LSB: new Legal Services Act needed to finish the job of market reform

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4 July 2016

Pitt: signs of some positive changes

Pitt: signs of some positive changes

The Legal Services Act 2007 has improved quality and, to some extent, competition in legal services, but further legislative reform is necessary to complete the liberalisation of the market, the Legal Services Board (LSB) said today.

Issuing its triennial evaluation of the Act, the LSB said there were signs of “positive change”, and also none of the negative impacts that some had predicted, with some £1.6bn of investment in the legal sector from external investors and corporate investors to date.

But the review also highlighted the “continued scale of unmet legal need” and that there was little evidence of the type of change in market outcomes – price, quality and access – associated with changes in competition.

It concluded: “Looking ahead, our view is that more progress needs to be made and the pace of change needs to increase. We need to continue to break down regulatory barriers to competition, innovation and growth, empower consumers and enable the need for legal services to be met more effectively.

“In the longer term, we consider that legislative reform is necessary to complete the liberalisation of the legal services market.”

The review, which drew on what the LSB called the ‘best available’ rather than ‘perfect’ evidence, said the UK-wide legal services turnover grew from a post-crash low of £27bn in 2009 to a record £32bn in 2015, of which £22bn was attributable to entities regulated by the Solicitors Regulation Authority (SRA).

New business models, particularly alternative business structures (ABSs), now operated in all areas of the market, most significantly in personal injury, welfare and benefits, civil liberties and employment, it found. “Research findings suggest that ABSs are more innovative and more productive than other types of business structures.”

At the same time, only a quarter of ABSs regulated by the SRA were newcomers to the market, the LSB noted.

“Our research shows that the major effects from the changes made by innovative organisations in the legal services sector were to extend the range of services offered, attract new customers, and improve quality. Reducing the cost of delivery was a benefit for less than half of all innovating organisations, however.

“Notably the intensity of competition was reported as a driver of innovation for only 26% of organisations compared to 40% reporting regulatory and legislative changes as driving innovation.”

There was some evidence that specific liberalisation measures – such as public access by barristers – “are starting to benefit providers and consumers in terms of wider choice”, but more broadly the LSB suggested that innovation, as well as external investment in the law, were being hindered by regulatory and legislative limitations.

The review found the Act had not helped improve access to legal services, with no change in the proportion of people taking action or the “significant” level of unmet legal meet.

However, more people were handling their legal problem alone rather than seeking advice, mainly because either technology was helping them do so, or legal aid cuts meant they could not afford advice – one hour of litigation cost 47% of an individual’s average weekly earnings, the LSB noted.

“The continued level of unmet legal need has consequences for the economy as whole. Some of this could be addressed with better market information that describes what services are on offer and allows consumers to easily compare providers on price and quality.

“In this context, we note that (i) there are no high profile branded comparison websites for legal services and (ii) there is no evidence of significantly increased marketing activity by regulated firms over the past 10 years.”

On the plus side, quality has improved in most areas “during a period of substantive reform”, the LSB reported. Non-lawyer ownership has not had any of the negative effects that some forecast, “and if anything quality appears to have increased”.

It said public perceptions of the profession remained largely positive, satisfaction rates with service and outcome were higher than in 2009 – bucking the wider trend across the economy – and lawyers were resolving complaints better. However, there appeared to be lower levels of service satisfaction in the injury and conveyancing markets.

LSB chairman Sir Michael Pitt said: “The current framework for legal services has been in place for sufficient time to assess its effectiveness. Much has happened in the nine years since the Legal Services Act was passed, so it is right that we assess how outcomes for consumers have changed during that time.

“Overall, this latest evaluation shows signs of some positive changes in the legal services market. The market has grown. Some consumers have been able to take advantage of fixed fees and published prices to buy services at a more affordable price. Moreover, the quality of legal services has improved on most measures following the 2007 reforms.

“The review does, however, reveal the continued scale of unmet legal need and suggests that progress has been slow towards delivering better market outcomes and access to justice for all.”

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