The Parliamentary Under-Secretary of State for Justice (Mr Jonathan Djanogly)
I declare any interest I may have as a non-practising solicitor. First, let me congratulate the hon. Member for Kingston upon Hull East (Karl Turner) on securing this debate. I recognise that this is a timely and important discussion to have at present.
Let me start by saying that measuring and understanding the effects of the Legal Aid, Sentencing and Punishment of Offenders Bill on the providers of publicly funded legal aid services is something to which the Department of Justice has been committed throughout the policy development process. I invite hon. Members to consider both the impact assessments and the equality impact assessments published alongside the Government’s consultation paper and our response to that consultation. These are extensive in their consideration of the impact of the reforms on legal aid providers, with the equality impact assessment providing very granular detail on the potential for differential impacts in respect of different provider types—whether for solicitors, not-for-profit organisations or barristers.
We recognise that such assessments have their limitations. They use a method analysts refer to as counter-factual assessment. This operates by taking a given set of assumptions—in this instance, a snapshot of income in the legal aid market in a given financial year—and applies a narrow set of changes to this snapshot, which here means the reduction in income implied by the changes in the Bill. What the assessment cannot do is measure things like how providers will respond to those changes in terms of the structure of their firms, the business model they employ, their employment profile or the areas of law covered by their organisations. This is a crucial point for me in this debate. In other words, one cannot say with any real certainty how individual providers will respond to the changes, and that will be major factor in the overall “effect” experienced by the providers of legal aid. However, following the commitment made in our consultation response, we have commissioned a study that we hope will provide a better understanding of the dynamics of legal aid providers.
It should also be recognised that our discussions today are not purely theoretical. I simply do not recognise the picture of a failing environment for providers that the hon. Gentleman portrayed. Almost half the savings being taken from legal aid for the spending review period are derived from the remuneration changes implemented last October, which have now been in operation for up to six months—and there have been no discernible negative impacts on the supply. In fact, there has been strong confirmation that the market is willing to work at the new rates. The most recent Legal Services Commission tenders for family work were conducted using the new reduced rates, and were over-subscribed. This suggests that the rates offered are sustainable, and that providers are able to absorb and respond to the impact of reduced fees.
Returning to the Bill, at the macro level there are, of course, some obvious realities. I have always been very open about these, as the hon. Gentleman will know, both in Parliament and in my extensive engagement with the sector. A contraction in the range of services funded under legal aid will most probably mean a contraction in the number of firms providing such services, as well as a reduction in the numbers of lawyers practising in legal aid. I disagree, however, that this will translate into widespread advice deserts; it is certainly not the case at the moment.
This is a natural corollary of the changes we are making to scope, and I make no apology for that. I agree with the hon. Gentleman that in most, but not all, cases, this is not a debate about so-called “fat-cat lawyers”. The legal aid system is there to provide advice, assistance and representation for those who need it most, not to maintain existing numbers of lawyers—but we do, of course, need a sustainable provider base, because without those who deliver services there would be no legal aid system. To this end, we are finalising our approach to the first round of contracting under the new scheme, which we expect will commence soon after Royal Assent.
There are, of course, two sides to this coin, and sustainability is not something that Government, as the purchasers of services, can or should provide purely on their own. No market is static, nor should it be. The legal aid market has historically shown itself to be adept at responding to changes and seeking out commercial opportunity—and I see no reason why it should not do so again.
If any business is to thrive, it must be flexible and adaptable—that is true of any sector—and the Government are creating the conditions that will allow legal aid providers to flourish. The Legal Services Act 2007, for instance, establishes a new licensing regime, which is now fully operational and which affords more flexibility, innovation and opportunity in terms of the type of business structures and providers that can offer legal services. The significance of that change, and the commercial opportunity that it represents, cannot be overstated.
That is not to suggest that the innovative models made possible by the 2007 Act are the only way in which providers can remain sustainable under the new scheme. The impact assessment figures published alongside the Government response to consultation suggest that even after the reforms have been implemented, approximately £1.7 billion a year will still be spent on publicly funded legal aid services. It is likely that, following the savings, we will still be spending more on legal aid than any other country, and it is undeniable that that level of expenditure represents a viable market. Given the range of services that will still attract funding, it will be open to providers to diversify and seek income across a range of areas of law, although for some providers the most prudent option will be to concentrate on their area of core expertise and expand their market share in that field.
It will also possible to bid for complementary services. The Government have made clear their commitment to alternative dispute resolution. They expect to fund an additional £10 million in mediation services within the new framework, and the Legal Services Commission will be tendering for additional mediation contracts to provide those services. The introduction of the mandatory telephone gateway—which the hon. Gentleman mentioned, and which we intend to reinstate in the Bill—also presents opportunities. Providers will still be able to run telephone-based contracts alongside face-to-face contracts in areas that will continue to attract funding.
The overall message that I wish to convey is that—while challenging and sometimes traumatic—the changes will not come without opportunity, provided that there is a willingness to engage with them and think constructively about how to respond to them. Although steeped in great tradition, the legal profession has demonstrated resilience and fluidity throughout its history, and I would expect nothing less in response to these changes.
As the hon. Gentleman said, some people outside the private legal profession will be affected. Both he and the hon. Member for Kingston upon Hull North (Diana Johnson) pointed out that the equality impact assessments also consider the likely impact of the proposals on not-for-profit organisations. Such organisations have traditionally had a significant presence in a number of the areas that the Bill removes from scope, and the Government fully recognise the cumulative effect that the changes could have when coupled with local authority reductions in funding for them. However, as I have consistently made clear to the House, the Government also recognise the benefits that early generalist advice can have in a range of contexts. We want to help the sector to continue to deliver such services, but not necessarily in the context of legal aid.
We have already seen the creation of the £107 million transition fund and the £20 million advice services fund to help the sector to deal with the legal aid changes and with what will happen after that. The Chief Secretary to the Treasury has now indicated that additional funding will be available after the current financial year to help the sector further, and it will be announced in the forthcoming Budget statement. That underlines the Government’s commitment to the provision of advice services such as this, and it is expected to ameliorate the effects of other funding reductions.
However, that is not to say that everything will remain the same. Because of our current fiscal situation, savings must be made, and the not-for-profit sector will need to demonstrate the same adaptability and resilience that I have described in respect of the legal profession.
The Government understand, and are sympathetic to, concerns about the scale of the change that the Bill represents, but we stress that it is incumbent upon the providers of services to think constructively and creatively about how they will establish themselves in the new market. Change will, naturally, be a challenge to the sector, not least because the current system has operated for a significant time, and providers will have become accustomed to a particular way of working. However, for the reasons I have given, there will be real opportunities for those who wish to take them, and for those outside the scope of the new scheme additional funding is being made available to provide for the future.
May I conclude by returning to the topic of the—rather technical-sounding—counter-factual assessment, to which I referred at the outset? We must avoid falling into the trap of predicting the future on a basis that does not allow for the very human response of adapting to changing circumstances. There is a future for legal aid providers, and the market can thrive, but the willingness of providers to adapt will be key to achieving that. Given what I have seen to date—not least providers’ response to the fee reductions—I have every confidence that that will be achieved.
Question put and agreed to.