Otterburn report warned against early fee cut

A report for the Ministry of Justice and the Law Society warned against an early cut in criminal legal aid fees, it has emerged.

Justice secretary Chris Grayling announced today that solicitors' fees would be cut by 8.75 per cent for new cases starting on or after 20 March, with a similar cut to follow next year.

The announcement was described as a "total disaster" by Franklin Sinclair, senior partner of Tuckers, and "disastrous" by Bill Waddington, chairman of the Criminal Law Solicitors Association.

In its long-awaited report, published today by the MoJ, Otterburn Legal Consulting recommended that any fee reductions should take place "after, not before the market has had a chance to consolidate".

Otherwise, the report warned, firms would be "weakened financially at the very time that they will need to invest in new staff and systems, and fund any redundancies".

The researchers went on: "Fee reductions prior to market consolidation would make it more difficult for the market to restructure.

"There are very few firms which can sustain the overall reduction in fees set out in the Next Steps document, which would be very much greater than 17.5 per cent in some parts of the country, particularly in London and the South East; but also in some rural areas which had higher fees due to higher costs of travel and waiting. "Due to the weak financial base, we conclude that few firms will be able to invest in the structural changes needed for a larger duty contract and recruit new fee earners."

Researchers said around 170 firms took part in the survey, out of a total of 1,599 criminal legal aid firms in 2012-13.

They found that the "key issue" for most firms was a "significant reduction in work levels", due to falling crime levels and local decisions not to prosecute.

On average, firms were achieving a 5 per cent net profit margin, but larger firms achieved lower margins.

"The finances of many crime firms are fragile. Most do not have significant cash reserves or high excess bank facilities (the difference between a firm's actual bank balance and its overdraft facility).

"In the qualitative interviews and in comments submitted with the surveys, a number of respondents expressed the view that their bank would be unwilling to extend further credit to them."

The report went on: "In 2015 it is proposed that the balance of the fee reductions take place and for many participants, especially those in London and the South East, they would be very much greater than 17.5 per cent, which is the overall national saving calculated by the MoJ.

"Many participants commented that they had already made such costs savings as they could and had little opportunity to reduce overheads further."

Researchers described margins as "very tight, especially in London", with the effect of previous legal aid cuts "yet to be fully felt".

They added: "There is currently huge uncertainty facing the supplier base, and this uncertainty has made it impossible to plan."