Legal Aid Payment Review Panel: report to the Minister for Community Safety

Section 3: Developing an Evidence Base to Guide The Fee Reform Process

Introduction

In common with the Evans Review, the Panel struggled to establish a robust and reliable evidence base that could be used to guide future fee reform. The Panel also recognises that a challenge will be felt not just in setting fees at a reasonable level, but also in ensuring they are maintained at a reasonable level. We therefore recommend that:

An evidence guided process that considers the cost of delivery, the health of the market and the priorities of users should be developed alongside the wider legal aid reforms to underpin fee reforms over the medium term:

In order to guide this process, independent research should be commissioned to focus on four key research questions that the panel has set out, regarding:

• The actual and expected remuneration of legal aid providers under the existing system
• The conditions needed to secure sufficient supply to enable the effective delivery of legal aid services at a scale and quality consistent with prevailing needs and in line with legal aid policy and stated strategic justice and social outcomes
• The development of metrics to assess the ‘health’ of the legal aid sector
• Measures that can be used to assess legal aid fees from year to year

As part of the process for agreeing fee reforms, it should be agreed that fees will be assessed over time reflecting an indicator identified in the independent research.

Regular reviews of payment levels and the models in operation should inform ongoing fee reform. These reviews should also have the scope to consider elements such as the effective operation of the system and a process for concerns to be raised as needed. This should happen around once every five years, but with the potential to update specific aspects of the system, as necessary, between wider reviews

This section outlines the reasons for these recommendations – summarising the evidence that the panel heard and spelling out in more detail what independent research the panel recommends that the Scottish Government commission.

Financial Context

The case made by many within the profession is that legal aid is underfunded and that the budget has diminished in both cash and real terms and that has been driven by a real term reduction in some fees. Aggregate expenditure has declined real terms over the past 30 years. In 2019-20 total legal aid expenditure was £130.9m – similar to the levels of expenditure seen in the late 1990s (varying between £120.2m in 1999-2000 and £136.1m in 1997-98). However in terms of purchasing power, total legal aid expenditure is lower than it was in the mid-nineties – with 2019-20 expenditure around two thirds (65.8%) as high as it was in 1995-96 in real terms^[1]. These factors contribute to the overall impression that legal aid in Scotland is underfunded.

Against that perspective is the recognition that Scotland is one of the highest spenders per person on legal aid in the world. England and Northern Ireland have, on the face of it, higher legal aid funding per capita; however, Scotland funds significantly more legally aided cases per capita than those jurisdictions. The reduction in scope seen in England and Wales would not be desirable to the panel. For further context Northern Ireland is still dealing with legacy litigation from the Troubles which offers an explanation as to why legal aid funding per capita there is double that of England, Wales and Scotland. Scotland is one of only two European jurisdictions with an uncapped budget, and retaining the wide scope of actions for which legal aid is available throughout an international economic downturn has been recognised.

Furthermore, given the reduction in crime and in court volumes seen over the past three decades, some reduction in legal aid expenditure should be expected by the profession – as this represents a reduction in demand for legal aid services. Indeed, recorded crime levels have fallen more quickly since 1995-96 than legal aid expenditure has – with overall recorded crime levels in 2019-20 around half of their 1995-96 levels.

The decline in crime levels does however mask significant variation. For example, while the number of recorded crimes has fallen dramatically since 2019-20 – by 24%, the number of recorded sexual crimes has doubled over the same period. This is in contrast to non-sexual crimes of violence which have fallen by 19% and crimes of dishonesty which have fallen by 29%. The level of offences recorded by police has fallen even more quickly – declining by 50% between 2013-14 and 2019-20^[2].

There has also been a long-term downward trend in civil cases initiated over the past decade. In 2018-19, a total of 72,107 civil law cases were initiated in all courts, as compared with 117,839 in 2009-10, a 39% reduction^[3].

There would appear to be a dichotomy; at the macro level the quantum expenditure on legal aid has not varied as much as might have been expected in response to wider changes in the justice system, while at the micro level these changes have had significant impact on the legal profession and individual practitioners.

One of the main drivers of this dichotomy is likely the complexity of cases: on the criminal side, the complexity and demands of the work have increased. It has been reported that private civil work is subsidising civil legal aid work conducted by firms and individuals. In both spheres however, the evidence base on exactly how work has changed is not particularly strong.

This impacts on discussions around fee levels as professionals are frustrated at the lack of what they consider to be satisfactory levels of fees, while those who are responsible for the public purse have seen less of an overall reduction in expenditure across the legal aid budget than might have been expected in a context of lower rates of crime.

Furthermore, this dichotomy at the national level will not always match local and individual experiences. The impact of these changes to both criminal and civil case volumes will not have been consistent across different geographical locations and individual firms and has undoubtedly been significant for some legal aid providers.

Current fee rates

Historically, fees for legal aid work were based on a proportion of the market rate, based on a table of fees, and reflected the reduced risk of non-payment in delivering publicly funded legal services. The link to the market rate was lost when the table of fees was abolished by the Law Society of Scotland and there is no longer a firm benchmark against which to determine what the market rate is and what is a fair public service rate.

We now have a situation where a number of fees currently in place were agreed in response to new demands in the system, or as a trade-off for other benefits. Therefore, the current fee system is largely ad-hoc in its construction – and not informed by current evidence. Furthermore, the true cost and value of these services has not been ascertained, and so thinking about a new process is inherently complex, difficult and overdue.

The lack of co-ordination has led to specific differences in payment for legal aid services. For example, Law Centres will be more likely to carry out work associated with social justice and tackling inequalities. Under the current payment structure, this work tends to attract advice and assistance rates, which are lower than rates available for other aspects of civil work (and less likely to lead to recoverable judicial expenses), leading to a lower income being achieved, despite the high priority placed on this work by Scottish Government. Similarly, while some tribunal work such as immigration and mental health may be relatively well remunerated, case volumes and other factors may mean that other tribunals’ work may be proportionately less well remunerated.

Law Centres, and other not for profit organisations, that help to tackle social inequalities and protect the rights of the most vulnerable, often rely upon grant funding in addition to payments from the existing fee structures under legal aid. Grants are usually restricted to delivering certain types of work, or operating specific projects; work under grant is not paid for on a case by case basis, instead the associated costs of delivering the work will be met (for example staff and overhead costs) on the basis of a full cost recovery model. Grant Funding to Law Centres is currently restricted to an annually agreed budget, which can bring challenges in long-term planning terms of staffing and casework.

International Comparisons

International comparisons and the England and Wales model of legal aid, while helpful, do not offer an obvious single solution for the Scottish context. Internationally, there are numerous models for delivery. However, before reaching a conclusion about their efficiency it was important that the contexts within which different models are designed should be understood. For example, barristers and advocates do very different things in different jurisdictions and there is not an easy way to carry out comparisons between some international jurisdictions and Scotland. The way in which justice systems operate influence the model of legal aid that is used in those systems - particularly in terms of whether systems were adversarial or inquisitorial. Scotland is unusual in having an uncapped legal aid budget and offering legal aid for a wide scope of actions.

In most jurisdictions there are three key levers for managing expenditure on legal aid: scope, eligibility and remuneration. Other countries use these three control mechanisms in different ways. However, one common feature of the jurisdictions discussed was the frequency of breakdowns in the relationship between the legal profession and the government or legal aid agencies due to the issues involved with updating fees. In many cases this had led to industrial action on the part of the legal profession, and efforts to reduce the scope of legal aid (in order to manage budgets) on the part of the public sector. In most cases, however, the relevance to Scotland was limited, both by the comparatively narrow scope of legal aid in these jurisdictions and by the large differences in legal systems.

The Panel did not identify an international model that could easily be used as a single design template for legal aid reforms in Scotland.

Many of the trade-offs that have been made in an international context would be unpalatable for the current professional landscape in Scotland and could have a negative impact on meeting policy priorities. Jurisdictions where legal aid payments appeared to be extremely generous also had very limited scope for what areas of law could be supported. The panel understands that the Scottish Government would not support any system which would reduce the scope of legal advice that individuals could receive funding for and respondents to the Scottish Government consultation on legal aid reform also agreed that wide scope should remain. While international experience is valuable in highlighting issues and demonstrating other experiences, any future model needs to be considered in the Scottish context as well in order to understand what its implications might be – as the scope for changes to influence behaviour is significant.

Costs and Challenges

The current legislation is prescriptive and restricts the way in which legal services can be remunerated. Currently, case by case payment (judicare) accounts for around 97% of legal aid expenditure and is the means by which private solicitors are paid for the work they do. It is a reactive and piecemeal system of payment that does not allow for targeted funding to address gaps in supply, nor does it provide security of income for solicitors. While much of it is based on block or fixed fees, there is still a significant degree of friction inherent in deciding how “time and line” fees should be applied to a particular case.

The cost to solicitors of delivering legal services was a significant area of discussion within the panel. It was reported that meeting the costs of overheads and staff was becoming more difficult within the current fee system and, combined with fee levels, impacted on profitability and viability. Meeting the costs of outlays, for example for expert witnesses, also affected cash flow.

It was reported that the profession is frustrated that the cost of providing services is not considered fully as part of the payment model or models. In many cases the fee rates are not felt by practitioners to accurately reflect either work done or work that should be done in supporting clients. The panel heard evidence of the Netherlands model in which a block fee was paid for all work which would be expected to be carried out in a case type. It was expected that this work would not take more than a prescribed maximum number of hours. It was for the provider to work efficiently to complete the work within that timescale to the required standard.

There is concern that current fee models and the process for amending these are failing to keep up with wider justice system reforms, court process changes and developing client needs. The cost of inefficiency in the justice system was raised in the group discussions; it can be frustrating when court processes are changed, often at a late stage and for a range of reasons, and this has an impact on the efficiency of case management. Any assessment of the costs of delivery should take account of this.

In contrast, the Faculty of Advocates reports it is broadly satisfied with the current model, notwithstanding the need to adapt fees to justice system reforms and to put in place a formal timeframe for regular reviews of payment levels.

Building on this, in its presentation to the group, the Law Society of Scotland set out its research on the options for uplifting fees across the board. The Society outlined different scenarios on what measure of inflation might be appropriate, and from what point in time it should be applied. It surfaced discussion around the variation of approaches in setting fees in the past; as mentioned earlier, some arose out of negotiation on trade-offs and some were as a result of new demands or processes. Therefore, when looking across the fee structures there is no one point in time which would be relevant to all in determining an uplift. As such, it is unlikely that simply uprating fees from a historical point would represent a robust solution – however the issue did highlight that developing a process to address how fees could keep pace with changes in the costs of delivery and changes in the legal system would be a necessary part of fee reform and that research should be commissioned to consider this.

It is likely that the difficulties of deciding how to uprate fees (or change the quantum of legal aid expenditure in a demand led context) have obscured the need to think more strategically about how fees are structured and what those structures deliver – which may have exacerbated the problem. There may be merit in separating these two elements of how fees are uprated. If it were possible to identify potential efficiencies by changing the structure (but not the quantum) of fees regularly, this might ease bargaining over the affordability of fee increases. The group was able to identify a series of examples where increasing fees could incentivise or accommodate better outcomes. However, the group did not identify any examples of fees leading to unproductive outcomes, or individual fees that could be lowered without harming the outcomes delivered.

It could be argued that the lifespan of the current fee model for solicitors has reached a key stage for reform. The reform of legal aid not only provides opportunities to address issues around accessibility and user need but to develop a wider range of ways in which payment for services could be made.

Reforms to legal aid should include a redesigned payment system that would provide a wider diversity of payment models, including grants and contracting, in addition to judicare, that could flex to meet needs of users and providers of legal services in a more dynamic way and that could transform the way in which legal aid services are delivered and paid for.

This could have the effect of re-shaping the market that delivers legal aid and provide a way of shaping that market in line with some form of workforce planning and greater synergy between providers. It could be possible for solicitors to be paid through a combination of payment models, such as grants and case by case payments.

In re-designing the payment system, it is important that a “one-size fits all” approach is avoided.

Those who operate in criminal legal aid have different business models to those who operate in the many sub-divisions of civil legal aid, and those who provide advocacy also provide a different range of legal services. The markets for delivery of these different aspects of legal aid are also varied.

The impact of payment and payment models also affects the behaviour of those delivering services. Any review should consider the intended and unintended consequences of change – and where it is relevant spell out where changes to legal aid might have implications on outcomes beyond the legal aid system. For example, a payment model that reflects particular client needs and supports them to engage with other services could have wider impact elsewhere in the public and third sector landscape.

The evidence base that underpins a redesigned payment system will be critical to ensure that fairness and best value are delivered and it will be in the profession’s interests to engage with this work as it progresses. This could be based on analysis of business models currently in place in the legal profession to determine costs, the financial impact of different business models and fees on the profitability of providing legal aid. It is recognised that any new system will likely lead to significant opposition where changes lead to losers relative to the status quo. However this is not, of itself, an argument in favour of the status quo.

Reviewing fees

Simply assessing what a reasonable fee level is, and instituting fee reforms to achieve that will not represent a long-term solution to the difficulties faced by both Government and the profession – it is important to also put in place a framework to ensure that the changes in fees from that point forward are reasonable and justified.

One of the main frustrations around the current system of setting fees is that there is no structure for regular reviews of fees. Often the only route for raising the issue is at the point where new regulations that affect solicitor fees are being developed then considered by the Scottish Parliament.

In its submission to the independent review of legal aid the Law Society of Scotland raised this as an issue it would like to be resolved. Similarly, in presentations to the group both the Law Society of Scotland and the Faculty of Advocates placed this high on their agendas of issues to be resolved.

The group was provided with presentations on the operation of contracts for GPs and dentists which stimulated discussion on the subject. Key aims of these systems were to ensure broadly equitable payments for professionals; an ability to encourage and remunerate specific activities, such as preventative measures; and funding to help address gaps in geographical availability of services. Features of these models also included regular reviews of remuneration levels. These models were not directly comparable with legal aid, given the very wide variation in different types of activity supported by legal aid. However, some of the features of these arrangements as well as the benefits of having a regular process for review and to be able to target resources towards addressing user need, service gaps and policy priorities were acknowledged as relevant to a reformed system of legal aid.

Therefore, alongside the development of an evidence guided process to inform a more open and robust process for the review of fees, that process should include provision for regular reviews of the fee levels. These reviews could consider not just how to structure fees to deliver best outcomes, but also:

• Continued monitoring of the health of the sector, drawing on the health of the sector metrics that are identified in the evidence review
• Commentary on the degree to which fees reflect changes in the cost of delivery
• Identification of how well legal aid payment structures meet policy objectives, and commentary on the efficiency of the system and how well the payment structure incentivises positive behaviours

Market Health

Understanding how the sector operates and the challenges faced in delivering legal aid services is an important aspect of determining the correct level of payment for services.

While we have significant data on trends in demands, there is less information regarding relative changes to supply and how legal aid is delivered. We know that, over the past decade, there has been less change in the numbers of solicitors actively providing legal aid than might have been expected given the substantial reductions in criminal and some civil caseloads described above. However, for some firms legal aid is a relatively small element of their business, whilst for others, e.g. criminal practitioners, it is the largest part of their work.

SLAB provided a paper on the way in which the market operates by local authority area and areas of law, setting out the size of firms, the range of legal aid work conducted and amount of legal fees paid. Even within firms carrying out legal aid work it was unclear whether the legal aid income represented all of the work carried out or if there was additional income from private work. This made it difficult to determine whether legal aid income represented a viable business model.

The economists and academics on the group considered that market strength and viability were a key issue in moving ahead with reforms. In simplistic terms, the lack of change in supply could be perceived to indicate that legal aid work is viable and sustainable – at least in the shorter term. What may be less simple to identify is whether viability equates to a strong and thriving market or one that is managing to survive. For example, in the context of shrinking demand for criminal legal aid (i.e. fewer crimes being committed or being pursued through the courts) no clear mechanism to compete on price grounds, and a market where the client engages with a complex service relatively infrequently, it is difficult for new entrants to attract a large number of clients. This can lead to inefficiency through a lack of competition, and leaves the market vulnerable to a large shock if and when existing suppliers leave the market.

There are many aspects that contribute to viability and profit margins, and payment is one of them. Workload, overheads and efficiency are contributory factors also. A review of the payment system should include understanding of the way in which the market operates, the efficiency of business models and the barriers to improving efficiency.

For these reasons, the panel believes that the independent research should help develop “health of the system” indicators that can be used to understand how the legal aid supply market is operating. In practice, this is likely to require a variety of indicators for different types of legal aid activity.

Proposed Evidence Review

As part of the first recommendation of the Panel, the Panel wanted to further specify what type of evidence could assess the current situation, better inform fee reform going forward and address some of the issues raised in this section. The Panel recommends that independent research should be commissioned by the Scottish Government to answer the following research questions. The panel would like the Scottish Government to be able to publish this independent research no later than 8 months after commencement of the research.

1) Given current fee levels and the mix, volume and distribution of business, what levels of remuneration are achieved by legal aid professionals (both profit sharing and employed), what range of remuneration is observed and what factors might contribute to any variations? How does actual remuneration compare to the expectations of professionals of differing levels of experience, status, seniority etc?

2) What level of input e.g working hours and arrangements are required to maintain a viable business generating the levels of remuneration found at 1)?

3) The Legal Aid Payment Panel did not think that fees should be uprated from year to year by inflation measures, but did support regular assessment of fees between full reviews – what measures would be most suitable?

4) What metrics can be used to address the health of the system?

This research should be used to underpin future discussions on the quantum of legal aid expenditure, as set out in Chapter 4 of the Evans Review. The panel encourages the profession to engage openly with this process and help the review reach clear conclusions.