In the Media

Profession to pick up ?27m reform bill

PUBLISHED June 6, 2006

Lawyers are to foot a ?27 million bill ? more than twice the government?s original estimate ? to pay for the move to a new system of legal services regulation.

The revelation came last week as the Lord Chancellor, Lord Falconer, published the draft Legal Services Bill, which will establish the oversight legal services board (LSB), an independent office for legal complaints (OLC), and create alternative business structures allowing multi-disciplinary practices and non-lawyer investment and ownership.

A year ago, Lord Falconer put the set-up costs at ?13 million following initial work done for Sir David Clementi by Ernst & Young. The new figure was in a more detailed financial analysis commissioned from PricewaterhouseCoopers. Most will go to set up the OLC, which the government said is ?justified by the benefits accruing to consumers and the legal services sector as a whole?.

The analysis said it would be offset by annual savings of ?9.5 million in running costs, mainly attributable to rationalising complaints-handling.

Current annual running costs across the market were put at ?97.4 million (?64.9 million for regulation, ?32.5 million for complaints), compared with ?87.9 million in future (?67.3 million for regulation, ?20.6 million for complaints).

However, some of these savings will not be seen by lawyers. The entire cost of regulation will be levied on the profession in future, whereas currently the government pays several million towards some of the oversight functions being brought together in the LSB.

Law Society chief executive Janet Paraskeva said there was no reason why the government should not continue to pay towards supervisory functions, as it does in accountancy and health care. ?Good regulation benefits the public interest as a whole and the economy, and so Sir David Clementi was right to suggest that the government should make a contribution,? she said, calling for the government to meet the start-up costs too.

The draft Bill featured just seven relatively minor changes following the consultation on last year?s White Paper. There was no movement on key issues, such as the Law Society?s call for regulatory powers to be vested in front-line regulators rather than the LSB ? although Lord Falconer said the LSB will be ?very light touch? ? and for an independent appointments process for LSB members.

The Bar Council and Council for Licensed Conveyancers want the OLC to have the power to delegate complaints-handling back to front-line regulators, but this also fell on deaf ears.

The Bill?s regulatory impact assessment said it would be of benefit and would not adversely affect small firms, legal aid or racial equality. While greater competition may lead some small firms to close, it predicted that competition and alternative business structures would drive innovative services to take their place.

Law Society President Kevin Martin warned that the independence of the profession must be protected and said the legislation must not create a ?regulatory quicksand riddled with duplication, delay and unnecessary burdens?.

The issue of independence was taken up by Lord Hunt of Wirral, the Conservative solicitor who will head the joint parliamentary committee appointed to scrutinise the Bill. ?These reforms must enshrine professional principles that serve to underpin a strong, diverse and effective legal profession,? he said. ?They must entrench the independence of the profession and also strengthen its integrity.?

The closing date for written evidence to the committee is 15 June. It has to report by 25 July.