KPMG report prompts calls for Irvine reforms to be phased in

(Robert Lindsay ) Firms will not make profits from personal injury work until the third year after legal aid is withdrawn, according to a study by KPMG, commissioned by the Lord Chancellor's Department (LCD).

Personal injury lawyers have responded to the finding by calling for a phased withdrawal of legal aid over at least three years, to "help firms bridge the gap".

They point out that the Government is planning to withdraw legal aid completely from personal injury cases in the next few months.

But Geoff Hoon, Parliamentary Secretary at the LCD, said the report was proof that solicitors could run viable, profitable practices under conditional fees.

The model assumed a worst case that firms would be starting from scratch, he said, and would need to borrow money to cover their costs while the income from cases built up.

Earlier this month he told an LCD seminar that firms would be able to bridge the profitability gap with existing legally aided case work that would take some time to complete.

However, the Law Society claimed that KPMG's study conflicted with initial results from its own commissioned survey by Sheffield University.

Spokesman David McNeil said the Sheffield survey showed that conditional fee arrangements were profitable only if the most simple and transparent cases were handled anything more difficult and more expensive to investigate decreased profitability.

McNeil stressed: "The Sheffield research looks at real cases taken by real law firms, rather than the theoretical model that the KPMG report uses."

Many firms already have bank overdrafts and so would face a harder task than KPMG's imaginary "from scratch" firms, he said.

David Marshall, executive committee member of the Association of Personal Injury Lawyers, said that the report's conclusions about profitability meant "years of hardship for legal firms".

He added: "Some of them may not survive. There has to be substantial provision made for a transitional period of at least three years to help firms bridge the gap and stay in business."

Chris Ward, managing director of Abbey Legal Protection, who along with Bob Gordon of Greystoke Legal Services, was interviewed for the KPMG survey, said: "I'm not surprised at the results.

"But they're based on models of an entrepreneurial firm that fully understands risk assessment and risk management."

He said the vast majority of firms would need funding, risk assessment training and affordable insurance to make conditional fees profitable.