The legal aid time bomb

With a general election only a few weeks away, no one can accuse the government of running out of steam on legal aid policy. Sir Ian Magee's review of 'Legal Aid Delivery and Governance' was published on 3 March and the government announced its intention of going for perhaps the most radical option the report outlined: to take direct control of the Legal Services Commission by making it an 'executive agency'. To do this the government will need to either amend or replace the Access to Justice Act (AJA).

Separation of funds rejected

When the legal aid system was established in 1949 it was administered by the Law Society. A combination of a budget crisis and administrative incompetence led to the creation in 1988 of the Legal Aid Board, an independent public body with its own governance (a quango). The Access to Justice Act 1999 ushered in a new era with the creation of the Legal Services Commission (LSC), but with broadly the same governance arrangements. The AJA provided for the creation of the Criminal Defence Service and the Community Legal Service. Crucially, the Act also included a provision for the separation of the two funds.

Whether to separate the funds was one of the main terms of reference for the review. Magee comes down firmly against this option: 'There was little appetite for formally separating budgets and no evidence was presented that this would assist in protecting the civil spend from the rising criminal spend. The legal profession was particularly keen to avoid splitting the administration of the two elements of the legal aid budget as many providers carry out a mixture of civil criminal work' (see paragraph 163 of the review).

Magee acknowledges that there could be an argument in favour of separating out social welfare law (SWL) advice. In option 6 outlined in his report he suggests that budgets for SWL could be devolved or pooled with other government departments. For example, Citizens Advice nationally could be allocated cash for SWL cases to be distributed to local bureaux (ibid, page 69).

Magee's rejection of the proposal to separate the funds is a disappointment. We acknowledge though that the separation of the funds argument carries less weight than it did five years ago when the then Lord Chancellor Lord Falconer ordered the Carter review. Falconer at the time was concerned about the 37 per cent increase in expenditure in criminal legal aid and 24 per cent decrease in civil legal aid since 1997 when Labour had come to power. Lord Carter, the government trouble shooter, was appointed to devise ways to reverse this trend. In the intervening period, expenditure on criminal legal aid has dropped by 12 per cent in real terms through the introduction of changes in eligibility and remuneration in criminal work. Magee argues that the spending on civil legal aid has risen and produces figures which demonstrate a two per cent increase year on year since 2001, but this is mainly due to a five per cent increase in family legal aid in this period.

The creation of an executive agency would bring legal aid administration under the direct control of ministers giving less scope for a ring-fenced fund to stand alone without fear of being cut back if criminal legal aid needed more cash or political priorities changed. Magee acknowledges that one of the main priorities of ministers is to protect and promote SWL. For this reason, he believes the government might want to go ahead with separating the funds, saying 'it is essentially their call'.

Control of policy

It seems that at the heart of what prompted the Magee review is the confusion over who controls legal aid policy. In a key passage, Magee criticises the current arrangements: 'Having two sets of teams involved in legal aid policy making within separate organisations, the MoJ and LSC, with their own objectives (albeit broadly aligned) and governance arrangements, has inevitably led to a more complex process with more hand-offs, layers of decision making and rework.'

It is the implementation of Carter and specifically the problems with introducing best value tendering (BVT) for police station work which has brought the relationship to crisis point. Magee refers to the two different legal teams within the LSC and MoJ which provide legal advice from two different perspectives 'sometimes resulting in disparity of legal advice to their respective policy teams making it more difficult for the two policy teams to agree a way forward'.

LAG speculates that this refers to disagreements over the interpretation of European procurement law and the implementation of BVT for police station work. Until recently, there have been few disputes between the LSC and the MoJ/ Department of Constitutional Affairs (as the MoJ was). The two organisations had been working more closely together on policy. This was symbolised by Clare Dodgson, who was appointed chief executive of the LSC in June 2003, splitting her working week between the LSC and the Department of Constitutional Affairs where she had an office. If the LSC was to become an executive agency, Magee argues this would lead to a 'one policy voice' (paragraph 216). Both the Law Society and the Bar have welcomed this.

Magee acknowledges the cost drivers in legal aid, pointing out that the new legislation and the creation of new criminal offences leads to increased costs in the legal aid system. In civil legal aid, he gives the examples of the new rights created under the Mental Health Act 2007 and the introduction of working families tax credits as examples of measures which increased the demand for social welfare law advice. He argues that, because legal aid policy is considered separately from policy generally, an opportunity has been lost to take a more strategic approach, linking policy change with its impact on the legal aid system.

Management and finance

Magee acknowledges that as the review went on there was an increasing focus on what is going wrong with the financial management at the LSC (page 4). This was due to the publication of the 'National Audit Office Report' on the LSC in October last year, which found that just under £25m in solicitors' fees had been incorrectly claimed, and the Public Accounts Committee's report published at the end of January this year. Reading between the lines, it seems the MoJ tried to distance itself from the LSC as the pressure increased because of these critical reports: 'It seems to me no coincidence that apparent deterioration in the relationships has accompanied independent expressions of concern about the LSC's financial management' (page 74 of the review).

Magee points to serious weaknesses in the management and financial systems at the LSC. The LSC has no overall integrated financial system. Its forecasting process involves the use of 200 models and tools including manual analysis and this feeds Magee's fears about the LSC's inability to predict expenditure (see paragraph 101). It is perhaps the inadequacy of the financial management systems and the lack of focus in theorganisation on this which led Carolyn Regan, chief executive of the LSC, to announce her resignation when the report was made public (see solicitorsjournal.com, 3 March 2010).

The difficulties about forecasting at the LSC are not new. The announcement last week that it cannot make payments to providers this month is not the first time there has been a final quarter cash crisis in legal aid. The LSC and the LAB before it both struggled to develop systems that could accurately forecast legal aid expenditure. It is a multifaceted problem with variables such as the demand-led criminal budget, unpredictable volumes of work and external macro-economic factors all contributing. The failure to introduce an integrated transaction-based financial accounting system, a basic need for any business, seems most damming.

However, it's over 20 years since the administration of legal aid was taken over from the Law Society. Why has it taken until now for the government to realise all was not well with the financial management at the LSC, after all legal aid makes up a quarter of the MoJ's total budget? Unfortunately for Carolyn Regan, it was on her watch this financial management time bomb exploded.

Independence

A political wind, in all likelihood too strong to resist, is blowing against the LSC's continued existence as an independent organisation. Recent years have seen a drift towards a greater involvement in legal aid policy and the management of the fund by the government. This is mainly due to its cost and the increasing political significance of legal aid, as the government has ratcheted up the rhetoric on legal aid spending. Quangos like the LSC are unpopular. They are seen as expensive and unaccountable. However, the reasons for establishing the LAB and its successor the LSC remain the same.

Decisions on entitlement to legal aid need to be made independent of government. Legal aid is the system that gives the public the means to defend their rights often against the state. Anything less than either an independent agency or tribunal making the final decisions on entitlement could well compromise article 6 ECHR. An internal procedure ring-fenced from the politicians will not do, as it could give the impression of bias and run the risk of being subject to informal political pressure. Magee's suggestion of establishing an independent appeal tribunal for legal aid should therefore be viewed as a minimum requirement (paragraph 216).

Local councils, which administer housing benefit, used to also hear appeals when claimants wished to challenge decisions on entitlement to housing benefit. This changed in 2001 when housing benefit appeals were taken into the tribunal system. Article 6 ECHR was the reason for doing this and LAG can see no reason to view decisions on legal aid any differently.

A government department is far less able to tell ministers when budgets, policies or laws are compromising peoples' ability to get access to justice. At the moment though, no one is rushing to defend the LSC. Professor Lee Bridges probably summed up thesentiments of many when he said at a recent conference: 'If the LSC had been better at standing up to government we might have worried about its demise.' Much will depend on the government's proposals on keeping the decision-making process on granting legal aid independent, as a chastened post-expenses scandal Parliament might, it is hoped, be more ready than recent Parliaments to defend procedures that give people the means to uphold their rights often against the executive arm of government.