Djanogly: ABSs helping to create conditions for legal aid firms “to flourish”

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By Legal Futures

19 March 2012

Djanogly: level of expenditure on legal aid represents a viable market

The legal aid reforms will open up opportunities for law firms, with alternative business structures (ABSs) offering one way to exploit them, justice minister Jonathan Djanogly claimed last week.

He also revealed that this week’s Budget will include a commitment to additional funding for not-for-profit advice services beyond the current financial year.

Responding to a parliamentary debate on the effect of the reforms on legal aid providers, Mr Djanogly argued that while the reforms will probably mean a reduction in the number of firms and lawyers doing legal aid, the government is “creating the conditions that will allow legal aid providers to flourish”.

He said the significance of the ABS model, “and the commercial opportunity that it represents, cannot be overstated”.

However, ABSs are not the only way in which providers can remain sustainable under the new scheme, he insisted. “Even after the reforms have been implemented, approximately £1.7bn a year will still be spent on publicly funded legal aid services… and it is undeniable that that level of expenditure represents a viable market.

“Given the range of services that will still attract funding, it will be open to providers to diversify and seek income across a range of areas of law, although for some providers the most prudent option will be to concentrate on their area of core expertise and expand their market share in that field.”

Mr Djanogly said it will also possible for firms to bid for complementary services, such as mediation and telephone-based services.

“The overall message that I wish to convey is that – while challenging and sometimes traumatic – the changes will not come without opportunity, provided that there is a willingness to engage with them and think constructively about how to respond to them.”

The minister pointed out that almost half the savings being taken from legal aid came from the remuneration changes implemented last October, “and there have been no discernable negative impacts on the supply”.

He continued: “In fact, there has been strong confirmation that the market is willing to work at the new rates. The most recent Legal Services Commission tenders for family work were conducted using the new reduced rates, and were over-subscribed. This suggests that the rates offered are sustainable, and that providers are able to absorb and respond to the impact of reduced fees.”

Emphasising the government’s commitment to the not-for-profit sector, Mr Djanogly said: “We have already seen the creation of the £107m transition fund and the £20m advice services fund to help the sector to deal with the legal aid changes and with what will happen after that. The Chief Secretary to the Treasury has now indicated that additional funding will be available after the current financial year to help the sector further, and will be announced in the forthcoming Budget statement.

“That underlines the government’s commitment to the provision of advice services such as this, and it is expected to ameliorate the effects of other funding reductions.”

Mr Djanogly was responding to a debate secured by Labour MP and barrister Karl Turner, who expressed serious concern about the potential for advice deserts to emerge once the reforms fully kick in.

The government’s impact assessment, which accompanies the green paper, estimated a 67% decrease in income for law firms in rural areas and a 59% decrease in urban areas. That is simply unsustainable. It will not be economically viable for those firms to continue offering services on such tight margins.”

Mr Turner argued that the government’s proposed telephone advice service is not the answer to advice deserts. “Face-to-face legal advice is crucial.”

The House of Lords defeated the government over the mandatory telephone gateway last week, but Mr Djanogly pledged to reinstate it in the Legal Aid, Sentencing and Punishment of Offenders Bill.

Mr Turner also pointed out that the Ministry of Justice predicts between only 4,000 and 10,000 additional mediation starts.

Jonathan Djanogly will speak and take questions at next month’s Legal Futures Conference. Click here for more details.


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