Baroness Deech
Main Page: Baroness Deech (Crossbench - Life peer)Legal Profession: Regulation
Baroness Deech Excerpts
Baroness Deech
To ask Her Majesty’s Government what assessment they have made of the efficacy of the regulation of the legal profession.
Baroness Deech
My Lords, I declare an interest as the chairman of the Bar Standards Board and as a non-practising barrister. I have regulated several enterprises in my time, but I have been fortunate in only ever regulating those which I am convinced do good and with which I am familiar and well briefed. This House spent many hours last year debating the merits of and need for public bodies, and the principles aired then are ones that we need to be reminded of tonight.
The background to regulation of the legal profession is simple to grasp, and it is quite different today from the situation that prevailed when the governing statute, the Legal Services Act 2007, was conceived and passed. Simply, it is the lack of legal aid and affordability. That is no problem for those who go to the thriving commercial side of the Bar, but the average wage earner often finds the expense of legal advice beyond his means, in part because of the built-in cost of regulation. The effect on the profession is dire too, for the very large numbers of the Bar who do, arguably, the most socially valuable work, in criminal and family law, are seriously affected, because payment for regulation has to come out of their own pockets. This works against mobility and diversity, for the altruistic young people who qualify and want to come to the Bar cannot earn the modest living they once relied on without the legally aided work, at the very time when their higher education debts have peaked.
The Legal Services Act, which governs my work, is grounded in the 2004 report by Sir David Clementi on the regulatory framework of legal services. He was concerned with the then over-complex existing regulatory frameworks and with complaints handling, although, to be fair, that was more relevant to the solicitors’ branch than the Bar. He was trying to reconcile liberalisation, allowing competition and access to flourish, with protecting the public, with special focus on complaints handling. His report led to the Legal Services Act 2007.
Consumerism was the other motivating factor behind the Act, but that policy was formulated in 2000, in an entirely different economic climate, following the Office of Fair Trading report about competition in the professions. This was all before the crash of 2007-08 in the financial world and its dreadful results. That demonstrated the failure of financial regulation, which, with hindsight, might have affected the principles behind the Legal Services Act. It was once thought that the division between clearing banks and merchant banks should go, and that there should be a free market of unfettered competition and deregulation. I am no economist but I would not be alone in pointing out that the meltdown and bank collapses resulted, and the Financial Services Authority seemed to have no power to prevent any of this or stop any innocents from losing. Indeed, that super-regulator is about to be dismantled. Legal regulation was developed without regard to this history and its risks have yet to play out.
Under the 2007 Act, the profession is overseen by the Legal Services Board. Its powers are devolved to some extent to the front-line regulators—for these purposes, the Bar Council and the Law Society, which have separated out their regulatory and representative functions. Therefore, the Bar Council represents barristers and the Bar Standards Board regulates them; the Law Society represents solicitors and the Solicitors Regulation Authority regulates them—not to mention six other regulators. For the purposes of this debate, I will concentrate on the Bar and the solicitors, of whom there are 10 times as many, and I am married to one of them.
Proper regulation, in the public interest, is absolutely vital but it needs to be balanced against cost and existing resources, and performed efficiently. It does not take much to see that, rather than sorting out the maze of regulation, the statute adds to it; there may be over-regulation, duplication of regulation and competitive regulation, none of it cost-capped. The cost of the Legal Services Board and its demands are serious issues, for the practitioners have to fund it, as well as the other projects it has required—quality assessment of advocacy, an education review, diversity data collection and the Office for Legal Complaints. More than that, it is arguable that the Bar was caught up in the slipstream of the criticisms that were levelled at the handling of complaints by solicitors, and the heavy structure of the 2007 Act is not suited to as small a profession as the Bar.
When the Legal Services Bill was introduced in 2006, the regulatory impact assessment calculated the annual running costs of the Legal Services Board, which is the super-regulator overseeing the specialised ones, at £3.6 million. However, the total borne by the entire legal profession up to now is £19.5 million, with another £50 million for the Office for Legal Complaints. The cost falls on clients and, in the case of legally aided clients, on practitioners. That is due to duplication of work through micro-management of regulators and the pursuit of objectives more akin to a market regulator than an oversight public interest regulator, as was mandated by Parliament.
I echo the fears of Sir Sydney Kentridge when regulation of the legal profession was first advanced a few years ago. He feared an increase of power of the Government to control the legal profession through a government-appointed body, but he was confident that the Lord Chancellor would ensure that the Bar was protected. Sadly, as I have learnt at international conferences, the outside world sees the independence of our legal profession as diminished by regulation.
The 2007 Act laid down eight regulatory objectives in no particular order. Some conflict with others in practice. Therefore, a margin of appreciation clearly must be left to front-line regulators to decide what steps to take. It is not clear from the statute whose view would prevail in case of disagreement between the Legal Services Board and the front-line regulators. Nevertheless, history has shown that one objective, that of promoting the interests of consumers, has been elevated above the others by the super-regulator, and in so doing it sees it as its task to “direct” rather than “assist” —the word chosen by Parliament—the front-line regulators.
Excessive focus on the consumer interest may be to the detriment of the professional interests and standards upheld by the lawyers. Commercialism is not everything, although one wants legal advice to be available and affordable. Certain services, such as education, health and the law, are beyond market value. The public interest must prevail. It does not seem to me that the public will be well served if there is authorisation for a new category of partly qualified or underqualified providers of legal services who offer only one service—for example, will writing, which cannot really be confined to a small area.
Too many new projects are being imposed by the super-regulator on the front-line regulators without due regard to cost, need and effort. For example, outcomes-focused regulation does not work well for the rules of conduct of the Bar, because court litigation is a process-driven system, where the rules are not merely means to an end but an end in themselves and intrinsic to the rule of law itself.
Let us take referral fees. They are seen by the entire Bar as unethical, restricting competition between lawyers and denying the client freedom of choice. They are likely to be illegal under the Bribery Act 2010, but the front-line regulators are being told to retain them except where specifically banned by law, in the face of evidence that they are a bad thing.
Another example is that the members of the Bar have been told that, when they first meet a criminal client in the cell, they must give that client on a piece of paper directions as to how to complain. There could not be a worse moment at which to do it. Now there is required detailed collection of barristers’ equality and diversity data, which go beyond the Government’s recommended approach, in that they require data on sexual orientation and socio-economic status. They are to be collected chambers by chambers, yet many chambers have fewer than 10 members, which makes collection of such data very sensitive, because anonymity may easily be breached. The Bar’s preference for aggregate collection of such data across the profession was rejected.
The Bar Standards Board does not dispute the need for proper regulation, but it should be proportionate, affordable and effective. We were disappointed that the Ministry of Justice’s triennial review of the Legal Services Board did not address those concerns directly. The opportunity will present itself again in the quinquennial review of the 2007 Act.
The noble Lord, Lord Carlile, who cannot be in his place this evening, has said, in support of what I am saying, that the regulation of the legal profession is cluttered and bureaucratic. It may not have gained the confidence of the profession or the public.
At this stage in the implementation of the Act and the introduction of alternative business structures, there remains a role for the Legal Services Board, but not many more years should pass without an overhaul of the complications introduced by the Act in establishing a super-regulator. I hope that the Lord Chancellor and the Ministry of Justice will start a discussion with the profession and identify a simpler, cheaper and more balanced future.
Lord Hunt of Kings Heath
Having been a Member of your Lordships’ House for 15 years, I now recognise the special characteristic of lawyers, and I rejoice in it. I have only five minutes left and perhaps I ought to press on.
Clearly it is important to ensure that professional regulation works effectively. It should not be overly bureaucratic and it should uphold the independence and integrity of the profession. We should be very proud of the whole legal services profession in this country, the fact that it is recognised globally and that legal services are a huge export for this country. Clearly we should do nothing that undermines the strength of the legal services industry in that regard.
I supported the passage of the Legal Services Bill in 2007. Although the Legal Services Board has come in for some criticism in your Lordships’ House tonight, we should recognise the progress made by the board under the chairmanship of David Edmonds. We should also recognise that the board will be publishing its inaugural assessment of the effectiveness of each of the approved regulators, including the Solicitors Regulation Authority and the Bar Standards Board. It might have been better if this debate had been timed after we had seen the outcome of these arrangements.
The triennial review to which the noble Lord, Lord Gold, referred has suggested that there is a continuing role for both the Legal Services Board and the Office for Legal Complaints. The next review will take place in 2015. The suggestion by the Bar Council and a number of noble Lords for post-legislative scrutiny, which I would always support as a matter of principle, might be better timed to coincide with the next triennial review around the 2015 mark so the two might run concurrently.
I have noted noble Lords’ concerns, and particularly the Bar Council’s concern and criticism of what they describe as mission creep by the Legal Services Board, citing micromanagement, duplication and overlap of regulatory activities and unnecessary cost. These have to be guarded against. I understand the total cost of the LSB start-up and first three years’ running costs of just under £20 million is not insubstantial, although it is modest compared to many other regulatory bodies. The noble Baroness, Lady Deech, commented on examples of where the LSB is considered to have gone overboard, and mentioned equality and diversity data collection. My understanding is that the LSB—as it saw it—gave best practice advice on how that collection could be done anonymously and made it clear that there should be no compulsion on individuals to take part. The consultation was explicit that the reason for going beyond the blanket survey was so that clients and potential employees could see the diversity make-up of individual firms and chambers. I am not going to argue one way or the other, but it is important that we also hear the viewpoint of the Legal Services Board. We have tended to hear from one side.
Baroness Deech
My Lords, perhaps I might explain in response to the noble Lord. There is obviously no objection to collecting diversity data across the entire profession of 15,000; the Bar has done it for a while. It was difficult to collect data from chambers where there were perhaps only 10 people. Even if it is anonymous, identifying someone by ethnicity or sexual orientation would of course be very easy. Because a unit is so small, that encourages people not to participate. I am afraid that our practical arguments in that respect were simply rejected, with the outcome, I believe, that rather fewer data are collected than might have been the case if we had been able to organise it ourselves.
Lord Hunt of Kings Heath
My Lords, I am sure that the House is very grateful to the noble Baroness for that explanation. As I said, I do not seek to argue one way or the other. However, I suggest that in any debate on these matters, it is important that the views of both bodies are heard by your Lordships’ House.
Lord Ahmad of Wimbledon
My Lords, I begin by thanking the noble Baroness, Lady Deech, for securing this debate. The excellence of the UK’s legal profession is well recognised worldwide, and rightly so. The regulatory framework is a key factor in ensuring that these high standards are maintained. I would add—looking towards the noble and learned Lord, Lord Goldsmith—that we meet once again at a late hour. However, the quality rather than the quantity of speakers is an important issue when it comes to the legal profession.
Before addressing many of the interesting points made by the noble Baroness and other noble Lords, I would like to talk briefly about the regulatory framework for lawyers in England and Wales and the reforms introduced in the Legal Services Act 2007. I would simply highlight, as the noble Lord, Lord Hunt, so rightly said, some of the positive elements that we have seen, accepting the challenges that we have faced since the introduction of the Legal Services Act. When we talk about regulation, let me assure you that, as someone who spent 20 years in the City of London and in financial services, the word “regulation” resonates quite loudly in my ears.
The Legal Services Act 2007 had three key aims: a more effective and simplified regulatory framework; a more effective and independent complaints-handling system; and more effective competition within legal services. I turn to the first of those. In January 2010 we saw the new regulatory framework become operational, with the Legal Services Board—which several noble Lords have mentioned this evening—getting up and running. The role of the Legal Services Board is set out in statute. It is an independent body providing—this is the crucial word—oversight regulation of the frontline approved regulators. The approved regulators remain responsible for the day-to-day regulation of their members unless, of course, they are found to be failing in their regulatory duties, in which case the Legal Services Board has a number of powers to intervene to ensure that effective regulation is maintained.
The second key reform is the creation of the Office for Legal Complaints which administers the Legal Ombudsman scheme. Last year it dealt with over 80,000 inquiries, and of those some 7,455, close to 10%, were directly resolved. It acts as the single point of contact for consumers unhappy with the service they have been provided by a lawyer. I would add that there is an informal resolution procedure which sees around 35% of cases handled in this way.
The third and final key reform is the new alternative business structures regime which allows different types of lawyers to work together with other professionals and to accept external investment and ownership. This should allow them to explore new ways of structuring their businesses to be more cost-effective, efficient and innovative. We hope that it will lead to more choice, improved standards and more competitive costs for consumers. While we are happy to see a diverse range of alternative business structures emerging, we are not saying that you need to be an alternative business structure; we are saying that we have given you the flexibility to practise as a sole practitioner, traditional law firm or alternative business structure. So far, over 40 firms have taken the opportunity to become alternative business structures, and it is particularly encouraging to see the diversity of firms involved, ranging from a simple husband and wife partnership to the Co-op.
So much change in such a short space of time means that this has been a steep learning curve for all involved, and this has inevitably led to challenges which several noble Lords have talked about in the debate. Let me address first the issue of proportionate regulation. My noble friends Lord Gold, Lord Faulks and Lord Phillips all alluded to it in their contributions. What is important is that the Legal Services Board and the approved regulators work together constructively to ensure that regulation is proportionate, ensures that consumers receive excellent standards of service, and that the opportunities provided by the Act in terms of competition and innovation are realised. Indeed, the issue of being proportionate to the role of the Legal Services Board was a point well made by the noble Baroness, Lady Deech. The Legal Services Board has been one of the key drivers of the reforms, partly driven by its statutory duties. I appreciate that the pace over the past two years has meant that, as with most new frameworks, there has been a lot of consultation and change, and while the benefits of all of these changes have yet to be realised, we are well on our way to seeing the more competitive and innovative sector that the Legal Services Act first envisaged.
My noble friend Lord Phillips talked about the eight objectives and said that he was not sure whether his contribution was going to be coherent and clear. I can assure my noble friend that he certainly was both coherent and clear. Perhaps I may draw his attention to one of the objectives, which is,
“to promote and maintain adherence to professional principles”,
which are defined in subsection (3)(a) as,
“that authorised persons should act with independence and integrity”.
The complexity of regulation is always an issue, and a key part of the new framework has been the separation of representative and regulatory functions as required by the Act. This led to the introduction of new bodies in addition to the Legal Services Board, the Solicitors Regulation Authority and the Bar Standards Board, which in turn has led to a comment made by several noble Lords that the new framework, rather than simplifying things, has actually added to the complexity. It is vital that consumers have confidence in the legal profession. To that end, regulation of the profession should be effective and not unduly influenced by its representative role. Without that, there is the risk of accusations of lawyers protecting their own. So while we have seen new regulatory arms emerging, that has been an important step in maintaining—that word again—the integrity of the profession. Also, before the new regime was established, a number of different organisations were involved in the regulation of the profession. While I take the point made by the noble Baroness, Lady Deech, about self-regulation, there was still some oversight. My noble friend Lord Phillips of Sudbury also mentioned this point. The Lord Chancellor used to approve rule changes, and in some cases rule changes had to be approved not only by the Lord Chancellor, but by other bodies, leading to the criticism that the length of time taken to process such changes was unduly long.
The new regime streamlines this system by making all rule changes the responsibility of the Legal Services Board. Rule change applications must be dealt with in a timely manner and the Legal Services Board has the power to exempt certain rule changes, fast track rule changes and in more complex changes seek additional views. The latter is not aimed at redoing the work of the approved regulator, but rather at looking at the changes objectively and providing helpful and constructive feedback.
Baroness Deech
I appreciate what the Minister says, but he must accept that there is need to investigate this. Rule changes now go through an even more tortuous process than was the case before. If the front-line regulators have responsibility, then their rule changes ought to be accepted without the imposition of ideology and various approaches which are not necessarily seen as the right way forward for a branch of the profession. Examining the way that rule changes are approved or held up is really important and I am not sure we can wait three years for that.
Lord Ahmad of Wimbledon
I thank the noble Baroness for her question and I agree with her. It is important that those in the profession contribute to the effectiveness of how these rule changes are implemented. I take on board what she says and I hope that some of the proposals we are putting forward will address the issues. I note the concerns expressed by my noble friend Lord Faulks and the noble Lord, Lord Hunt, about mission creep on the part of the Legal Services Board. As I said at the outset, the important issue is about the terms of reference: what was the Legal Services Board set up to do? Earlier this year, the Ministry of Justice conducted a triennial review of the Legal Services Board and the Office for Legal Complaints. Based on this, let me assure your Lordships that, on the responses received—including those from the approved regulators—the review concluded that, while it is still relatively early to assess the full impact of the Legal Services Board, its functions are still needed and should continue to be delivered in their current form.
This was a view supported by the Bar Standards Board and the Bar Council. We must remember that the Legal Services Board is independent of government and it is not for us to dictate how it operates. Its functions are clearly set out in the 2007 Act. However, it is clear that there has been a real need for an oversight regulator to drive the reforms set out in the Act. In doing so, it has fulfilled the important role that only an oversight regulator could have. Those who responded to the triennial review recognised the value it has brought. Following the feedback we have received, the chairman of the Legal Services Board wrote to the Ministry of Justice confirming that his board is also considering the responses made so far.
I am conscious of time, but turning to specific questions, my noble friend Lord Gold raised the issue of micromanagement and corporate governance. The Legal Services Board recognises that important challenges are emerging from the triennial review and accepts that there are things it needs to address. These will include more detail on its draft business plan for 2013-14, and proposals will include reviewing the approach to requests for changes to regulatory arrangements and designation processing, and refining the approach to research funding. Priorities will be included in the draft business plan. Increased understanding of the cost of regulation, not just the cost of the LSB but the full cost of practitioners, will also be looked at. A further issue was raised regarding the value for money of the Legal Services Board. Since the board became operational, it has recognised the need to keep its costs proportionate, and we have seen its running costs reduced year on year, from just over £5 million in 2009-10 to £4.5 million in 2011-12. The combined running costs of the Legal Services Board and the Office for Legal Complaints were approximately £22 million, somewhat less than the cost of the complaint handling regime that was previously in place.
Various issues and questions have been raised in terms of accountability and the post-legislative review. We are confident that for the here and now, the regulation of legal services is appropriate, but that does not mean it will remain so indefinitely. Given that the new regulatory framework was implemented only in 2010, we still believe that it is in its infancy. The next triennial review is due in 2015 and will provide another opportunity to assess how the regulatory framework is performing and whether the LSB’s functions are still needed in an evolved legal services market.
In conclusion, it is important to remember that the new regulatory regime and governance arrangements are still in their early stages, a point acknowledged by respondents to the triennial review. I assure the noble Baroness, Lady Deech, my noble friend Lord Faulks and other noble Lords that the Government are fully engaged with the legal profession and other interested parties in carrying out that triennial review. During that process, we not only conducted a call for evidence but held round-table events and one-to-one meetings. We will continue to engage openly with interested parties as part of that. I also assure noble Lords, including my noble and learned friend Lord Mackay, the noble and learned Lord, Lord Goldsmith, and my noble friend Lord Faulks, as well as the noble Baroness, that we will carry out post-legislative assessment of the Legal Services Act. That will look at the original aims of the reforms and how far we have come in implementing them, and we will be seeking further stakeholder views. Finally—