Legal Services Bill [HL]

moved Amendment No. 413: 413: After Clause 165, insert the following new Clause— ““Establishment costs (1) The Secretary of State shall pay to the Board, and to the OLC, such sums as the Secretary of State may determine to be the costs falling within subsection (2) incurred by each of them in connection with the establishment of the Board and of the OLC respectively. (2) Costs fall within this subsection if they are incurred— (a) before the passing of this Act, or (b) after the passing of this Act but before the last day appointed under section 201(2) in respect of any of sections 2, 111 and 119. (3) There shall be met out of monies provided by Parliament any expenditure incurred by the Secretary of State in connection with the establishment of the Board or of the OLC.”” The noble Lord said: My Lords, this amendment and those associated with it are designed to ensure that the Government meet the start-up costs of the Legal Services Board and a proportion of its running costs. As noble Lords are only too well aware, the Legal Services Bill is currently drafted on the basis that the whole cost of the regulatory structure, including the supervisory tier—the Legal Services Board—should be borne by the legal profession. We accept that the profession should meet the full cost of the first tier of regulation; that is to say, the work of the approved regulators and the Office for Legal Complaints. However, the costs of the supervisory tier are another matter. The supervisory tier serves a purpose distinct from that of the front-line bodies. The regulatory structure could work perfectly well without a Legal Services Board. The approved regulators, having separated their representative arms from their regulatory arms, could simply be left to get on with the task. The Government have decided, following Sir David Clementi’s advice, to create a supervisory tier, the Legal Services Board, to provide a check on front-line regulators, to promote consistency and to resolve disagreements where necessary. The board, provided it operates as a ““light-touch”” supervisor, may well discharge a useful function; but the Government’s decision to require the legal profession to meet the whole cost of the Legal Services Board is unreasonable. Sir David Clementi said: "““The issue arises as to how the LSB should be paid for. At present a substantial part of the oversight function is paid for by the State: judicial oversight falls to the taxpayer, as does the cost of the oversight function carried out by Government departments. The arguments in favour of the Government contributing to the cost of oversight functions beyond the fact that it does already are … that the LSB, in pursuit of its objectives … such as ‘access to justice’ has a wider role in the public interest than the oversight of practitioners in the legal sector; and that an element of payment by other than the bodies being regulated confirms that the regulator is independent of the regulatee””." He adds: "““There is an interesting precedent in the proposed funding of the Financial Reporting Council. Its funding is to be split, two thirds falling to the private sector and one third to Government. How the split should be made between the private sector and Government for the LSB would need to be covered in statute and would, therefore, be the subject of Parliamentary scrutiny””." As Sir David Clementi points out, the Government meet one-third of the cost of the Financial Reporting Council. The Government also meet the full cost of the supervisory tier of healthcare regulation, the Council for Healthcare Regulatory Excellence. The Government have given no adequate explanation of why they consider it appropriate to meet part of the supervisory tier of regulation in the accountancy field, but not in respect of legal services. So far as the Council for Healthcare Regulatory Excellence is concerned, the Government have suggested that it is appropriate to pay because it is important to demonstrate that the CHRE is independent of the medical profession. But that argument applies at least as strongly to the Legal Services Board, which needs to be demonstrably independent of the Government and of the legal profession. One function of the Legal Services Board will be to consider whether additional legal services should come within the regulatory net. This function is currently carried out within government. It does not form part of the regulation of legal services and is carried out entirely in the public interest, rather than in the interest of providers of legal services. It is particularly unreasonable for the Government to expect those costs to be borne by the legal profession. The Joint Committee considered this issue and concluded that the legal profession should not be expected to finance public policy considerations currently funded by the Government. The Government’s proposals would, in effect, transfer cost from the Government to the legal profession. The Government currently meet the costs of the Legal Services Ombudsman, whose functions will be absorbed in the Office for Legal Complaints, which will be funded exclusively by the legal profession, and part of the costs of the Legal Services Complaints Commissioner, whose post is also abolished by the Bill. The Government also meet the costs associated with the Legal Services Consultancy Panel, and the costs of the work in relation to legal services regulation of the Lord Chancellor and the senior judiciary. Continuing to contribute towards the cost of regulation would thus maintain the existing position, rather than represent a new spending commitment from the Government. The examples that the Government gave for regulators funded entirely by regulatees—the FSA, the FOS and the Pensions Regulator—are entirely beside the point. They are frontline regulators. We have no quarrel about that. Ensuring a continuing contribution from the Government might also act as a brake on any tendency of the Legal Services Board to expand its activities unjustifiably. There is an obvious risk that if the board can simply re-charge the cost to the approved regulators it will grow substantially beyond what the Government say that they envisage. It is important for the Government to have a financial incentive to ensure that the board operates as the light-touch supervisory body that they have so often said they wish to establish. It should also be recalled that this issue has to be seen in the light of the steadily increased estimate of the start-up and running costs of the board. The noble Baroness very generously did not need any probing to let us know that, yet again, last month’s cost estimates for the establishment of the board have gone up. We are now talking of a sum of no less than £46 million, with annual running costs approaching £30 million. These figures are a far cry from the context in which Sir David Clementi was operating. At the time he reached his conclusions, the estimated start-up costs of the Legal Services Board were less than £10 million. So the changing financial picture ought to be a very convincing new component for the Government in changing their view about how this new system is to be financed. I beg to move.