Opinion: The true cost of legal regulation

Can I set out some facts about the recently reported comments on the financial impact of the new regulatory regime?

David Edmonds

David Edmonds

First, Parliament, in establishing the Legal Services Board (LSB) and the Office for Legal Complaints (OLC), decided that approved regulators (ARs) would meet both the set-up and ongoing running costs. Given the significant predominance in solicitor numbers, the Law Society inevitably faces the majority of the new costs, although the other ARs will also pay their fair share.

Second, cost estimates were given ­during the bill’s passage. A year on, the LSB expects that total costs for both the LSB and OLC will be contained within those estimates. This is, to say the least, not always the case in relation to new ­bodies.

Third, the majority of the increase to solicitors’ practising certificate (PC) fees announced last month derives from ­factors wholly divorced from the new oversight regulation and the OLC. It is ­misleading to suggest otherwise, so it is therefore important to put the record straight on the actual proportion due to regulatory reform and to set out what practitioners can expect to see as a result.

The LSB is determined to deliver value for money through driving better and more effective regulation across the sector, creating a regime that benefits both users and providers of legal services. Set-up costs will be recouped over the next three years and we will shortly decide how much will be levied in each of those years, after taking account of varied consultation responses, and in agreement with the Lord Chancellor.

However, using the same approach as the Law Society itself took to calculating the PC fee increase – a roughly even split of around a third each year – the ­proportion of the increase that relates to the set-up of the LSB and OLC is around a third. For each solicitor paying the PC fee, this equates to £1.26 per week. The rest of the PC fee increase is due to other factors, totally outside of the costs of the LSB and OLC.

But, whatever practitioners pay, they should expect transparency and to know how their money is being spent. Which is why we produced a clearly articulated business plan, setting out both our 2009-10 aims and our longer-term goals for the next five years; we remain on budget and on schedule to deliver its stretching ­ambitions.

Why should Parliament have thought it right that the profession fund regulation and complaints handling? Practitioners might consider thinking of this as an investment in their future: facilitating alternative business structures, for ­example, will allow lawyers to set up in more flexible, responsive and potentially more profitable and sustainable ­businesses than ever before. Funding effective complaints handling will also deliver a return. Consumers have long called for better dispute resolution. Increased public confidence in the ­regulatory framework will mean more confidence in lawyers – and lawyers can have confidence that those who damage the reputation of the profession will have to take responsibility for their actions.

These combined measures will mean a better deal for consumers and ­practitioners. No regulation comes ­without some sort of price tag, but we intend to ­demonstrate a return on the share of the PC fee that funds our work. And ­remember, after the set-up of the OLC, the ­existing costs of the Legal ­Complaints Service disappear.

We are very conscious of the financial strains on the profession. From 2011, the LSB will approve solicitors’ PC fee, where a key principle will be transparency, both on what it will fund and what people can expect to see happen as a result. I hope I have begun in that same spirit by ­dispelling some of the myths that have started to emerge about this year’s figures.