Evans: Flawed proposals
The justice system is a core public service that should not be funded “through the appropriation of client money” by an Interest on Lawyers’ Client Accounts (ILCA) scheme, the Law Society has said.
Chancery Lane also said the idea was “fundamentally flawed”, lacked a “clear legal basis” and was “unsupported by adequate evidence”.
Responding to the Ministry of Justice’s (MoJ) consultation on its proposed ILCA scheme, the society warned that it was proposing “a radical departure from normal taxation policy and granting itself new statutory powers to take money from clients in the legal sector”.
It was unclear what the views of HM Treasury were on the MoJ’s “proposed new role as a tax collection and enforcement agency” and the MoJ had not established whether the Treasury would treat any monies raised as additional to its spending settlement.
“This raises the evident risk that any monies raised would be offset against current or future spending settlements.”
The government had not indicated what power it intend to rely on to implement the ILCA scheme, since the MoJ did not “have the power to raise taxes”.
Under the plan, the MoJ would recover 75% of the interest generated on pooled client accounts and 50% on individual client accounts.
It was strongly criticised at the time by the Law Society, which highlighted the “serious consequences” for high street firms of solicitors.
It has since been criticised as a “stealth tax on legal services” by Birmingham Law Society, while accountants PKF Francis Clark have warned of “more financial failures” among law firms and practices pulling out of legal aid.
The Law Society’s response said it was concerned that “an ill-considered decision has already been made and only the mechanism by which that decision will be implemented is being consulted on.”
Almost all solicitors it has consulted were “strongly opposed” and said that if it went ahead, they would “need to make changes to their business that would negatively affect access to justice or investment in their firm’s growth”.
The scheme has been particularly criticised because the money raised would go into the MoJ’s general coffers and not earmarked for access to justice initiatives. But the society stressed that it would still be opposed even if this changed “due to the negative impact on clients”.
The banking sector was opposed for similar reasons to the Law Society, the response went on. “Banks are concerned about being seen to be tax collectors, essentially taking money from solicitors’ clients on behalf of the government.”
Mark Evans, president of the Law Society, said the ILCA scheme was “flawed, sets a damaging precedent and conflicts with wider government commitments on growth”.
He went on: “The justice system is a vital public service and the government should fund it sustainably through general taxation, not through the appropriation of client money.
“The proposals would have serious consequences for access to justice, with firms having to find ways to manage additional costs created by the scheme.
“Some clients will ultimately have to pay higher legal fees, and law firms may no longer be able to offer some services, including legal aid, affecting vulnerable clients.
“Solicitors already make a significant contribution to the justice system, including by self-funding the profession’s regulation and consumer protection, paying income and business taxes, as well as paying court and tribunal fees.”
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