Legal Services Bill [HL]

My Lords, I have not had any conversations with the Treasury. I do have the word ““Resist”” written on my brief, but it is not from the Treasury. Indeed, we have been in consultation with the Treasury to do precisely what the noble Lord has invited me to do, which is to give an update on the costs. Noble Lords will recall that when we considered this issue on 16 April, I said that I was concerned to look at the figures reported by Francis Gibb in the Times, as well as to consider the further analysis undertaken with the Law Society and the Bar Council. Rather helpfully, those with whom we shared the figures raised different points that they wished us to reconsider, which I duly asked officials to do. I also asked my officials to give me figures that I could use this evening in order to set out for noble Lords the position as it currently stands. We have been looking to refine the implementation plans and to consider the amendments that have been made to the Bill, so it is absolutely right to reflectthe current position by updating the costs. Noble Lords will recall that the original forecast by PricewaterhouseCoopers was £26.8 million. Following our further analysis, the figure now stands at£32 million, which takes into account inflation—that is, the costs are restated at 2007-08 prices—and includes VAT. It also reflects other adjustments which have led to decreases in costs in some areas and increases in others. In addition, in relation to the Office for Legal Complaints, we have assumed a year-on-year increase in the volume of complaints. That is based on an analysis of the compound annual growth rate of Law Society complaints, which account for approximately 96 per cent of the total annual volume of complaints. Building in this annual growth rate has impacted on both implementation and running costs, with the result that it is predicted that in 2007-08 the running costs are now predicted to be £19.9 million compared with the PricewaterhouseCoopers estimate of £16.8 million. The noble Lord, Lord Hunt of Wirral, specifically asked me for that figure. However, the revisedfigure still represents a saving on the currentcomplaints handling arrangements, costed byPricewaterhouseCoopers at £32.5 million in 2005. While the analysis we have carried out is robust and based on sound assumptions, any operation of this size involves risks, no matter how carefully planned and managed it may be, so we have put together a risk register. It is therefore prudent to build in a margin for unforeseen costs, and I have suggested that we build in a margin of 15 per cent, which is approximately £5 million. That is based on an analysis of the risks associated with the reform process and the costs that may accompany those risks. It is right and proper to cite a figure that takes into account all the risks of change. Although I do not anticipate the risks, they could include problems such as not being able to find appropriate premises. These are risks that we do not believe will be realised, but none the less have to be taken into account. We have also looked at the possibility of a spike in complaints volumes occurring two to three years after the introduction of the new scheme. We have analysed what has happened in comparable sectors and the evidence suggests a tendency towards a spike two to three years in. However, I emphasise that our forecasts already take into account a year-on-year increase, and of course the experience of different sectors does not necessarily read across. In addition, in practice we would expect to see economies of scale and a decrease in cost per complaint. It is obviously crucial that noble Lords and the legal professions have confidence in these figures, so I should like to emphasise that the adjustments which have been made are based on a robust analysis. What is more, I can confirm that the revised figure will now form the basis of the implementation budget for the new organisations when responsibility is handed to the new boards; that is, it will be the budget that they are given.