Legal Services Bill [Lords]

I declare my interest—a modest one—as a non-practising solicitor. It is important to acknowledge something that may not be apparent from the number of hon. Members rushing back from the Whitsun recess to take part in the debate—that this is a landmark Bill in our generation for the regulation of legal services. Yes, we are going to meet the concerns of consumer groups, but it is also important as we legislate to recognise that legal services are vital to the upholding of the rule of law, the functioning of our democracy, and the effectiveness and success of our country’s commercial interests. Throughout our history, there are some fine examples of the outstanding values of talented lawyers—whether it be in respect of criminal law, human rights law or even immigration, to mention a recent example discussed in the national media last week. When an injustice is prevented or put right later, and the case attracts a lot of attention, it is noticeable that the person who was the victim of the injustice—or about to be threatened with it—turns to their legal team and expresses their heartfelt thanks for their skill and dedication in defending them. It is important to bear that in mind, and to preserve the talent and success of legal services in our country. The Bill’s provisions for new business structures are intended to preserve all that is best in our legal services and give them the ability to flourish in new and changing markets. A minority of lawyers are incompetent and, sadly, some of them are dishonest. It has not always been apparent that existing systems for identifying and rooting out such dangerous characters have been as effective as they should have been. When people complain, we do not often hear that the complaints procedures have been transparent; most people criticise their opaqueness. Often, consumers think that the system lacks independence, and that it looks as though lawyers are judging their friends—other lawyers. In many cases, the processes of dealing with complaints are far too slow. All that adds to an air of dissatisfaction, which has led to the pressure for change from consumer groups. If we also take into account doubts about the openness to competition of legal services, investigated by the Office of Fair Trading in 2001, we start to see the powerful case for change. The legal profession has been structured through a series of professional bodies, which, historically, have taken on both representation and regulation of the members of their profession. The various professional bodies have appeared to act in silos—barristers, solicitors, legal executives and the like. It has not even been possible for different legal disciplines to form businesses together. Clearly, if it is not possible even for different kinds of lawyers to form businesses together, it has not been possible for different kinds of professionals to form businesses together and provide services in one business unit. If neither of those are possible, it is certainly beyond the pale at present for a banking or retail business to offer legal services with common owners and managers. That was the scene surveyed by Sir David Clementi in 2003. After his investigation and report, he recommended a legal services regulator, an independent office for legal complaints, and new alternative business structures for the formation of legal businesses. All those recommendations form the basis for the Bill. On a slightly separate note, I was closely involved in the legislation that established the Financial Services Authority. For the financial services sector, the FSA was created to be a single, powerful regulator. In the case of legal services, however, Sir David came up with a design of greater subtlety. He recognised that there is value in continuing to utilise the expertise of professional bodies such as the Bar Council, the Law Society and so on. He made it clear, however, that they could not continue to act as representative and regulator at the same time. For the professional bodies to be regulators, he said that they must effect a complete separation of the two roles. The Government accept that proposition and, through the Bill, envisage that front-line regulators will be formed out of existing professional bodies. In fairness to those professional bodies, they have not waited for the Bill to become law to act. Most recently, both the Bar Council and the Law Society have separated out their regulatory arms and made them more independent. To provide oversight and knit together a seamless, consistent regulatory regime, Sir David also recommended, as the Government accepted too, that an overarching legal services board should be established. The danger of that approach is the inherent duplication of two regulators where one might otherwise suffice: perhaps the legal services board second-guessing the front-line regulator; perhaps one regulator being played off against another; perhaps gaps opening up in regulation because each of the two regulators thought that the other was acting in a particular situation; and certainly, a danger of two sets of costs. Achieving an effective value-for-money regulatory system through the structure of front-line regulators and the legal services board requires us to give careful attention to the architecture of regulation and the powers and duties of the different regulators. In the case of the legal services board, it needs to be small, light touch and strategic, with the power to act decisively when called on. In the case of the front-line regulators, they need to be allowed the freedom to operate effectively within their spheres of operation. Even with that balancing act successfully established, there is still the tricky business of identifying when and in what circumstances the legal services board must intervene if a front-line regulator is failing—what should be regarded as a sufficiently serious failure to warrant intervention by the board. My advice is that decisions about the timing and manner of an intervention—be it a public reprimand or fines, through to the most serious power of withdrawing authorisation from the front-line regulator—should be guided by the best interests of the relevant consumers. Handling complaints relating to legal services is often separate from, but obviously relevant to, the regulation of legal services. As Sir David recommended, the Bill establishes an independent office for legal complaints. The intention is that there will be a single point of contact for all aggrieved consumers of legal services. Where complaints relate solely to poor service, the office for legal complaints will be able to investigate, conciliate and determine the complaints. It can order redress, the equivalent in the legal services area of what the financial services ombudsman scheme does in the financial services sector. Where the complaint points to potential professional misconduct, the front-line regulator—for example, the Solicitors Regulation Authority for solicitors—takes over. In reality, however, many complaints will not neatly fall one side or the other of such a divide. There will, therefore, be a need for co-operation between the regulators and a free flow of information. I have received representations from the Solicitors Regulation Authority to the effect that the Bill should be further amended to give the authority powers that it does not currently possess. One of those is a power to fine and publish rebukes for lawyers whom it has fined and who have fallen short in their duties professionally. That would provide an alternative route to taking each case to the solicitors disciplinary tribunal, which the authority thinks should be retained for the more severe cases. Hearing about the delay in cases coming before that tribunal, I can well see that it would be desirable for some of the less serious cases to be dealt with by different routes. The other representation from the Solicitors Regulation Authority refers to sole practitioners, with the authority wanting to be able to regulate sole practitioners in the same way as a business entity, to prevent there being a possible gap in the regulation between the two. The aim is for the office for legal complaints to be the one clear place to take complaints, offering a quick, fair and accessible way to put matters right, and ensuring transparency and independence both for consumers who make complaints and for the legal service providers who are being complained against. Alternative business structures have the capacity to transform the landscape for the delivery of legal services in England and Wales. Parliament’s role in defining the arrangements will be crucial: too little detail, and loopholes will open up to render regulation ineffective; too much detail, and regulation may be overbearing, complex and costly. Consider the difficulties that arise when one business organisation provides a range of services, each of which is currently separately regulated. Who will license the business to provide the legal services? Will there be one lead regulator? If so, how will the one be chosen above the others? Will different regulators have in place agreed common approaches to the exercise of their respective powers? Such concerns led the Joint Committee, of which I was a member, to propose a step-by-step approach to introducing different forms of alternative business structure. However, evidence that I have seen since the Committee reported leads me to think that that is too strict a way of dealing with the problem. I have in mind, first, evidence from the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys. Admittedly, they are small in terms of their membership and operate in niche markets, but nevertheless they have considerable expertise and some international significance. They already have experience of mixed-practice firms, and they say that such a structure can operate without adverse effects on consumer interests. I am also impressed by the briefing that Members received for the debate from the Institute of Chartered Accountants in England and Wales, which argues convincingly—in my view—that some multi-professional businesses which bring together lawyers and professionals such as accountants and surveyors offer considerable benefit to consumers, along with low risk for regulators. I conclude that Parliament should concentrate on getting the regulatory framework right, and leave the Legal Services Board to get the sequence and the pace of introducing licensing for alternative business structures right for themselves. There is genuine concern about the effects of alternative business structures on access to legal services. Will new businesses ““hoover up”” existing sources of work, making existing providers on high streets and in rural areas no longer viable? Will consumers retain their present ability to choose between providers, or will that choice be reduced? The Bill—rightly, in my opinion—requires the Legal Services Board to have regard to that issue. One of the regulatory objectives is ““improving access to justice””. I think I heard my hon. Friend the Minister say that she did not like amendments to that effect that were made in the House of Lords. She referred specifically to the requirement for research to be carried out before the first licences could be issued. I agree with her that that goes too far, but I think it right to require the Legal Services Board to monitor the operation of alternative business structures in the market, to evaluate the effect on the market of the first issues of licences, and to consider, following that monitoring and evaluation, whether and at what pace to grant further licences in the future. Today’s professional bodies are greatly exercised about the costs of setting up and running the new regulatory regime. The Joint Committee expressed reservations about the cost estimates in the draft regulatory impact assessment. It can fairly be said that those reservations have proved to be justified, as the Department has since revised the estimates significantly upwards. The Government say that the legal professions must bear all the costs of the new system. I can see the case for the independent regulator not to rely on public funds for running costs in order to be independent, but the setting-up costs could place a harsh and heavy burden on those who are members of the profession at the time when the Legal Services Board is set up. I ask the Minister to consider carefully, as the costs continue to rise, whether it is fair to expect only legal professionals to bear that burden, given that some elements of today’s supervision are paid for by public funds.