Out-priced justice: legal services consumers and the CMA
This week’s long awaited publication of the Competition and Markets Authority (CMA) final report on its study into the legal services market concludes that consumers of legal services experience “substantial detriment.” A key passage from the report finds that –
“For some consumers, this detriment arises because they do not get appropriate help with their legal issue (or in some cases any help). For others it arises from them paying too much for the services they do get.”
From LAG’s perspective it is extremely welcome that the CMA has made this intervention as the problem of market failure goes to the core of the access to justice debate. The CMA acknowledges that asymmetries of information and poor levels of legal awareness mean that many people with legal needs are unable to identify that they have a ‘legal’ problem, and may sometimes either ignore the issue or try to handle the matter on their own. The report highlights that “concerns around the affordability of legal services and the barriers to justice that this can cause.” In our submission to the CMA we argued that costs of legal services has generally been allowed to rise to unsustainable levels; in the commercial law sector hourly rates can now exceed £1,000. Pricing structures have been driven by a tendency to use qualified lawyers for just about everything, and when combined with the historic problem of disproportionate litigation costs, especially within civil law, the market puts costs of a whole suite of services from advice to representation, to drafting, mediation and settlements well beyond the means of those on low or medium incomes.
However the real elephant in the room with the CMA study is legal aid. Historically the legal aid scheme, especially in crime and family work, has had an important ’market shaping’ function as a system intended to redress the market failures of legal exclusion, and it has also helped to support a significant increase in the number of lawyers in private practice over previous decades. Public funding, market change and regulatory contexts interact to impact access to justice. Over two decades ago there was largely one model of legal services provision, costing and delivery, based on a dense structure of small partnerships offering localised face to face services for which there were outlets on just about every main high street, and with widespread use of the Legal Aid “Green Form” scheme which allowed solicitors to do up to the value of two hours work on any matter of English law for financially eligible clients. With the abolition of this scheme and the exercise of budgetary control by Government by making legal aid an increasingly specialist and limited form of assistance (specialist contracting was introduced in around 1995), there have been been knock on consequences for the whole legal services market over the past 20 years.
In other words cutting legal aid and the rising costs of retail legal services can be two sides of the same coin of legal exclusion; a worsening problem for the poorest in society. Since the passage of the Legal Aid, Sentencing and Punishment of Offenders Act, and the more uncertain financial footing it has put many solicitors on, there has been further consolidation in the marketplace. The result is that fewer small firms are growing in size and the idea of the local independent firm is increasingly become an outdated concept, and with it the access for those who prefer dealing with individuals rather than remote services or call centres. The decline in the traditional structure is confirmed by LSB research which find that rates of entry into the SRA regulated legal service market appear to have fallen over significantly over the past five years. Between 2012 to the end of 2015, the number of law firms in England and Wales has fallen by just over 600. It has not only been the high street sector that has been impacted by changing Market conditions, a survey of 100 London based firms by PCW found that whilst that the top 10 firms have increased their dominance of the market with an increase their average profit margin to 38.5%, for the rest it fell by around 24%.
The CMA believes that part of the solution is to be found in price transparency and recommends that “Regulators should set a new minimum standard for disclosures on price and the service” alongside other recommendations to regulators to require better quality information in the legal services market-place. And looking at risks within the marketplace CMA also recommends that Ministry of Justice should look into extending the Legal Ombudsman scheme to customers of ‘unauthorised providers’ (including non-profit agencies) whilst at the same time loosening other regulatory requirements. Finally the CMA recommends that the Legal Choices website should be used to develop an enhanced ‘consumer education hub.’
Welcome though as the report is LAG believes that this is only looking at one side of the coin, and the case for the state stepping in with market intervention schemes to ensure that legal services are genuinely affordable and accessible to all must involve both regulatory intervention to prevent excessive disproportionality between costs and services, and and also supporting both “judicare” and “community” model with the professions.
You can read the full CMA report here
 Diamond: The price of law CPS 2016