Family legal aid “loss-making for half of providers”

Emmerson: Untenable situation

Family legal aid is loss-making for almost half of providers, research for the Law Society has found.

Only a third of providers offering private family legal aid work could cover their costs, half the number of those dealing with public law matters.

The society released interim findings from the study by Frontier Economics of 45 legal aid providers in February this year, which showed that all housing legal aid providers made a loss.

The final version of Research on the sustainability of civil legal aid said that, of the 45 providers, 37 (82%) made a loss on their housing and family legal aid work.

Of the 30 organisations providing housing legal aid, almost a quarter were private practice law firms, the rest being not-for-profit agencies. But more than three quarters of the family firms were private practices. Two providers did both.

Researchers found that cost pressures and a lack of fee increases meant that family legal aid was loss-making for 47% of providers.

The median provider in the family legal aid sample broke even, with those in the bottom quarter in terms of profitability reporting losses of more than £55,000 a year and those in the top quarter profits of £55,000.

Researchers said losses “appear to be primarily driven by the provision of private family legal aid work, while the profits are primarily driven by the provision of public family legal aid work”.

The median provider made a loss of more than £16,000 per year from private law family legal aid, but a profit of nearly £30,000 per year from public work.

While only a third of providers offering private law family legal aid could cover their costs, over 60% of those providing public family legal aid were able to.

When it came to housing legal aid, the median provider reported a total loss of £126,000 per year, rising to £181,000 for those in the bottom quarter of profitability. Those in the top quarter reported losses of just under £80,000.

“Based on economic principle, we would expect losses of this nature to be unsupported on commercial grounds, and eventually result in provider exit.

“However, we find that those continuing to provide housing legal aid typically do so based on social conscience and a sense of moral responsibility.”

Providers said in interviews that the lack of profitability was “largely driven” by a combination of low fee rates which had not increased “for decades”, as well as “relatively low levels of recoverable time which can be billed”.

There was also “a high and increasing cost burden associated with the administration and delivery of legal aid work, which is often only partially remunerated, and often with significant delay after the costs are incurred”.

Legal aid providers often relied on cross-subsidisation in the form of grant funding, inter-partes cost recovery on legal aid work – particularly in housing – or privately paid work.

Researchers cautioned that while the data they collected was “very detailed and of high quality”, it covered only 13-14% of organisations in the housing legal aid sector and 1-2% of family.

Law Society president Nick Emmerson said the research revealed “an untenable situation” where reductions in fee levels by successive governments meant firms could not even recover the costs of providing legal aid, let alone generate a profit.

Those who remained in the market were only able to do so by cross-subsidisation and relying on staff to work overtime, leading to “real difficulties” with recruitment and retention, particularly at senior levels.

“Others are taking the decision that legal aid work is simply no longer viable and exiting the market, leaving areas of the country with no legal aid provision at all.”

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