North East have been mentioned, there is also a desire to target Merseyside as well, and that is what our next tranche of consultation, due to come out at the end of next week, will be demonstrating.

Q311 Mr Tyrie: You want to get the people providing these services in London out of London into other cities?

Carolyn Regan: We want to rebalance the expenditure to meet the needs and to meet what people are saying to us about the needs in the North East, Wales and Merseyside. We want to keep a sustainable group of providers in London, but, as has been said, we want to increase the number of clients being served.

Q312 Mr Tyrie: But a sustainable group is one that is smaller than the current supply; so you think there is over supply?

Carolyn Regan: I think there will be changes to the way suppliers organise themselves, yes.

Q313 Mr Tyrie: Could you debureaucratise that?

Carolyn Regan: Sure. I think some of the groups of suppliers will want to come together to bid for packages of integrated social welfare law across a number of categories. There is potential for outreach work, subcontracting, different ways of providing, rather than with the one-to-one relationship that we have at the moment. I think some of that will be targeted on areas of greatest need.

Q314 Mr Tyrie: Lord Chancellor, I do not mind who answers really, but you are in the middle of the three: have you received a report from Otterburn Legal Consulting?

Lord Falconer of Thoroton: I have not, but the Legal Services Commission has. I think the right thing to do is for all of the material that the Legal Services Commission have got on what the effect on the market may be - and by 'market' I mean the providers, wh
ich I think is what has been particularly interesting - should be made available to the Committee. So, yes, is the answer. The LSC have, not me personally, but, yes, they have, and we should provide it to you for the purposes of your report. We should also provide to you for the purposes of your report the other material in relation to what effect it may have on the market.

Q315 Mr Tyrie: Why have you not already published it?

Lord Falconer of Thoroton: It has been around for a particular period of time. There is a whole range of material.

Q316 Mr Tyrie: How long has it been around?

Lord Falconer of Thoroton: October, I think. October we received it.

Q317 Mr Tyrie: So that is five months that it has been around?

Lord Falconer of Thoroton: Yes.

Q318 Mr Tyrie: Why was it not put in the public domain at that time?

Lord Falconer of Thoroton: Because I think that there is a whole range of material that the Legal Services Commission have. I think the right thing to do is to make sure it is available in the public domain and, in particular, for this Committee. We should have published it earlier, and I apologise for that.

Q319 Mr Tyrie: So it was a mistake not to put it out five months ago? Was that a 'yes' or a 'no'?

Lord Falconer of Thoroton: I apologise.

Q320 Mr Tyrie: Okay; that is fair enough. Perhaps you could give us an idea, although it is a bit late, what it says. You have had five months to look at it. What does it say?

Lord Falconer of Thoroton: The report, and I have not read it, but it has been read by the LSC, as I understand it, is Mr Otterburn's judgment about what might happen to the market based on the similar group of solicitors that were looked at: because he gives some advice to Lord Carter in the course of him doing his report.

Q321 Mr Tyrie: What are the conclusions?

Lord Falconer of Thoroton: I cannot say, because I have not read it. I think you have got to read it.

Q322 Mr Tyrie: Have either of your colleagues here read it?

Sir Michael Bichard: I think the difficulty with something like the Otterburn Report is that it is a descriptive reports in many respects, in other words it looks at the situation at the moment, draws conclusions about the profitability of individual firms and actually says that it is not high in some cases.

Q323 Mr Tyrie: It says?

Sir Michael Bichard: That the profitability of many firms is not great. What is more difficult to do, of course, is to look ahead and see how firms and the market will respond to a very different set of circumstances, and that is what we are all trying to do and what we have to make a judgment about. The judgment, obviously, that we have made is that there are efficiencies in the system which can be released as a result of, initially, fixed and graduated fees and then competitive tendering, and that firms will achieve that, either, as Carolyn Regan has said, by merging. Through taking advantage of subcontracting, they will have greater certainty about what is happening and they can therefore organise their affairs more efficiently.

Q324 Mr Tyrie: If I could just summarise in a sentence what you have said, it is: profitability is low, but that is the answer to the wrong the question.

Sir Michael Bichard: If profitability is low it does not necessarily prove that firms are efficient. It proves that profitability is low.

Q325 Mr Tyrie: So they are looking at the wrong question?

Sir Michael Bichard: The Otterburn Report was looking at a particular question.

Q326 Mr Tyrie: But it was the wrong question?

Sir Michael Bichard: I am not saying it was the wrong question. I am suggesting that in a very different set of circumstances there are different ways of finding efficiencies.

Q327 Mr Tyrie: Was profitability the right question?

Sir Michael Bichard: Current profitability does not give you clear evidence about the future.

Q328 Mr Tyrie: Who drew up the Terms of Reference for the Otterburn Report?

Sir Michael Bichard: They would have been drawn up within the Commission.

Carolyn Regan: Yes.

Q329 Mr Tyrie: Could you also put those into the public domain?

Carolyn Regan: Yes.

Q330 Mr Tyrie: Could I ask why were they not put in the public domain so that people could at least be aware that this work was being done at the time this report was commissioned?

Carolyn Regan: I do not know the answer to that.

Q331 Mr Tyrie: Could you come back to us and let us know?

Carolyn Regan: Yes, I will.

Q332 Mr Tyrie: I am very concerned indeed by Sir Michael's answer, because it appears to suggest that we have some things to report and the Terms of Reference appear not to have covered one of the key issues which Sir Michael thinks that we need to address. You look puzzled.

Lord Falconer of Thoroton: Yes, I am completely puzzled by that remark.

Q333 Mr Tyrie: I asked if the right question to ask was the effect on profitability.

Lord Falconer of Thoroton: Yes, profitability now, as I understood what Sir Michael was saying, does not necessarily mean profitability in the future in a new regime and a new market structure.

Q334 Mr Tyrie: The Otterburn Report was not asked to think about that. Is that right?

Sir Michael Bichard: My point was that it is extremely difficult to draw conclusions about how the firms are going to respond to a very different set of circumstances, not that the specification was wrong, but it is almost impossible to draw conclusions about that in advance.

Q335 Mr Tyrie: I am sorry to persist, but what is the value of the report?

Lord Falconer of Thoroton: Is not the best thing to wait and see the report, rather than trying to speculate on what the effect might be.

Q336 Mr Tyrie: We are speculating.

Lord Falconer of Thoroton: I have not seen it, you have not seen it.

Q337 Mr Tyrie: No, but the two people either side of you have seen it, and have read it and have had five months to look at it, wrote the Terms of Reference. Incidentally, it would be valuable to know how much has been spent on this report. Perhaps we could have that in the public domain. The more I hear about this report the more concerned I am about it. Plainly now, we should wait to see what we are going to get.

Sir Michael Bichard: I think you have actually made the point that I was making. It is of limited value.

Q338 Mr Tyrie: But you have spent money on it with some rather bizarre---

Sir Michael Bichard: I am afraid one often does spend money on things that turn out to be of limited value.

Q339 Chairman: Is that why you did not publish it: because you did not like what it said?

Sir Michael Bichard: No, I don't know.

Carolyn Regan: It was one part of the information gathering that we collected, and your point about what else do you look at? All of these schemes have their own separate consultation which is subject to on-going discussions, not separate reviews, but it is one part of the evidence.

Q340 Mr Tyrie: Somebody coming to this afresh would have to conclude you have commissioned a report without telling the public about it, you did not like the conclusions and you have either set the wrong Terms of Reference or you had not thought through what it might say in advance. You have spent quite a bit of public money on it and now you are apologising for not having put it out in the public domain earlier while at the same time rubbishing it?

Lord Falconer of Thoroton: No, I would not agree with that as an assessment.

Mr Tyrie: Oh, that was just my own reaction listening to what you have said. I am sure you might disagree. I have no further questions.

Q341 Jeremy Wright: Lord Chancellor, can we look at the underlying assumptions that are behind what Lord Carter has done and what the Government has subsequently said. It seems pretty clear, does it not, that the underlying assumption is that the taxpayer is not getting value for money from Legal Aid firms as a class?

Lord Falconer of Thoroton: Yes.

Q342 Jeremy Wright: First of all, in general terms, can you tell us what led you to that conclusion?

Lord Falconer of Thoroton: It was the view that Carter formed. What Carter is saying, I think - and I do not mean any disrespect to call him Carter but for the sake of convenience I call him Carter - is although many firms are profitability looked at within their own rights, if you have fixed fees you can get a more efficient way of paying for Legal Aid, both criminal and civil, and if you have a market process where people can bid on price, then you can fix what would be both a fair price and, he believes, in some areas a cheaper price, for the cost of those legal services without destroying the provider market. You will certainly reduce the number of firms, you will probably reduce the number of fee earners, though probably by not nearly as much as you reduce the number of firms, but you end up with a procurement system which drives efficiency, costs less and has a more efficiently organised provider market. That is his thesis, that is what he spent over a year looking at, and we accept his premise.

Q343 Jeremy Wright: I am sure you would not put it like this, but the conclusion clearly is that it is the lawyers' fault. What I am really interested to know is what work have the Government done to find out what other pressures and what other influences there are on the increase in spending, particularly in the two areas that you have identified as being the problem: Crown Court work and children work?

Lord Falconer of Thoroton: Genuinely, I would not dream of suggesting it is the lawyers' fault, but if the payment for civil, family and criminal Legal Aid is structured in the way that it is at the moment, though it has been changing over a period of time, then that is how the market will respond. It has been changing in two respects. There has been a gradual introduction of fixed fees and there has been a much greater reliance on contracting with individual firms. So, what you have seen as time has gone on is a reduction in the number of firms that have been contracted with because the system of payment has changed, but I am not blaming the lawyers. If you stop paying and stop choosing on the basis that we are currently doing, then you will change the market.

Q344 Jeremy Wright: It is a more general question that I am asking. If there has been an increase, which there undoubtedly has, in Crown Court work and criminal work and in---

Lord Falconer of Thoroton: There has not been an increase in the numbers of Crown Court cases.

Q345 Jeremy Wright: No, there has been an increase in the amount spent on those cases?

Lord Falconer of Thoroton: Absolutely. That is right.

Q346 Jeremy Wright: That is what has been identified as being the primary problem here.

Lord Falconer of Thoroton: No, what has been identified is that in the last year or two the main drivers for increases are public law children, because there are more children who are the subject of care proceedings and each individual case costs more, and there is more expenditure on the Crown Court cases. In the years before that there were considerable increases in all Legal Aid expenditure.

Sir Michael Bichard: We do need to remind ourselves that there are a large number of people out there who need assistance who are not getting it at the moment. It is not just a question of getting the expenditure, the plateau, to come down a bit, it is making room to enable us to help more people. The things that the Legal Services Commission have done over the last few years, which have never been particularly popular, long before I arrived, have actually had an impact. If you look at the introduction of tailored fixed fees, if you look at the way in which we have contracted with not-for-profits and improved productivity, what you will find, as a result, is that in 2004/2005 some 600,000 people were helped, and that was at a cost of ?294, each act of assistance. In 2006/2007 750,000 people were helped at a cost of ?258 per person. Every increase in the cost per hour means that we cannot help someone, and I think what the Commission has done over the last three or four years has shown that if you properly manage and control this market through fixed fees and contracts, graduated fees, then you can have an impact on value for money. We must also, secondly, not give the impression that somehow we are starting this process with Carter. What we are actually doing is developing the journey, if you like, which is going to be learning from tailored fixed fees in these other innovations, and we believe that that will enable us to manage to control the expenditure, to improve access, and actually we have not talked a great deal about it today, but drive up quality too.

Carolyn Regan: I was going to make the point that has not been mentioned around quality at the moment. This is an on-going programme of work to peer review and to effectively contract with those suppliers to reach a certain level in the quality work.

Q347 Jeremy Wright: I do not doubt that this is being done for the best of motives, but the question I am really asking is about what work has been done to establish that the actions which are being taken are being aimed at the right targets? I will give you some specific examples. What I am interested to know is what has been done to establish that the increase in costs, for example, in Crown Court criminal work is not substantially the result of failings of the court system itself, failings of the Crown Prosecution Service, or other causes? What has been done to quantify what those causes might contribute to the increase in cost so that we can be sure that any reform is necessary in the way in which lawyers are paid?

Lord Falconer of
Thoroton: I am absolutely sure that reform is needed in the way that lawyers are paid. I am equally absolutely sure that you need to reform other things as well. For example, we have got to be clear that where there are law changes made the additional costs that that has on the cost of doing cases, for example, in the Crown Court, is reflected in the Legal Aid bill. Until comparatively recently, until the last few years, every time there was a law change we would not get extra money for Legal Aid. Now it is an absolutely standard process that whenever there is a law change and we can identify that it has an effect on Legal Aid, then we get a little bit extra (depending on how much it is) for that, but that is one example of change. Another example of change that we need is that judges need to be more proactive in managing the big cases. Another example of change that we need is that the CPS needs to be much more focused on preparing cases properly and making sure they are focusing on the real issue, but that does not excuse or change the need to look as well at the procurement of defence services very much for the reasons that Sir Michael was saying. You put it as being 'for the best of motives'. We are focusing all the time in relation to how we help more people. We recognise we can only help more people with a thriving legal profession, but we need to focus on the client, the person who is getting the help.

Q348 Jeremy Wright: The question remains: what has been done to establish what proportion is contributed by each of the things that you have talked about? The reason I ask you is that in 2003/2004 the Committee asked the Government to identify the major factors which had caused the increase in criminal Legal Aid spending. Has there been any response to that? Has there been a study done? If there has, what does it say? I am still trying to get to the bottom of how we are able to estimate what contribution these other things that we have talked about might make to the increase in expenditure.

Lord Falconer of Thoroton: There are very many studies around. I cannot remember the name of the study the Legal Services Commission did and published about a year ago of the extent to which law changes not properly reflected in the Legal Aid budget had an effect on increased Legal Aid expenditure. That study identified that particular problem, which I have just identified in what I have just said. I cannot remember whether it actually broke down the cost of increases into proportions. I suspect it is incredibly difficult to do with any degree of certainty, but the Legal Services Commission did address the particular issues that you have raised, Mr Wright.

Q349 Jeremy Wright: Let me move on to something else, and that is the potential for piloting some of these proposals. At least one witness we have had before us in the course of this inquiry has described the absence of a pilot programme as reckless. Is the Government being reckless by not piloting what Carter proposes?

Lord Falconer of Thoroton: I do not think we are. There are two bits to Carter. The first is the increase in fixed fees, and, as Sir Michael has just described, fixed fees have been increasing in all areas of publicly funded legal help and representation; and the idea that you should start to pilot, for example, fixed fees for solicitors in the Crown Court, which is one of the very substantial elements in relation to it, does not seem either necessary or wise as far as we are concerned. The second element of the Carter proposals is tendering. The first auction is envisaged to take place in October 2008 and we envisage there that we would start with certain parts of the country and it would be rolled out to the rest of the country later. It is not possible, I think, to divide the country in such a way that some parts are piloted and some are not. We do not think it would be wise either. So, yes, we have thought about it, and we have thought about it again in the light of the evidence of Professor Cabe, who gave evidence to this Committee, saying, to start with, it might be short of reckless to do it and then he became even more reckless and said he thought it was reckless not to do it. We have thought about it. We do not think it is right. Sir Michael is right to say this is part of an on-going process. So, no, we do not think it would be the right thing to do and we do not think it would be in the interests of the profession, let alone the clients they are going to serve.

Q350 Jeremy Wright: Because if this goes wrong the damage will be irreparable, will it not? If the supplier base is damaged by what you suggest - quite contrary, I accept, to what you hope will happen - it will not be possible to repair that damage, will it?

Lord Falconer of Thoroton: There are two aspects to that. First of all, fixed fees have not destroyed the supplier base in the areas where they have already been introduced. Secondly, what a market-based approach does is allow firms to bid for work and the market will fix the price. The danger (which I do not think is a real danger) is not the destruction of a provider market, it is if the price is too high. We do not think that will happen, but I think you are wrong to say that we will risk the destruction of the market.

Q351 Keith Vaz: Lord Chancellor, what has the DCA done to make the Legal Aid impact test a standard for all legislation across government departments?

Lord Falconer of Thoroton: Every piece of legislation that is considered within government we only agree to if, where there is a prospect or a chance that that might increase the burden on Legal Aid, there is agreement from the relevant other government department to pay the additional cost for Legal Aid; and that is now a standard process that is gone through in government and it occurs now as a matter of course. You cannot get approval in practice in government unless you can satisfy any agreed additional Legal Aid for a particular law.

Q352 Keith Vaz: Will the idea of joint budgets be pursued with the Home Office in the area of criminal law?

Lord Falconer of Thoroton: I do not think there are any really active proposals at the moment for joint budgets in relation to criminal law. There was a joint budget in relation to asylum applications, but I am not aware of any detailed proposals in relation to single budgets for criminal law.

Q353 Keith Vaz: You are not proposing to ask the Home Office for a contribution to the DCA's budget for the Legal Aid cost implications of the Serious Crime Bill?

Lord Falconer of Thoroton: Of course we would, yes, and that will have only got through on the basis that additional costs for Legal Aid will have been agreed; and there will be additional costs for the Serious and Organised Crime Bill because the Serious and Organised Crime Bill allows for various applications to be made against individuals for which some of those individuals will be entitled to Legal Aid. For example, if that is a good example, an estimate will have been made about how many applications they would expect to be made under that bill when it becomes law. We will have got a slice of money equal to the additional cost for Legal Aid.

Q354 Keith Vaz: Mindful of the forecasts of increased numbers of child care proceedings and the rise in the number of large scale terrorism trials, do you think that Legal Aid is a priority in the forthcoming Spending Review? Have you had any discussions with the Chancellor about this?

Lord Falconer of Thoroton: I have not discussed Legal Aid specifically with the Chancellor. I do not think Legal Aid itself will be a priorit
y in the Spending Review; I am quite sure that children and terrorism will be. As far as children are concerned, you are right to identify an increase in the number of public law children cases, though CAFCAS's estimates indicate that they think that will plateau some time next year. We have sought to deal with that in two ways: the review of child care law, which is trying to get local authorities to agree to a series of protocols that will, where appropriate, reduce the need for applications to court in relation to children, and also trying to do a series of steps before the matter gets to court so that the court case does not take too long. It is, for example, frequently the case that a case will start, a particular carer drops out and then a long process is gone into as another potential carer in the family is looked at. If that can be dealt with before proceedings are started, that reduces the Legal Aid bill. In relation to terrorism, the Chancellor of the Exchequer has made clear that he is looking at the costs of terrorism separately from individual department's budgets. That will include additional costs of terrorist trials, and we are looking at that separately from the DCA's comprehensive spending round expenditure. It is not specific to the DCA, it is right across the board in relation to terrorism.

Q355 Keith Vaz: Sir Michael, since your appointment, I assume you have visited a number of Legal Aid firms?

Sir Michael Bichard: Not as many as I would have liked, but, yes, I have.

Q356 Keith Vaz: How many have you visited?

Sir Michael Bichard: I do not recall. Probably four or five.

Q357 Keith Vaz: So you have spent a day with a Legal Aid lawyer. You understand the pressure that they are under?

Sir Michael Bichard: Absolutely.

Q358 Keith Vaz: These are not your reforms, of course, but you have to implement them, do you not?

Sir Michael Bichard: They are not my reforms.

Q359 Keith Vaz: The Carter Reforms are not yours. This is something that the Government has initiated. You have become the Chairman.

Sir Michael Bichard: No, the Commission have discussed the Carter Reforms, the Carter Report, on a number of occasions. We have had four meetings to discuss it, and the Commission are totally behind the proposals which we are now consulting on.

Q360 Keith Vaz: So you are happy to take ownership of it?

Sir Michael Bichard: We are, indeed, happy to take ownership, yes.

Q361 Keith Vaz: If it is the Government's aim to increase value for money in Legal Aid, can this not be achieved by a more sophisticated graduation in the fee schemes through bolt-on payments or uplifts for certain categories of cases?

Sir Michael Bichard: I think the problem is that there is no research that you can do to establish what is a reasonable price. Therefore, there is a limit to how far fixed fees (even with bolt-ons) are ever going to solve the problem. The only way in which you will satisfy ourselves, the Government and, indeed, the profession that a reasonable price is being paid is through some form of market, some form of competition, and that is why we have taken the view that we will not, as Carter suggested, wait until 2009 before we introduce competition, but we will introduce it for criminal from 2008. Indeed, that was the feedback we were getting from a number of firms, that they would rather we moved quickly to competition so that a proper rate could be set.

Q362 Keith Vaz: You seem to be alone in believing that this will not result in a deterioration of the service. The profession is pretty united, is it not, from the evidence it has given to us, the written evidence, the Law Society and the Bar Council. It is not just protecting their base. They have real concerns about the way in which the administration of justice, access to justice, is going to operate.

Sir Michael Bichard: My experience in any setting is that people are quite cautious about change. I think you would be hard-pressed to find a reform which any Government or the Commission has introduced over the last 20 years which has received overwhelming support. Our task has got to be to balance the needs of providers, the needs of clients, the quality and value, and the needs of tax-payers. We are not here just to provide a comfortable regime for providers. Clearly we need to be sure there is a market of providers there, but we have a wider group to look at, particularly the client. So I am not surprised that there is opposition. I am disappointed at the form that some of that opposition has taken, but I am not surprised.

Q363 Keith Vaz: Lord Carter in his oral evidence confirmed the need for reasonably sophisticated case mix monitoring by the LSC to prevent cherry picking of cases. Will that mechanism be put into place?

Sir Michael Bichard: It will absolutely. If you look at the history of tailored fixed fees, which, as the Lord Chancellor has said, we regard as a pilot, a learning process, that is exactly what has happened. When we introduced tailored fixed fees we were told that it would not work and it would lead to significant changes of behaviour in the profession. That just does not happen.

Q364 Keith Vaz: You do not think a good monitoring mechanism, if it was put into place, could be used in order to have a more sophisticated graduated fee scheme?

Sir Michael Bichard: We would put in place a sophisticated monitoring system. We will respond, if we see that there is abuse of the fixed fee arrangement.

Q365 Keith Vaz: In the last three years you have really been at the forefront of modernising the system of justice in this country, and what has been done in the last three years, if you take the whole ten years of the last Government, has been massive as far as the change to the legal system is concerned. You must be at least a little bit worried about the ferocity of the attacks being made on the Carter Reforms by members of what was your own profession. They are not making it up, are they? They are really concerned about it.

Lord Falconer of Thoroton: Yes, there are very considerable attacks being made on the Carter Reforms and we have got to make a judgment about whether or not they are the right things to do for the provision of legal services. We have listened very carefully to what was said in response to Lord Carter's report and the accompanying documents that the LSC produced at the same time. We have made changes to the timetable, we have withdrawn a number of the schemes that were put there, but we are clear that they are the right things to do, and they are the right things to do in detail in relation to the criminal area, which is where the major changes will come to start with.

Q366 Keith Vaz: But you saw the evidence of the senior judiciary when they talked about civil Legal Aid.

Lord Falconer of Thoroton: First of all, the senior judiciary made no unfavourable remarks in relation to criminal Legal Aid, but they are supportive, as I understand it. In relation to Sir Mark Potter, the President of the Family Division, he said he had real concerns about it but he also said in the evidence he gave to this Committee, "I understand the Lord Chancellor is addressing all of my detailed concerns in relation to it." As you know, and I have spoken to Sir Mark Potter in deta
il about this, he withdrew the family scheme and we intend to produce in the next few weeks a revamped family scheme; so we have taken on board the particular points that he made. I have addressed the points that Mr Tyrie made from the Civil Justice Council which Sir Anthony Clark, the Master of the Rolls, raised and, again, we are going to seek to try to deal with as many of his and the Civil Justice Council's points as well. So we are mindful of the particular points that have been made. Sir Michael has put it much better than I. We need to strike that balance between ensuring a proper providers market and trying to help more people.

Q367 Keith Vaz: The problem was identified by Mr Wright when he asked you the question about permanent damage to the profession. Does it not worry you? If you look at the evidence of Lord Carter before this Committee, I thought he was pretty laid back about the implications of what he was doing. He did not actually have an estimate of how many firms would survive, and I think this is really dangerous, because you already have parts of the country where there are advice deserts and this is going to make it worse because the supplier base is going to decline. He accepted that the supplier base is going to decline.

Lord Falconer of Thoroton: On the advice deserts point, if you are serious about seeking to address advice deserts (and advice deserts are not about criminal law, they are about civil and family law), then you need to address how you are going to encourage the market to go to areas like Wales and the North East where it is currently under represented, and that is why you need to focus on: is London, for example, over supplied? It does not mean, I do not think, asking people to move from London to the North East. It means the expenditure the state makes has got to try to address the advice deserts thing, because one of the things we are genuinely determined to try to address is the problem of vulnerable people not having access to advice. You are going to have money to do that. You need to try to ensure that the money you are spending on criminal is spent as efficiently as possible. There are something like 2,800 firms with criminal contracts with the Legal Services Commission at the moment. Everybody agrees that if Carter is introduced that number will be reduced. There are disputes about what the number may be from, I think, two or 300 up to 800, which is what the Law Society says. I accept that will happen, but I believe that the consequence of that will be that you will have a much more orderly market. On the other point, you are worried about the damage to the provider base. I think the danger is not a destruction of the providers, I think the danger, which I do not think will occur, is that the market will produce higher prices than we believe are the ones that the market will produce. I do not think, if it is a market system you are introducing, which is what we are going to do, that the real problem is the destruction. I think there is not a real risk.

Q368 Keith Vaz: But those who represent those vulnerable people say you are wrong, and, in an answer to me last week, Vera Baird, your junior minister, told me that the decline in contracts in family a drop of 47%, housing a drop of 30%, welfare 35%, debt a drop of 35%, immigration 31%, personal injury 59%.

Lord Falconer of Thoroton: As Sir Michael said, the whole point is that numbers of people being helped are going up. You are focusing completely in this debate on the structure and not focusing on who is being helped.

Q369 Keith Vaz: Those who are being helped say they are not being helped, and it is going to be worse for them - and Sir Michael is not one of them.

Sir Michael Bichard: I do not support that. We had record levels last year of acts of assistance. We will beat that this year, and we think we will probably beat it next year.

Q370 Keith Vaz: Do you know why that is happening? It is because you are forcing this through. You are creating a sausage machine out of the Legal Aid system where quality is suffering because you are asking firms of solicitors to do more and more.

Lord Falconer of Thoroton: That is a complete shift in your position from, "You are helping less people", to now saying, "You are helping more people but lower quality." There is no evidence of that?

Sir Michael Bichard: I think the Legal Services Commission (and, again, I take no credit for this at all) has done more to drive up quality in the legal profession over the last decade than anyone else.

Q371 Keith Vaz: Do you want to do an opinion poll of professionals about the standing of the Legal Services Commission?

Sir Michael Bichard: I know the standing of the Legal Services Commission with the profession. My concern more is what our standing is with clients, and are we providing through the profession (and I will come back to that in a moment) a good service, a quality service, to enough people. The answer to that is the quality is improving but we are still not providing it to enough people. But I am distressed also that this discussion is totally about the profession. Actually it is about other providers too. In 2000 the Commission was giving nothing to the not-for-profit sector. We now provide some ?52 million a year to the not-for-profit, an increase last year of 13 million, and we will retain that level of expenditure next year. We were told at the beginning of this year that we could not possibly improve the productivity of that sector. To their great credit, they have improved their productivity this year by 19%, and that puts them in good shape to deal with the challenges that are ahead. It is not just the profession, it is providing a diverse provider base.

Q372 Chairman: You sought to persuade me that that not-for-profit sector would be able to do what you want much better if you continue to provide a support service for it. That decision, thankfully, has been reconsidered.

Sir Michael Bichard: We are, of course, looking at that decision. What we have to be certain about is that we are using all of the money that we have to best effect, and the sole question for the Commission is, "Was that supplier support service the best way of spending that money for the majority of firms?", and we are looking again now at what would happen if it was not being provided.

Q373 Chairman: Not just firms, but the not-for-profit sector as well?

Sir Michael Bichard: Yes; absolutely.

Q374 Jeremy Wright: Can I come back to the point about why we as a committee are interested, you would say disproportionately so, in the supplier base. One of the reasons for that concern is that the system that is outlined here relies in the end on best value competition. It relies on there being enough players in the market to have an effective system of competition. One of the concerns that we have, based on the evidence that we have heard, is that the operation of the system in its early stages will cause a large number of suppliers to go out of the market, making it less likely that competition will be effective at the later stages. That does not just have a bearing on the suppliers, it also has a bearing on the consumers because they will obviously only benefit if there are a large number of companies still left in to compete. Is that not a valid concern?

Sir Michael Bichard: There are no indications at the moment that firms are leaving the market place. You may well say to me: they are waiting to see what happens. You may b
e right. I do not think that that is what is going to happen. I think, this year, between 50 and 100 have fallen out of the system, and that would be the normal rate for retirement and actually some mergers. I think what you will begin to see is the market beginning to respond to the changes that we are talking about. There is no evidence at the moment that the market is being reduced. I think a bigger issue for us all to be concerned about, and obviously I believe that we could manage this, is what happens after the first round. How do we ensure that there is a healthy market place left? I think we can do that, and we must do it, by the way in which we design the tender process, but I also think that you will find some sub-contractors, because we are allowing sub-contracting in the first round, bidding themselves in the second round, you will find firms bidding from outside of a particular area and you may well find new providers coming into the market place, but that is a real challenge which we have to meet. We have to make sure that there is a healthy market there, not for the first round, which I do not think is a great deal problem, but actually for the second round.

Q375 Dr Whitehead: You have said that the move to fixed fees and the eventual block contract, best value tendering (and, indeed, Lord Carter has emphasised this in his report) may lead to what one might call "financial risk sharing" between a Legal Aid supplier and the LSC as the purchaser. Is that a fair assessment of how you see block contracts and fixed fees?

Lord Falconer of Thoroton: I take it you are looking at Sir Michael rather than me.

Q376 Dr Whitehead: I was generally looking at Sir Michael, yes. Would you say that was a fair assessment?

Sir Michael Bichard: That we are sharing risk with the suppliers. I am sorry, it was not my quote.

Q377 Dr Whitehead: What certainly has been emphasised, in terms of the value of fixed fees, block contract and best value tendering, in terms of the risk that the department is taking in the LSC as the purchaser of contracts and the risk that the supplier of contracts is taking in terms of, for example, how they bid in the process and how that then feeds across to the viability of their company, for example, might be determined to be a risk sharing process. Lord Carter certainly set that out in his report and it appears that that general process has been validated by the LSC and the Lord Chancellor's Department.

Sir Michael Bichard: We are talking about private companies here and we are expecting private companies to respond to a new market place. Clearly they are going to have to take decisions about whether or not to enter this bidding process and, if they enter, at what level they can profitably bid, and we understand the need for them to make a profit, but that is a commercial decision which I think is not unreasonable to expect a commercial firm to make. It is a new situation for them, which is why we are giving them some time to get used to that situation, but for the rest of the private sector it is not anything unusual.

Q378 Dr Whitehead: When they do take that risk and enter over a period time a contracting arrangement for fixed fees, in other instances of best value tendering the ground rules stay the same during the period of best value tendering. In the potential case that we might be looking at here the changes in legislation, which may lead to greater complexity in terms of what is required, may introduce those changes in complexity during the process that someone is fixed to a best value tender.

Sir Michael Bichard: I understand the point that you are making that new legislation or new circumstances may make it more expensive to deliver, but I do not think that is an unusual situation in any tender. The world does not stand still; you have always got to reflect in the price that you bid the circumstances that you think might change. You have got to build in a contingency. If you and I seek a builder to convert our house, they are going to take note of how old the house is and they are going to have to make some allowance for contingencies. I do not think we are asking them to do anything that you would not expect a normal commercial firm to do. I think a number of firms are going to need a different sort of advice and a different capacity, different skills, than they have had in the past.

Q379 Dr Whitehead: If, for example, you made legislative changes to, say, criminal procedure during the tenability period of a tendering agreement, would you review the fixed fee levels, or would you say, "That is unfortunate, you have tendered and that is your lot"?

Sir Michael Bichard: Clearly, we are at a very early stage in thinking about the tender process and how that is going to operate, and that is clearly one of the things we will need to take account of. Our focus at the moment is on the fixed fees, the graduated fees, the standard fees and ensuring that we hit those deadlines. We are beginning now to think about the tender process. We will take the best advice that there is available and we will consult. We have consulted with the profession every step of the way on the proposals so far. We have made a lot of changes, as the Lord Chancellor has said, not just in terms of timing but in terms of coverage, in terms of levels of exceptional escapes and we will continue to consult with them over the tendering process and how it is designed.

Q380 Dr Whitehead: My point is that in other instances of best value tendering, when you agree a tender contract you have a contract which is valid both for the circumstances that you find yourself in at the time of bidding for the contract and the period of the contract and that changes are not made during the period of the contract. Are you suggesting that there, therefore, would be a different form of best value tendering contract which would have to stand, notwithstanding what may have been done by the department in the meantime, which could not perhaps, in all honesty, have been predicted by those firms that are tendering?

Sir Michael Bichard: I am not making any statements about how the process is going to be designed. The point you have raised is clearly one of the issues that we want to talk through with the profession.

Q381 Dr Whitehead: As far as travel costs are concerned, you have included travel costs in those fixed and, indeed, graduated fee schemes. Do you think that would disadvantage providers in rural areas, particularly where they have relatively mobile vulnerable clients and, therefore, the travel costs are much higher but the travel costs are included within fixed fees across the board?

Sir Michael Bichard: The Chief Executive may want to comment on the detail of this, but actually what we have done is to take particular account of the problems in rural areas.

Lord Falconer of Thoroton: We have not included travel costs in rural areas.

Carolyn Regan: It is only included in the 16 urban areas.

Sir Michael Bichard: So, again, we have listened to what the profession has been saying to us and we are particularly conscious of the problems in rural areas.

Q382 Dr Whitehead: But you have not included it for the tailored fixed fee replacement scheme for non-family civil work, for example.

Carolyn Regan: I would need to clarify that.

Q383 Chairman: Do you want to check, in which case you can come back?

Carolyn Regan: Yes. I need to clarify that.

Q384 Dr Whitehead: Looking at fixed fees also in terms of the context of waiting, there have been concerns that waiting is pretty largely outside the control of the providers. It can range from a variety of waiting experiences, if that is a fair description of the process of waiting, depending on what is happening at court, for example, and yet the element of waiting in fixed fees is itself fixed. Is that fair, do you think?

Lord Falconer of Thoroton: There can be a variety of causes for waiting. We think the right thing to do, even in the 16 urban areas, is to include waiting as part of the fixed fee so that there is as much incentive as possible on one of the players to try to make the waiting as little as possible, recognising that it is not entirely within their control but it helps to reduce waiting. What we have done is include some element for waiting. It is a fair way of doing it. It provides an incentive, as much as it is possible, for the solicitor to reduce the waiting.

Q385 Dr Whitehead: But the waiting is not entirely within the solicitor's control?

Lord Falconer of Thoroton: Not entirely, but there is a bit built in to give him a bit of compensation for waiting. If you build it into the fixed fee then surely the incentive there is to do as little waiting as possible. Insofar as they can reduce the waiting they will try to do so.

Q386 Chairman: When are we going to hear about these things that you have withdrawn to consult further on, like family, mental health, asylum and immigration fees, and also those that you are consulting on anyway, such as the crown court litigators' graduated fee scheme. We are awaiting details on all of those, are we not?

Carolyn Regan: The next raft of consultation of consultation on the civil side that you have mentioned, including family, immigration and mental health, is due out at the beginning of March for consultation of six weeks and three months on the funding code. That includes the revisions which have been mentioned before in relation to the comments from the pre-business consultation. On the crime side, the consultations were launched on 12 February and I think you have had a package of papers on those. There is another piece of work we need to come back on, which is the quality indicators and scheme which again will be at the beginning of March, so roughly at the same time as the civil consultations.

Q387 Chairman: So it is quite tight for the business plan, is it not?

Carolyn Regan: It is quite tight at the moment, but it is also not due to take effect until October of this year, so part of what we have done is to consult slightly later but to produce the changed regime in October rather than April which was the original proposal.

Q388 Chairman: We are not going to complain about you listening to the questions or carrying out further consultation but there is a concern, I think, that it will be very difficult for them to make the necessary changes, especially if it involves recruiting people.

Carolyn Regan: Yes. Can I make two other follow-up points? One is that the other piece of work that is coming out at the same time is the overall family strategy which looks at the context for these changes and the fees specifically, and the other question that was asked was about waiting and whether it has been included or not in the civil fees. I made the point on crime that travel and waiting is only included in the urban areas. On the civil side it is usually the clients going to the providers or the suppliers.

Q389 Dr Whitehead: This is a question to Sir Michael and Carolyn Regan. You have just published a consultation paper on 12 February dealing with new solicitors' panels for very high cost crime cases. In that consultation paper it appears you have proposed a categorisation of big prices, that is, approximately three ranges of big prices. If you are an interested firm for bidding to get onto the panel you will have to enter a bid on the basis of one of those high, low or medium prices. Within that, as it were, operating laterally across each scale, those firms will be graded according to threshold competence and above, and a suggestion of the document as far as I understand is that, as it were, those on the panel and bidding will be filled up on the basis of who bids in the lowest category with the highest competence, who bids for the highest competence in the second category and so on, and that therefore in general terms "price drives competence" appears to be the process by which the bidding will be undertaken. Is it your view that that represents value for money or does that represent, as it were, the trumping of money over competence, ie, if you are a really good firm but you come in the high category, but you are not such a good firm and you come in the low category, one will trump the other?

Carolyn Regan: I think what this represents is an ongoing piece of work which is partly driven by the fact that 5% of the overall budget is taken up in these very high cost, very long cases. The two points I would make at this stage are that we are looking for teams of people to bid, solicitors and barristers, and over time we will move to a different very high cost cases panel in terms of the peer review process, but at the moment this is the system we have got. The second round will be open price once we get to a higher quality standard, so this is an interim move towards going to a follow-up round with higher quality.

Q390 Dr Whitehead: And this is because you do not have a robust VHCC peer review mechanism in place at the moment?

Carolyn Regan: This is because we have a robust peer review for level 3, which is what we are saying people need to apply on at this stage, and, as we have said in all our documentation, the intention over time is to increase the quality standards and to move towards peer review 2.

Q391 Dr Whitehead: This document has appeared just for VHCC.

Carolyn Regan: Yes.

Q392 Dr Whitehead: Is it the suggestion that that might form something like the blueprint for wider competitive tendering for non-VHCC cases in future, subject to the peer review arrangements that you have suggested?

Carolyn Regan: We have said in discussions with the professional bodies that we are looking to increase the quality standards over time from level 3 to level 2, so yes, it is applicable to other things and not just very high cost cases.

Sir Michael Bichard: But there are particular circumstances which apply to VHCC cases. As far as criminal competitive tendering from 2008 is concerned, we have said that we will allow three peer review 3 companies to bid initially but that we will want to move that up to only allowing 1 and 2 to bid in the second round, and as far as civil is concerned, which will not start until 2009, we would be looking for competence levels 1 and 2 from the beginning, so our intention is to drive up quality at the same time that we improve value, though with a peer review process you could take that even further in five, ten or 15 years' time as more and more firms become higher and higher quality, so you can fix the bar at a different level. There is no question of this being a way of driving down quality. As I said earlier, everything the Commission has done in the last ten years has been about driving up quality. This has got to be a combination of quality and price and value.

Q393 Dr Whitehead: But is it not the case under these suggestions that if you appraise your bid so that you know you are a very good firm but, partly because you are a very good firm, your tendering is not necessarily coming in at the lowest level, you will therefore, as it were, join the back of the queue in terms of filling up the bid process because you are not in the lowest category and therefore quality will lose out, not come to the fore?

Sir Michael Bichard: I would not take this as a model that we are going to introduce for the rest of the system. There are particular circumstances here. We are having to do it earlier than we are doing it for the rest of the system. We have to take account also of issues of experience and capability in these very high cost cases, so we have had to try and design a system which I think is more complex than we would have liked and I do not think you should take that as a model for what is going to happen with other criminal and civil in 2008 and 2009. That is something which we want to discuss further with the profession, as I said earlier. That is a debate which we have not yet even started.

Q394 Dr Whitehead: So it will not be a wider model?

Sir Michael Bichard: It will not be the model for the rest of the system. I would very much doubt that it is and, as I say, it is the subject of consultation.

Chairman: There is a division in the Commons. We would like to put a question to you in writing about black and ethnic minority issues. Thank you for coming today. We look forward to seeing the Lord Chancellor next week on Wednesday with the Attorney General.