A national legal support and information service for small businesses, akin to Citizens Advice, would help bridge a “significant access to justice gap”, the Legal Services Board (LSB) says today.
In fact, new LSB research indicated that small businesses were worse off than citizens on some measures of access to justice and their experience of using legal services.
It forms part of a call for the government to create a legal support strategy for small businesses after the survey showed that 32% of small businesses experienced a legal issue annually but only a quarter of them sought professional help – and when they did, it was more often from accountants than lawyers.
The Ministry of Justice already has a legal support strategy in place for individuals and the LSB said the one for small businesses – which it said should be led by the Department for Business, Energy and Industrial Strategy and the Ministry of Justice – should have five elements:
- Early information and advice provision;
- Fostering innovation in the delivery of legal services and access to information;
- Making the market work better for small businesses;
- Access to better dispute resolution mechanisms; and
- Capacity building through networking with larger businesses to resolve legal issues.
What the LSB called its ‘key asks’ were developed with input from the Small Business Commissioner and Federation of Small Businesses.
The survey of 10,228 small business owners and managers is the fourth the LSB has carried out since 2013, although the first since 2017.
A small business is one with up to 49 employees, while a legal need is defined as one where it would benefit from professional support to deal with a legal issue.
Some 32% of small businesses experienced a legal issue annually, the same as in 2017, which researchers said was equivalent to 1.8m businesses experiencing 15.4m legal issues, with trading, regulation, employee and tax issues the most common.
Four in ten said Covid-19 had an impact on their legal issue, at an average cost of £3,019, while around one in five said Brexit had an impact, at an average cost £4,404.
Only a quarter of small businesses used professional help, while around half either sought to resolve their legal issues on their own or took no action.
“The legal system is seen as unaffordable and tilted against those lacking financial resources,” the research said. “Just 10% view lawyers as cost-effective, while more than nine in 10 view law as a game in which the skilful and resourceful are more likely to get what they want.
“Experimental modelling suggests that in the vast majority of cases where small businesses have a legal need requiring professional support, this need is not met.”
Accountants (22%) were the most common source of main advice, followed by solicitor firms (16%), while free or pre-paid sources of information and advice – such as government, membership bodies and advice organisations – collectively made up 25%; just 4% of small businesses used legal expenses insurance.
Only 24% of businesses seeking professional help used a regulated legal provider.
The proportion who shopped around for professional help increased from 22% in 2017 to 28% in 2021, while 8% said they wanted to but did not know how.
The main reason cited by majority who did not shop around was that they knew which provider they wanted, although 21% described it as time consuming and 14% as ‘difficult, as relevant information is hard to find’.
Seven in 10 of small businesses using professional help were satisfied with the service they received, a lower level than in previous surveys and among individual consumers.
‘Silent sufferers’ remained an issue, with 68% of businesses who were dissatisfied with the service they received taking no action in response.
Explaining the elements of the support plan in more detail, the LSB said that, while government and membership bodies provided important support roles, the information small businesses needed was spread thinly across a fragmented advice landscape.
“We see value in exploring a legal support and information service for small businesses on a national scale, akin to Citizens Advice for individuals. One option is to expand the Small Business Commissioner’s role, building on its core remit to empower small businesses.”
A focus on innovation, the LSB continued, could see the development of “easy to understand, standardised tools that help small businesses to address their common legal needs”.
As with consumers, the LSB said more could be done to help small businesses shop around for a provider, while the strategy should explore the potential for legal expenses insurance and alternative financing options to play a bigger role in paying for legal fees.
The research identified various options to improve dispute resolution mechanisms for small businesses, and highlighted the importance of building in early intervention options, alternative resolution mechanisms “and a fairer, cheaper civil justice system”, including an improved claims process for debt recovery.
LSB chair Dr Helen Phillips said: “While small businesses face similar problems to individuals, unlike for individuals there isn’t currently a legal support strategy for [them]. What we are calling for is a collaborative approach which goes beyond regulators and has cross-governmental coordination…
“Greater access to legal advice and support for small businesses would reach a large area of the economy and lead to benefits for small business owners, employees and the wider public.”
Martin McTague, chair of the Federation of Small Businesses, said: “Disputes cost small companies in England and Wales at least £11.6bn each year, and many struggle to find the time or resources to handle them. This report and proposed legal support strategy mark an important intervention.”