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Legal Services Bill

4th June 2007

Jonathan Djanogly broadly supports the Bill which addresses some of the issues that have led to a lack of consumer confidence in the legal profession, but is concerned that the Government now plans to reverse improvements made by the House of Lords.

8.2 pm

Mr. Jonathan Djanogly (Huntingdon) (Con): This has been an interesting, albeit sometimes technical, debate on a matter that is certainly of constitutional importance. All hon. Members have made thoughtful contributions and, although there are significant differences in detail, the Bill has generally been welcomed by everyone who has spoken.

The report that Sir David Clementi produced on legal services was a visionary one, and we recognise, as do many hon. Members, that the Bill has come a long way since it was first introduced. I pay tribute both to the Joint Committee's work and its comprehensive review, and not least to its Chairman, Lord Hunt, as well as to the input of my hon. Friend the Memberfor Enfield, Southgate (Mr. Burrowes), who madea significant contribution to today's debate. In many ways, they moved the Bill back to the original Clementi vision. That was even before it went to the other place, where it was substantially improved by Conservative, Liberal Democrat and Cross-Bencher Lords, led frequently by my noble Friend Lord Kingsland.

We believe that the Bill is now pretty much there, and are not pleased, therefore, to hear from the Under-Secretary of State for Justice, the hon. Member for Lewisham, East (Bridget Prentice) how most of the improvements are to be reversed by the Government in Committee. The Minister and the hon. Members for Stafford (Mr. Kidney), for Bassetlaw (John Mann) and for North Durham (Mr. Jones) described the changing mechanical, technical and cultural issues that led to the need for the Bill. There is certainly no complacency among the Opposition about the need to improve legal services, not least given the polls saying that no more than 44 per cent. of consumers have a favourable opinion of lawyers, the evidence on miners' compensation given by the hon. Member for Bassetlaw and the current regulatory framework, which includes some 22 different regulators.

The Lord Chancellor identified the lack of consumer confidence in the way in which lawyers are regulated, and highlighted the potentially restrictive way in which the legal profession operates and how to enhance competition in the profession. He then spoke of the regulatory maze that baffles consumers and thwarts effective oversight and which even Sir David Clementi's report agreed was flawed. I shall examine each of those issues in the context of our debate, keeping in mind the fact that lawyers play an extremely important role as a thriving, independent profession in the life and economy of our nation, and we need an appropriate and modern regulator system that reflects that.

The Clementi report concluded that there was considerable concern about how consumer complaints were dealt with. There is no argument about the fact that solicitors in particular recognise the need for reform of the complaints-handling system. There are now no fewer than 118,000 solicitors practising which is itself a testament to the success of the profession-having grown from only 31,000 in 1976-and has enabled Britain to become a worldwide centre for legal excellence. By the way, all of that occurred despite the Government's attempt to wreck the infrastructure of our legal system by their swingeing cuts to the Court Service while squandering millions on a new so-called supreme courthouse, their attack on criminal and civil legal aid and their ham-fisted blundering into the new Ministry of Justice.

We share the concern of many, including the Bar Council, the Institute of Legal Executives, the Institute of Chartered Accountants, Which? and the Law Society to ensure that the legal services board operates with the light touch recommended by Clementi and in an appropriate way, rather than micro-managing the approved regulators. As my noble Friend, Lord Hunt of Wirral put it, before the amendments were made in the other place:

"There is nothing in the Bill to indicate that the Legal Services Board is intended to act as a supervisory regulator, which would leave day-to-day responsibility with the approved regulators and exercising its powers only when they are clearly failing."-[ Official Report, House of Lords, 23 January 2007; Vol. 688,c. 1040.]

We hope that the Government will change their mind about removing the amendments that regulate the role of the board. Such moves will not in themselves help consumers-despite the Minister saying that they would-or keep costs down. We are all keen that the measure should not become an expensive rebadging exercise of the legal services ombudsman.

As my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) said, the value of the new complaints arrangements for barristers is not as clear cut; the Bar Council has not come in for the same level of criticism and according to most commentators, including the ombudsman, is generally recognised for its responsive handling of complaints. The Minister said that the Bar Council is the only body that wants different treatment, but she did not mention the fact that the Law Society has accepted the Bar Council's position-for the Bar, albeit not for the Law Society itself. Even if a third of complaints currently dealt with by the Bar are referred back to the legal services ombudsman for reconsideration, two thirds are not, so the proposed changes might not improve consumer satisfaction in relation to such complaints. There are only 9,000 barristers, and their complaints are dealt with by a body made up of unpaid professionalsand lay persons who operate the complaints board reasonably satisfactorily and certainly cheaply. Nevertheless, the Bar Council is also generally supportive of the Bill, as long as the amendments made by the Lords are not removed, especially those in respect of complaints delegation back to the approved regulators.

However, most of the current regulators are understandably concerned that without delegation back, the approach will be to bring everyone down to the lowest common denominator. After all, the Joint Committee considered that the cost of the new regulatory system was "speculative at best" and it is conceivable that the costs of reforming the systemwill spiral out of control with no corresponding improvement in quality. The Minister said that the costs would be £32 million, but is that because she separated start-up and first year running costs? We heard that start-up and first year running costs are estimated at about £57 million. Will she clarify what the costs will actually be by the time the Bill is passed?

As my hon. Friend the Member for North-East Hertfordshire said, we hope that the Government will change their mind and move back to the polluter pays principle. As my noble Friend Lord Kingsland said in the other place:

"Those exonerated following investigation or litigation should not be penalised for being found blameless."-[ Official Report, House of Lords, 8 May 2007; Vol. 691, c. 1277.]

We do not want an unjust system, which would have the effect of deterring practitioners from acting in certain fields of law, such as criminal or family law where unjustified complaints are disproportionately likely.

The whole exercise will be costly for smaller regulators, for whom it is very doubtful that it will increase consumer confidence. The Chartered Institute of Patent Attorneys typically receives fewer than10 complaints a year, while the Institute of Trade Mark Attorneys has received only three complaints since 2001. The Institute of Legal Executives, which has a membership of 22,000, received only 19 complaints against its members in 2004-05. All those practitioners considered it extremely rare for their claims not to be settled amicably through conciliation.

Mr. Kevan Jones: I am interested in the hon. Gentleman's comments on legal executives, but is not the reason for that low number the fact that solicitors' clients rarely know that legal executives carry out most of the work?

Mr. Djanogly: As the hon. Gentleman knows, if a complaint is made, it is firstly made against the law firm, and most complaints are sorted out at that stage. If a complaint goes further, the regulators come into play. That is a pretty telling figure. The Institute of Paralegals and the Council for Licensed Conveyancers also have similar concerns. So a one-size-fits-all approach is not necessarily suitable.

Finally on consumer complaints, the Government have referred to Which? and the National Consumer Council, but other consumers should also be represented, not least the corporate consumers-the thousands of in-house lawyers. The Government are not giving enough thought to those consumers, not least in respect of giving them a voice on the LSB. Will the Minister reconsider that? In that vein, the lineof the hon. Member for West Bromwich, West (Mr. Bailey) that this is a Bill for lawyers, run by lawyers and against the consumer is somewhat undermined.

Moving on to alternative business structures, we believe that, subject to safeguards and the continued consideration of the impact on access to justice, entities should be able to participate in law firms and to provide multidisciplinary services to the public. The influx of external capital is likely to change the market for the better, by providing greater competition. That point was expressed strongly by my hon. Friend the Member for North-West Cambridgeshire (Mr. Vara). Which? and the National Consumer Council believe that proposals to make the legal services marketmore competitive will bring significant benefits for consumers, including more choice and higher standards. However, we remain concerned that, once the Bill is passed into law, the ABS proposals should not be rushed into practice without adequate care and thought. The hon. Member for Angus (Mr. Weir) noted his caution over the possible pitfalls, although I not sure to what extent he sees the reality of the marketplace. However, the retention of professional values is key, as is how that relates to actual or potential conflicts of interest that might arise in ABSs.

As my hon. Friend the Member for North-East Hertfordshire identified and as was very well expressed by my hon. Friend the Member for North-West Cambridgeshire, borrowing from his significant experience, London is now the international legal centre and City lawyers are at the forefront of the boom, earning some £2 billion a year for this country. As a peer recognised, we are the best international lawyers in the world and people come to us and our courts because of our quality. That profit to this country could be put at risk if the images given by the Bill are ones of interference with the independence that leads to our getting so much work from abroad. That is one reason why we should be concerned to ensure that the independence of the LSB remains a priority in the Bill. That point was made very well by my hon. Friend the Member for Enfield, Southgate, whose comments were supported by his extensive legal experience. The Minister replied to an intervention from, I believe,the hon. Member for Wolverhampton, South-West (Rob Marris) by saying that the views of foreign Governments were not relevant. That goes somewhat against what we understood to be the case, and we will wish to look into that further in Committee.

We agree with the recommendation that the Government adopt a careful approach to the ABS system, with a staged plan for implementation. On the basis of the Clementi report, the Joint Committee recommended starting with structures whereby lawyers and barristers could form partnerships and followedby a gradual move to a system of multidisciplinary practices and free-market ownership. Practically speaking, the Government have said that it is not likely that we will see multidisciplinary practices much before 2011. That date was provided by Baroness Ashton in February. Is it still the date? Will the Minister please identify the current timetable and the format envisaged for rolling out ABSs? We might wish to return to that in more detail in Committee.

The hon. Member for Stafford made a good point on ABSs in suggesting that other regulated professionals, such as patent agents and chartered accountants, should possibly be dealt with using a more open stance than a non-regulated third party-for example, a non-legal investor in a law firm. I think that was the basis of what he was saying, and I agree that that is worth exploring in Committee.

We had concerns that, under the original Bill, ABSs could limit access to justice. Those concerns gave rise to the successful amendment from my noble Friends in the other place. We are therefore truly sorry to hear that the Government intend to go soft on access to justice, by overturning that amendment. However, we also recognise that this should not turn into a case of the Government hindering the development of the legal profession or making it protectionist. As a Financial Times article pointed out,

"Familiar brands have nothing to gain from offering substandard legal services".

In other words, if a high street brand company were to offer legal services, its systems and rigorous product, services and brand management could provide a better service. However, we maintain that that should be managed in the wider pubic interest, as much as inthe consumer interest. There is a balance to be had, and we will wish to ensure that the Bill is capable of delivering it.

The key to resolving the regulatory maze is how to make an oversight regulator an effective partner of front-line regulators. It is therefore important, as was made clear by my hon. Friend the Member for North-East Hertfordshire, that the policy statement amendment should remain, so that we end up with light-touch regulation, and that the thresholds that govern when the LSB can intervene are kept sufficiently high. If the intention behind simplifying such relationships was to build consumer confidence, it would be logical if it also allowed lawyers to make appeals against regulatory decisions. Currently, the provisions only allow for judicial review. That is particularly relevant since the Government have stated that they have no intention of paying the costs of setting up or running either the LSB or the OLC. We should ask ourselves who will end up footing the bill. Let us make no mistake that, as things stand, it will be the consumer, as was quite well set out by my hon. Friend the Member for Enfield, Southgate. I should have thought that that sits somewhat uncomfortably with the Government's stated intention to put the consumer first.

There are the Government lawyers to consider. To echo Lord Thomas in the other place,

"I would like the Minister to tell us who we complain toabout government lawyers if they do not come within the proposed regulatory regime."-[ Official Report, House of Lords, 6 December 2006; Vol. 687, c. 1172.]

Will they contribute to the levy? We will wish to review that issue. Can the Minister tell us how the Government lawyers will be regulated?

The response of the Under-Secretary of State for Justice on how unions will be regulated, considering her stated attempt to exempt them from part 3, was confused and will need careful review in Committee.

I want to end on the regulatory issue by returning to something that the Lord Chancellor said on Second Reading in the other place. He argued that people

"can have no confidence in a system where complaints are dealt with by a lawyer's own professional body.

He continued:

"These public perceptions can have a corrosive effect on the reputation of the sector more generally."-[ Official Report, House of Lords, 6 December 2006; Vol. 687, c. 1162.]

The Conservative party believes that that is too narrow an interpretation. As my hon. Friend the Member for North-East Hertfordshire and the hon. Member for North Southwark and Bermondsey (Simon Hughes) made quite clear, we feel that the preservation of justice and the constitutional importance of the independence of lawyers are more important than individual consumer's interests or their perceptions, and we should be under no illusion that, in any event, the Bill in itself will not somehow make people like lawyers any more or any less than they do now. So we believe that we must take a stand for an independent and well-regulated profession.

We have listened to the Government's arguments and still have grave concerns that the Government will undermine the experience and expertise of the other place, which could turn the further stages of the Bill in this place into a rather negative and destructive process. This is a once-in-a-generation opportunity to reform the legal services sector. Given our support for the Bill in its current form at this stage, we therefore hope that the Government will take a more positive and constructive approach in the later stages than they have indicated that they will do today.

8.18 pm



Mr. Jonathan Djanogly (Huntingdon) (Con): I state my interest as a solicitor and as a member of the Law Society. The Minister says that she will exempt trade unions from part 3 of the Bill. Does she intend to exempt them from all the reserved legal activities set out in clause 12(1)?

Bridget Prentice: Yes. As I said, under part 3 we will exempt the trade unions when they provide services to their members. However, when lawyers-perhaps in-house lawyers-employed by trade unions provide reserved activities, they will be regulated in exactly the same fashion as any other lawyer. I was talking about lay members of trade unions who give advice in their workplace. Lawyers who are employed by trade unions will be regulated in the same manner as any lawyer working in any other firm.


Mr. Djanogly: The hon. Gentleman will appreciate that because of changes made by the Labour Government, the Lord Chancellor could be situated in this place in future. In some ways, that makes his point about the politicisation of the role more important. I do not say that that is wrong or that accountability is wrong, but the balance that comes with the role of the Lord Chief Justice might become more important as a result.

Simon Hughes: I accept that. Indeed, my hon. Friends and I have always argued, in recent years, that there should be a Minister for Justice and that they should be in this place. We think that here is the right place for them to be and that they should be accountable to other elected Members of Parliament, but, yes, that would make such a Minister more overtly party political than they sometimes appear when acting as Lord Chancellor at the other end of the Corridor.

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